Financial mentor helps couple through unaffordable loan
On 29 November 2019, a lender arranged to refinance an existing loan of $4,016 for Mr and Mrs J, and included an additional amount of $1,000.
Shortly after the loan was arranged, Mr and Mrs J incurred default charges and interest and sought advice from a financial mentor.
The financial mentor found that, because Mr and Mrs J had English as a second language, it was unclear if these loans met their needs. They lived in substantial hardship before being granted the loan top-ups, were frequently in arrears with power and phone bills, and spent little on food. The financial mentor said the loan was unaffordable for Mr and Mrs J.
On 23 June 2021, the financial mentor made a complaint to the lender saying it had not met its obligations under the Credit Contract and Consumer Finance Act 2003 (“CCCFA”) with respect to the Responsible Lending Principles. The financial mentor said that the lender didn’t conduct the necessary inquiries into Mr and Mrs J’s income and expenses.
The lender disagreed and said it had followed best practice and complied with the relevant laws at the time.
The IFSO Scheme had concerns that the lender had not met its obligations under the CCCFA. It found the lender had not made reasonable inquiries to be satisfied that Mr and Mrs J could make payments without suffering substantial hardship.
Although the lender disagreed and said it had met its obligations under the CCCFA, it offered to settle the complaint by clearing the remaining balance of the loan and removing any negative information relating to the loan from Mr and Mrs J’s credit report. Mr and Mrs J accepted the offer in full and final settlement of their complaint.
Lenders must meet their obligations under the CCCFA in respect of responsible lending. Reasonable inquiries must be made into a borrower’s financial situation, to ensure loan repayments can be made without causing substantial hardship.
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