In February 2023 Sean saw his dream car at a car yard. Sean couldn’t afford to pay for the car, so the dealer offered to arrange finance. The dealer looked at Sean’s financial situation and said he would not qualify for the loan and asked whether there was anyone who could be a co-borrower. Sean asked his girlfriend, Annie, who reluctantly agreed.
Unfortunately, even with Annie’s help, Sean did not qualify for the loan. The dealer suggested that Sean lie about the amount he was paying in rent. A text message conversation with the dealer recorded the discussion:
Dealer: If at any time you may get a call from the finance company to confirm your living situation just say you are boarding with your Mum k
Borrower: OK awesome will do thanks. How’s it looking for me?
Dealer: They might ring or they may not but if they do just say you are boarding with your mum k and you only pay $50 for board
Borrower: OK sweet as will do
Dealer: Awesome team work brother work with me and I will get you across the line in no time lol
Based on the information submitted by the dealer, the lender approved a loan of $27,000 to buy a car costing $22,000.
Within days of buying the car, Annie called the lender to say Sean’s car had been impounded by the police after it was involved in a high-speed police chase. By May 2023 Sean had lost his job as a truckdriver and was struggling to make the loan repayments. In August 2023 Sean went to a financial mentor for help.
The financial mentor could not understand how the lender had satisfied themselves, even when Sean was working, that he could repay the loan. Sean showed his financial mentor the text conversation with the dealer. The financial mentor suggested to Sean that the best thing to do would be to surrender the car and ask the lender to ‘unwind’ the deal.
When the financial mentor showed the lender the text conversation, the lender agreed to the financial mentor’s proposal. Unfortunately, Sean had sold the car to a gang and could no longer surrender it. The lender could not locate the car to repossess it and when it was finally found, the car was a burned-out wreck.
The lender said that without a car to surrender they could not offer any resolution, and the financial mentor complained to FSCL on Sean’s behalf.
Dispute
The financial mentor explained that Sean knew he was in the wrong. He had pressured Annie to be a co-borrower, he had gone along with the lie about his rent costs, and had sold the car to a gang. However, the financial mentor said the dealer, as the lender’s agent, had also contributed to the situation. The lender should never have approved Sean’s loan application in the first place.
The lender accepted they were responsible for the dealer’s actions, and were prepared to wind back the transaction, but because Sean had sold the car there was no asset they could recover.
Review
We decided that both Sean and the lender had contributed to the situation. The lender had not met their responsible lending obligations, but by selling the car Sean had deprived the lender of their security. We suggested that the lender release Annie as a co-borrower to the loan and reduce Sean’s debt to their internal valuation of the car.
Resolution
The lender offered, and Sean accepted, to:
- release Annie as a co-borrower on the loan
- reduce Sean’s debt from $26,000 to $9,000
- not charge any further interest or fees on the $9,000
- allow Sean to repay the loan balance at $50 a week.
Insights for consumers and participants
Sometimes both the borrower and the lender will have contributed to the situations that come before FSCL. We will work with the parties to find a resolution everyone can live with.
