The story
In July 2015 Ruth and Luke saw a car they wanted to buy. They did not have enough money but the car yard told them not to worry, Fast Car Finance would be able to help.
Ruth called Fast Car Finance and completed an application over the telephone. Fast Car Finance were able to arrange a loan with Jupiter Finance and sent the documentation to Luke and Ruth.
Ruth and Luke noticed Fast Car Finance had included insurance from Saturn Insurance. Ruth and Luke thought the insurance must be a compulsory part of the loan so signed and returned the documentation. Ruth and Luke drove away happily in their new car.
A few months later Ruth read over the loan agreement and the insurance documentation again and discovered the insurance was not compulsory. She read further and saw the insurance was for mechanical breakdown and income protection. Luke is a mechanic and they did not need mechanical breakdown insurance. Ruth also said they are both in secure jobs, and thought the income protection insurance was unnecessary.
Ruth said Fast Car Finance did not even mention the insurance in the conversation she had about the loan. If Fast Car Finance had mentioned the insurance Ruth says she would have declined it.
Dispute
Ruth contacted Fast Car Finance and asked why they did not explain the insurance was optional. Ruth said if they had known more about the insurance they would not have borrowed the extra $1,390 to pay for it. Ruth asked Fast Car Finance to help her cancel the insurance and refund all the premiums paid.
Fast Car Finance said Ruth and Luke should have queried the insurance earlier and had already received the benefit of cover. Fast Car Finance was not prepared to refund any money. Fast Car Finance also explained that only Ruth and Luke could cancel the insurance.
Ruth and Luke contacted Saturn Insurance, but Saturn Insurance said that if Ruth and Luke cancelled the insurance it would not refund any premiums.
FSCL’s review
Under 9C(5) of the Responsible Lending Code Fast Car Finance is obliged to make sure insurance meets the borrower’s requirements. We asked Fast Car Finance about the information its staff give customers about the insurance.
Fast Car Finance agreed information about insurance is important, and should be discussed as part of the loan application process. Unfortunately, Fast Car Finance did not keep notes of its conversations with customers and telephone conversations, at the time Ruth and Luke’s loan was arranged, were not recorded. Fast Car Finance also did not provide the scripts it expects staff to follow when arranging finance.
In the absence of any evidence from Fast Car Finance that it had met its Responsible Lending Code objectives, we accepted Ruth’s recollection of the conversation.
Outcome
We then considered the consequences for Ruth and Luke. Although Ruth and Luke wanted Fast Car Finance to refund the full amount they paid for the insurance, we also took into consideration the benefit Ruth and Luke had received. While Ruth and Luke had not needed to claim against the insurance, they had enjoyed the peace of mind insurance brings.
We suggested, and Fast Car Finance agreed, to offer a refund of half the cost of the insurance: $695. Ruth replied that she thought interest on the $695 would be reasonable, increasing the settlement figure to $812.80. Fast Car Brokers agreed, and the complaint was resolved.
Lesson
The Responsible Lending Code places new obligations on lenders. Lenders are now obliged to ensure insurance sold as part of the loan meets the borrower’s requirements and objectives. It is important that lenders be able to demonstrate they have met their Code obligations.
Although Fast Car Finance was the broker, arranging lending with Jupiter Finance, we expect Fast Car Finance to meet the same standards expected of a lender. In this transaction Jupiter Finance had no direct contact with Ruth and Luke; Fast Car Finance was acting as Jupiter Finance’s agent.
