With existing personal loans of $17,000 and a history of loan dishonours, a woman secured a further loan and was unable to meet the repayments. She complained to IFSO Scheme on grounds that the lender was irresponsible
Mrs Clayton* had been a customer of the lender since 2002, over which time she had 27 loans. She currently had a consolidated loan totalling $17,008.60. She borrowed an additional amount of $665.58 from the lender to purchase clothes and pay for a trip. At the time, Mrs Clayton was a beneficiary with 3 grandchildren in her sole care. She had 3 bank balances of $0 and she was making regular payments to a high-cost pay day loan provider and a “Shop now – pay later” business.
When the lender approved the last loan application, it relied on a budget surplus Mrs Clayton said she was receiving – $200 a week in board. In 3 previous loan applications, Mrs Clayton had recorded inconsistent and considerably lower boarder income.
Mrs Clayton found the repayments very difficult. With the assistance of a representative, she complained to the IFSO Scheme. She said the lender had not met its obligations under the CCCFA and the Responsible Lending Code, which require a lender to make reasonable inquiries to be satisfied repayments can be made without the borrower suffering substantial hardship.
The lender confirmed the last loan was approved, because of the boarder income information provided.
The IFSO Scheme found that there were insufficient inquiries made into the boarder income and boarder income discrepancies, as well as Mrs Clayton’s ability to repay the loan. It took into consideration that Mrs Clayton could afford repayments of only $85 a week. Using that figure, the IFSO Scheme said Mrs Clayton could afford a maximum loan of $13,000, less her repayments to date, totalling $3,700. It also said the lender should pay Mrs Clayton $880, representing 50% of the loan advance amount, leaving a loan amount of $2,850 to be repaid.
The lender requested a review of the IFSO Scheme’s decision.
Reviewing the information, the IFSO Scheme said the budget used in the application was insufficient and did not record the expenses associated with the feeding, clothing and schooling of 3 children. It noted Mrs Clayton’s loan history showed dishonours and the refinance of a payday lender. It believed this, and the use of a payday lender, should have prompted further inquiries. Additionally, Mrs Clayton’s bank statements showed dishonours and her accounts were regularly overdrawn. The overall picture was not of someone in a stable financial situation. Moreover, the lender had not met its obligations to check the boarder income.
The IFSO Scheme said the less reliable a source of income is, the greater the need to make proper inquiries.
Lenders need to make proper inquiries to make sure they comply with their responsible lending requirements i.e., make all reasonable inquiries to be satisfied that repayments can be made without the borrower suffering substantial hardship.