Facts of the Case
The consumer did fail to pay the arrears and the payment due on time. As such, we agreed that the FSP could rely on the previous default notices to commence legal action, up to and including filing in the courts.
However, given the FSP continued with legal action despite never notifying the consumer that the legal fees needed to be paid, we recommended that the FSP reverse all legal incurred post filing the writ of summons. We received confirmation from the FSP that these fees totalling approximately $1,050 had been removed from the account. Overall, it was unreasonable and unfair for the FSP to continue with enforcement action based on outstanding costs of which the consumer was unaware.
Despite the above result, although the consumer was meeting her minimum payments, the consumer was unable to demonstrate their ability to get back on track with all their obligations under the loan; including her obligation to ensure her council rates were up to date. Requiring the FSP to give the consumer hardship assistance could put them in a difficult position, especially if the council proceeded to sell the property to recover the rates arrears.
The outstanding legal fees were reduced by approximately $1,050; however, the FSP was not required to give the consumer hardship assistance.
Facts of the Case
We consider that a financial services provider should establish organisational systems to identify borrowers who may be experiencing financial difficulties. This is because it is in the interests of both the financial services provider and the borrower that a material amount of arrears, and associated default fees and default interest, do not accrue on the borrower’s loan. Whilst we recognised that the loan agreement allowed the financial services provider to charge a dishonour fee when a payment dishonours, we recommended that the financial services provider reverse most of the fees because:
The consumer accepted one of the payment arrangement options put forward by the financial services provider, and the financial service provider accepted our recommendation to reverse most of the direct debit dishonour fees (approximately $775 in total).
An FSP must act reasonably in assessing a consumer’s request for hardship assistance, and must not impose unreasonable conditions on the consumer. If a consumer is able to demonstrate to CIO that a financial hardship application should have been approved by the FSP at the time the consumer made the request, our position is that the FSP is not entitled to recover certain fees, which could include enforcement costs.
The history of the account indicated the following:
When the consumer initially put the FSP on notice that they had difficulty making payments after the first default notice, the FSP did not consider whether a hardship arrangement was appropriate, before commencing legal action. Therefore, we made the recommendation that the first set of enforcement costs be waived.
We did not require the FSP to waive enforcement costs incurred after the second default was issued because the consumers could not demonstrate that the FSP should have approved a hardship arrangement.
The consumers accepted the FSP’s moratorium and time to sell offer and the FSP accepted our recommendation, waiving approximately $4,600 in enforcement costs.
Facts of the case
Despite claiming they could clear the arrears and continue making payments, the consumer was not making payments and could not provide any evidence they could make them. There was also no information to suggest they had money to clear the arrears.
During our investigation, we found that the FSP was entitled to repossess the car and charge reasonable costs to the account.
The costs charged to the account included:
All the above costs included GST.
From the information provided by the FSP, it was clear the FSP was aware of the consumer’s residential address at the time the car was repossessed. However, in total nine addresses were attended in an effort to locate the consumer. Ultimately, we found that the FSP’s agent only needed to make five of the field calls to establish contact.
In addition, we found that a Trade Recognition Australia (TRA) search was carried out on the consumer’s former partner. Had the agent commenced with the addresses known to the FSP, the agent would have been able to locate the consumer without needing to incur the TRA search fee.
We also found that the full GST amount paid in connection with the repossession services was charged to the consumer. However, under the GST legislation the FSP is only entitled to recover 25% of the GST paid in connection with the repossession from the consumer.
Therefore, we recommended that the FSP refund:
• approximately $540 in unnecessary costs (including the full GST),
• 75% of the GST charged to the consumer for the remaining costs, and
• any interest accrued on those costs that were reversed.
The FSP accepted our recommendation and agreed to refund more than $770 to the consumer’s account. However, we were unable to require the FSP to give the consumer hardship assistance or return the car.
In 2015, the consumer’s individual tax refund of $3,827 was credited by the FSP, an authorised deposit taking institution, to a business account, instead of the consumer’s personal account.
The business account was operated by the consumer and her business partner (and ex-husband).
At the time, the consumer’s personal account had been closed, and the business account was in debit.
When the consumer discovered that her tax refund was credited to the business account, her ex-husband had already withdrawn $1,790. The consumer then withdrew the available balance of $1,793.53.
We found that the FSP should have either not credited the tax refund to the business account, or made further inquiries with the consumer to confirm that the tax refund should be credited to the business account. This is because:
We recommended that the FSP pay to the consumer $2,033.47, being the tax refund of $3,827 less the amount withdrawn by the consumer, plus interest.
The FSP agreed to pay to the consumer the recommended amount, and the complaint resolved.
Sarah was the sole director and secretary of company A.
Between 2003 and 2006, company A, obtained two loans from the same lender:
Both loans were secured by a mortgage over a property owned by company A.
Sarah personally guaranteed Loan 1.
In 2013, the lender sold the property securing Loan 2 due to defaults on the loan repayments. After applying the sale proceeds to the loan debt, approximately $134,000 remained outstanding.
The lender assigned this debt to its mortgage insurer.
The mortgage insurer claimed the debt from Sarah under the guarantee.
Sarah made a complaint to CIO and disputed her liability for the debt.
Upon review of the loan documents and the guarantee, CIO found that Loan 2 had discharged Loan 1 in full, and that the guarantee did not guarantee Loan 2. Therefore, Sarah was not personally liable for the outstanding debt.
The mortgage insurer accepted this finding and the complaint was resolved.
Georgie had been through some personal difficulties over the last few years and was receiving treatment at a residential rehabilitation centre when the complaint events happened.
At the time, she had a credit card debt. When this was assigned to a debt purchaser, they could not get in contact with Georgie so they attempted to collect the debt by instructing a collection agent to attend the rehabilitation centre (which was noted as Georgie’s residential address).
Georgie had an authorised representative who said that:
We found that a debtor has the right to authorise a third party to represent them and act on their behalf about a debt. In these instances, the credit provider should not contact the debtor directly. In addition, if a debt is sold, the contact details of the authorised representative should be provided to the debt purchaser.
The debt purchaser apologised to Georgie and made an offer to waive the outstanding debt. Georgie accepted the debt purchaser’s offer and the complaint was resolved.
Dave had been through a period of financial hardship and was seriously behind on his repayments. In spite of this, he had managed to start making his loan repayments again for four months.
He tried to clear the arrears by getting his superannuation released early. However, his request was declined. When Dave told the lender about this, they sent him a final demand notice for the full arrears which were sitting at more than $22,000. The demand notice stated that if Dave did not pay the arrears, enforcement action would start.
Dave approached CIO for help. He wanted the arrears to be added to the balance of the loan, so he could continue making minimum monthly payments.
We gave the lender the chance to offer an arrangement that would settle the complaint. However, they believed that Dave would not be able to meet the payments going forward. As a result, no offer was put forward.
We asked Dave to complete a statement of financial position. This showed us that he could meet the minimum monthly payments if the arrears were added to the loan. In view of this, CIO made a formal Recommendation as follows to resolve the complaint:
Dave would need to make increased payments of approximately $1,700 a month for six months. This is what the minimum payment would be if the arrears were to be added to the balance of the loan,
if Dave was able to do this, the arrears would then be added onto the balance of the loan, and default fees and default interest would remain on hold in the meantime.
The lender did not accept our Recommendation. They stated that:
We found that the above factors were not relevant to assessing a hardship request and we issued an order that the lender vary the contract in line with our Recommendation.
In 2014, Cate and Marcus wanted to consolidate their debts, including their home loan. They applied for a loan with the lender.
The lender approved Cate and Marcus for the refinance, with the loan being secured by a mortgage over their home.
The couple were unable to meet the loan repayments.
We found that the lender had not:
We proposed that the lender reduce the loan balance to the original principal amount and give the couple three months to either:
Both parties accepted our recommendation and the complaint was resolved.
Sector type: Commercial mortgage provider
Two years ago, Jake borrowed $1 million from the lender. It was a commercial loan secured by a mortgage over Jake’ rural property in regional Australia which he rented out.
Last year, Jake lost his job and the tenants in the property did not pay their rent. As a result, the loan fell into arrears.
He tried to bring the account back up to date and had applied for the early release to his superannuation benefits which were applied to the loan account. However, this was not enough to bring his account up to date.
The lender wanted to take vacant possession of the property. Jake asked for more time to pay the arrears, however, the lender did not agree to give him more time. As a result, Jake lodged a complaint with us.
After reviewing Jake’s financial position, we could not see that he would be able to rectify the arrears within a reasonable time. No payments were being made and Jake’s outgoings seemed higher than his income.
We wrote to Jake outlining our reasons, giving him time to respond to our Review.
At this time, the lender took vacant possession of the property. Given that it took enforcement action while the complaint was still open with CIO, we found that their actions were in breach of our Rules.
Jake responded to our Review, and while it did not change our view on his complaint, we did require the lender to take steps to remedy their breach of our Rules. We therefore recommended the following:
We did not require the lender to return the property to Jake because:
The lender accepted our recommendation, however, Jake disagreed and wanted the lender to return the property to him.
The complaint was referred to the Ombudsman for a Determination.
The Ombudsman upheld the earlier decision.
Max had a credit card account with the credit union. He did not make his payments for six months so the credit union sent him a default notice and then listed a default on Max’s credit file. This happened in 2013.
Max later paid the debt in full and said that he had not received any notices about the overdue account from the credit union, or that the credit union was going to list the default. He argued that the fact that he had repaid the debt in full showed that he never intended to miss his payments.
We explained to Max that if the credit union could show us that they had sent a notice to Max’s last known address, then the status of the default listing would be updated to “paid”, but would not be removed.
The credit union did not have a copy of the notice, but was able to give us a template of the notice with information on how the notice was completed, along with file notes which were made at the time. The file notes confirmed:
In addition, the notice:
As the credit union was able give us enough information for us to conclude that on balance, the notice was sent to Max’s last known address before the listing was made, we found that the default was correctly listed.
Sam had a credit card debt that was assigned to the debt purchaser. Over three years, Sam did not make any payments towards the debt and the debt purchaser tried to contact him, by:
Sam said that he asked the debt purchaser to contact him by email only, and that the debt purchaser’s conduct constituted harassment. Sam also said that his privacy was breached when the debt purchaser’s agent told his neighbours that he had a debt.
We found that the debt purchaser should have first attempted to contact Sam by his preferred means (that is, in writing) before using other methods.
However, we did not consider that the debt purchaser acted inappropriately when it contacted third parties. This is because:
Sam was not responding to the debt purchaser’s contact attempts, and
The debt purchaser offered to waive all interest that had accrued since the assignment date, and to also freeze any further interest if Sam met their proposed payment arrangement. This offer reduced the debt by more than $7,000 and we recommended that Sam accept this offer in full and final settlement of his complaint.
Sam accepted the offer and the complaint was resolved.
Ben and Angela initially took out a loan to purchase 35,000 vacation credits. They later entered into a second loan contract to purchase another 5,000 credits.
They had been experiencing financial difficulties for the last couple of years and fell behind in their repayments.
Ben and Angela had asked the lender for hardship assistance on a number of occasions. However, the lender declined their request and said that the couple needed to pay their arrears before it could consider agreeing to a payment arrangement. Ben and Angela were unable to do this and lodged a complaint with CIO.
We asked them to complete a statement of financial position and provide supporting information. We then forwarded this onto the FSP.
After considering Ben and Angela’s circumstances, the lender and timeshare operator offered to:
This resulted in:
Ben and Angela’s liability being cut by more than half,
Ben and Angela accepted the lender and timeshare operator’s offer.
The financial planner recommended that James and Carmel establish a series of geared investments and a self-managed super fund (SMSF).
As market conditions worsened, the investments in the couple’s own names became frozen. The financial planner recommended that James and Carmel sell the frozen investments to the SMSF so they could repay the loans that were in their own names. James and Carmel were left with an investment loss.
They claimed that the advice provided by the financial planner was not appropriate for them as it exposed them to unnecessary risk.
The licensee that authorised the financial planner to provide the advice responded that the advice was appropriate as it would enable James and Carmel to achieve their goals.
We found that James and Carmel were on track to achieve their goals without the gearing strategy which the financial planner provided. We also found that there was no reasonable basis for the advice to establish an SMSF.
We considered that the financial planner’s advice was not appropriate and issued a formal Recommendation that the financial planner pay James and Carmel $141,938 in compensation.
Both parties accepted our Recommendation and the complaint was resolved.
In 2012, Jane and Simon entered into two agreements with a lease company to rent two cars for four years. Jane and Simon claimed that when they entered into the leases:
After examining the information from both parties, we found that the leasing company did not meet its responsible lending obligations. In particular, it did not inquire into Jane and Simon’s financial position or take steps to verify it.
However, we were unable to conclude that the leases were actually unsuitable based on Jane and Simon’s actual financial position at the time they entered into the leases.
Jane and Simon had met all the lease payments for the first nine months, and it was not until Jane lost her job that the couple started having problems making the payments. In addition, the leases satisfied Jane and Simon’s needs and objectives.
We did find that the lease provider made misleading statements which led Jane and Simon to believe that they held the right to purchase the cars at the end of the leases.
To resolve the complaint, we recommended that ownership of the two cars pass to Jane and Simon at the end of the leases. Both parties accepted our Recommendation and the complaint was resolved.
In 2005, Sonny entered into a loan contract with the lender. The loan was secured by a mortgage over Sonny’s home. All the loan funds were funneled into Sonny’s brother’s business and he did not receive any benefit from the loan.
When we looked at the information, we could see that even though Sonny signed a business purpose declaration, the inconsistencies in the loan application should have given the lender and mortgage broker reason to believe that the loan would be used for personal purposes. We therefore found that the loan was regulated by the National Credit Code (NCC).
We concluded that the loan was unjust because we could see that:
Sonny was significantly affected by schizophrenia at the time of the loan application, and
Sonny did not receive any benefit from the loan funds as they were paid directly into his brother’s business.
We gave the lender our preliminary review and asked the lender whether it would be willing to waive the outstanding loan balance ($142,000) and discharge the registered mortgage over Sonny’s home.
The lender agreed to this and the complaint was resolved.
Chris lived in NSW. He needed a loan to travel overseas for a wedding.
In May 2013, Chris entered into a $3,500 personal loan for a term of 18 months with the lender. Including fees and charges, the total amount payable by Chris was $6,367.
The loan contract included a second borrower, Florence, who lived in WA. Chris did not know Florence. Under the contract, Florence borrowed $5. Florence was also required to pay a total of $2 in fees and charges.
When Chris entered into the loan contract, the maximum amount of interest and fees that could be charged on a loan in NSW was set at 48% a year. If borrowers were from different locations, the cap applied only if credit was first lent to the NSW borrower. The interest and fees charged on Chris’s loan exceeded the 48% cap.
Chris approached us to look at his loan contract. He claimed that the lender had included Florence on the loan contract to avoid the 48% cap.
The lender said that credit was first provided under the loan contract to Florence, who did not live in NSW. Therefore, the cap did not apply to the loan agreement. The lender noted that the law did not prevent them from arranging their loans this way. Chris had been informed of the arrangement, and the reasons for it, when he entered into the loan contract.
We found that there was no evidence that credit was provided to Florence first. In fact, it was more likely that the credit was provided to Chris first. We therefore considered that the 48% cap applied to Chris’s loan.
We issued an Expedited Ruling and found that Chris was entitled to $2,242, which was:
The Expedited Ruling was accepted by Chris, and therefore became binding on the lender. The lender did not comply with the Expedited Ruling and the Ombudsman issued an Award ordering them to pay $2,242 to Chris.
The consumer was a company (C Pty Ltd) that was in a joint venture agreement with John to develop some land which John owned. John held no interest in C Pty Ltd.
C Pty Ltd needed finance for the joint venture and approached the broker. The broker gave C Pty Ltd a proposal which:
C Pty Ltd paid the $10,000 fee to the broker. When the lender issued an indicative offer, the broker paid the $5,000 fee out of the $10,000 fee that they had received from C Pty Ltd.
The broker was not able to obtain formal approval for C Pty Ltd. However, they were able to obtain a loan approval with John as the borrower.
C Pty Ltd was not happy as the loan was not in their name and sought a refund of the full $10,000 fee.
The broker would not refund the $10,000 fee to C Pty Ltd. It responded that the terms of the joint venture agreement required C Pty Ltd to pay all the costs related to obtaining finance to develop the land, regardless of whether they were incurred by C Pty Ltd or John. So, the broker considered that it did not matter whether C Pty Ltd or John was the borrower.
We recommended that the broker refund the $5,000 that it had kept. This was because:
Facts of the case
In 2007, a husband and wife (the consumers) entered into a loan agreement with the lender. The loan was secured by a registered mortgage on the consumers’ home. Upon settlement, the loan funds were distributed to the consumers’ son for his business.
While payments were maintained for some time, the loan ultimately fell into default and the lender took steps to recover the outstanding balance.
The consumers, who are from a non-English speaking background, claimed that the transaction had been arranged by a mortgage broker and their son for their son’s business, and that they required a translator and did not understand that they were entering into a loan agreement.
As a result they argued that the lender acted inappropriately by entering into the loan agreement with them. The lender rejected the claim.
We first considered whether the National Credit Code applied to the loan. Although the consumers had signed a business purpose declaration, we were satisfied that the actual purpose of the loan was personal, being to help their son. We considered that the mortgage broker who obtained the declaration knew that the loan was predominantly for personal purposes and accordingly, we considered that the declaration was ineffective.
The information made available to us showed that, at the time they entered into the loan agreement:
The consumers’ son made all repayments on the loan until 2014, when his business began to fail. The consumers only became aware that they were the borrowers on the loan when they received a default notice from the lender.
In view of the overall circumstances, we considered that the loan was an unjust transaction pursuant to section 76 of the National Credit Code.
We provided the lender with a preliminary review of our findings and asked the lender whether it would be willing to waive the outstanding loan balance in full, release the consumers from any further obligations associated with the loan and discharge the registered mortgage on the consumers’ home.
The lender agreed to this resolution and waived the outstanding amount owed on the loan, which was approximately $240,000, and took the appropriate steps to remove the mortgage registered on the consumers’ home.
Facts of the case
From March 2011 onwards, Ms M engaged a broker who arranged 14 loans for her with the same small amount lender.
The question arose whether the broker and lender had complied with their responsible lending obligations under the National Consumer Credit Protection Act 2009 (Cth) (NCCP).
Our preliminary review of the complaint was that they had not. The information available to us showed that Ms M could not have met her financial obligations under the loans. In particular:
Both the broker and lender were unable to provide us with any information which showed that they had made reasonable enquiries about Ms M’s financial situation before each loan was entered into.
The lender also informed us that its procedure at the time was that a new loan application was only required to be completed once every six months.
The previous loan application would be relied on for any new loan applications. In Ms M’s case, only two loan applications were completed for 14 loans. As such, we considered that the lender did not make reasonable inquires about her financial situation at the time she applied for each loan.
Both the broker and lender were unable to provide us with any information which showed that reasonable steps were taken to verify her financial situation.
Around the time that Ms M entered into the loans, her bank account statements disclosed that she had approximately four other small amount loans. We also understood that Ms M was a single parent with three dependent children.
There was no information which indicated that either the broker or lender turned their mind to Ms M’s other debt obligations and the cost of Ms M’s general living expenses when verifying and assessing Ms M’s financial situation at the time she applied for each loan.
Our preliminary review found that the loans were unsuitable. The broker should not have assisted and the lender should not have provided the loans to Ms M. Consequently, we made a formal written Recommendation that any interest, fees and charges, less any principal amount outstanding for each loan be either waived and/or refunded.
All the parties agreed to our Recommendation and Ms M received a refund of $2,000.
Facts of the case
Ms C had an investment loan with a lender. She decided to refinance her loan with a new lender who was offering a fixed interest rate of 6.99% p.a. for a term of three years. She paid for a ‘rate lock agreement’ which secured the fixed interest rate of 6.99% p.a. for three months pending settlement of the loan.
The new lender sent a discharge request to Ms C’s current lender so that they could prepare the discharge of Ms C’s existing loan. The current lender then instructed their solicitors to prepare for settlement.
Due to the solicitors for the existing lender misplacing the security packet (which contained the title to the security property), the refinance could not take place and settlement was delayed for over a month, by which time Ms C’s rate lock agreement had expired.
Eventually, the solicitors located the security packet and the refinance took place. Unfortunately, by this time the fixed interest rate applying on Ms C’s new loan had risen to 7.29% p.a., and the 6.99% p.a. rate was no longer available.
We considered that if the lender’s solicitors had not misplaced the security packet, Ms C would have been able to refinance her loan at a fixed interest rate of 6.99% p.a. rather than at 7.29% p.a.
Although the lender initially tried to argue that some responsibility rested with Ms C in proceeding with the higher fixed interest rate, they ultimately offered to refund the approximate difference in interest on the new loan over the three year fixed rate period as well as an additional $500. Ms C accepted the offer in resolution of her complaint.
Facts of the case
Mr and Mrs L entered into a loan with a financier to fund 20,000 vacation credits purchased with a timeshare provider. A year later, Mr and Mrs L began to experience difficulties in making the scheduled monthly loan repayments and eventually defaulted on their loan.
The financier sent a default notice to both Mr and Mrs L individually. When Mr and Mrs L did not comply with the default notice, the financier took possession of and sold the vacation credits. The financier later wrote to Mr and Mrs L and provided them with the following information:
Mr and Mrs L owed the financier $9,000, the financier had received $10,000 from the sale of the vacation credits, they had incurred enforcement costs totalling $6,000, after deducting the enforcement costs from the sale price, Mr and Mrs L remained liable to repay the shortfall amount of $5,000.
Sometime later, the financier listed a default on Mr and Mrs L’s credit files for an overdue amount of $5,000.
Mr and Mrs L made the following claims against the financier:
The financier failed to produce any documentation that would enable us to verify the amount the financier said they received from the sale of the vacation credits or the enforcement costs they said they incurred.
Consequently, we issued a formal written Recommendation which found that the financier was not able to demonstrate that they incurred any enforcement expenses in relation to the sale of the vacation credits. Accordingly, if the FSP had sold the vacation credits for $10,000 and did not incur any enforcement expenses, the gross sale proceeds should have been applied as follows:
To resolve the complaint, CIO recommended that the financier:
Mr and Mrs L accepted our Recommendation; however the financier did not. Consequently, the complaint was referred to the Ombudsman for
Determination. The Ombudsman reviewed the complaint and came to the same conclusion.
As a result of the Determination, the financier paid Mr and Mrs L $1,000 plus interest and removed the defaults listed on their credit files.
Facts of the case
When Ms K separated from her husband, she stayed in their home with her three children. Mr K moved out and stopped making payments to the home loan. Ms K worked part time and could not afford to make the loan payments on her own. As a result, the loan fell into arrears.
During this time, Ms K and the lender were in continuous discussion about different payment arrangements to give Ms K time to settle her property matters with Mr K in the Family Court.
After some time, Ms K entered into consent orders with Mr K. Under the consent orders, Ms K would refinance the home loan and Mr K would transfer his share of their home to her. Alternatively, Ms K would sell the home.
Soon after, Ms K obtained a second job and began meeting her full mortgage payment obligations. However, she was not in a position to pay the arrears which had accumulated on the loan.
With the consent orders in place, Ms K applied to the lender to capitalise the arrears on the loan.
Financial Services Provider’s Position
The lender declined Ms K’s request because they believed that her request was inconsistent with the consent orders.
The lender also informed us that the mortgage insurer did not agree to capitalise the arrears.
Ms K provided us with account statements and payslips to show that she was making her mortgage payments and she was able to make the future payments. In addition, she informed us that she wanted to refinance the loan but could not do so because her loan statements indicated that she was in default of her loan obligations.
We informed the lender that we considered that it was reasonable for them to capitalise the arrears on the loan and recommended that they did so. We did not consider that the lender was a party to the consent orders and so would not be seen to be breaching its terms if they agreed to capitalise the arrears. Indeed, Ms K was not able to refinance unless the lender capitalised the arrears on the loan.
In addition, Ms K was able to show that she could meet her payment obligations under the loan if the arrears were capitalised. We referred the lender to the National Credit Code which makes no reference to mortgage insurance as a relevant consideration when assessing hardship applications.
The lender did not agree with our recommendation. Consequently, the Ombudsman issued an Order requiring the lender to capitalise the arrears on the loan.
Facts of the case
Ms P became unemployed and started to fall behind on her mortgage repayments. She remained unemployed for some time and the lender started legal proceedings for possession of her home.
At around the time the lender was granted default judgment for possession, Ms P found a new job, began making her minimum monthly repayments and made an application for the early release of superannuation to pay off the arrears.
Ms P made a complaint to us asking for time for her application to be processed to pay off the arrears. However, by this time, the lender had instructed the sheriff and she was required to vacate her home in a few weeks.
Under normal circumstances, we would not have been able to provide Ms P with more time to pay out the arrears. This is because the lender had obtained a court order for possession and we cannot overturn or vary a court order.
However, Ms P informed us that she was a single mother with three children and needed more time to vacate the property. In these circumstances, we recommended that the lender stay the eviction and not reschedule it for a period of two weeks on the ground of personal hardship. The lender agreed to do so.
During this time, we also discussed Ms P’s current financial circumstances with the lender. The lender later agreed that as long as all the arrears were paid and the repayments were kept up to date going forward, they would not enforce the judgment for possession by requesting full payment of the debt.
Ms P later received the early release of her superannuation and cleared her arrears.
Facts of the case
When Mrs C was made redundant, Mr and Mrs C were still able to meet their car lease payments with the help of their savings. However, when three months had passed and Mrs C was still not able to find a new job, Mr and Mrs C started to fall behind on their car lease payments.
When Mr and Mrs C approached us for help, Mr C initially wanted to make additional payments on top of the normal lease payments to catch up on the overdue payments. We sent Mr and Mrs C our hardship application questionnaire so Mr and Mrs C could provide us with information about Mr C’s current income, Mr and Mrs C’s expenses and a realistic indication of what they could afford.
Mr C stated that he could afford $850 per fortnight, which was more than their fortnightly lease payments. The increased payments would enable Mr C to catch up on the overdue payments over the term of the lease.
Mr and Mrs C’s hardship application questionnaire indicated that they had many debts, including a home loan. After the mortgage payments were made, they did not have enough income left to meet their lease payments let alone the higher payments Mr C was proposing to make. On this basis, the car financier declined their hardship application.
Mr C informed us that they were in the process of selling their home and this would leave the car financier as the only remaining creditor.
We considered that Mr and Mrs C’s proposal was reasonable because they were able to show that they could afford to make the higher payments.
After some negotiation, the car financier agreed to accept their proposal to make the increased lease payments until the end of the lease contract.
Facts of the case
Mr C applied to his lender to fix the interest rate on his existing loan for a period of five years. Two years later, the variable interest rate started to fall and Mr C approached the lender and asked them what the break cost fee would be if he were to convert his loan back to a variable interest rate.
At that time, Mr C questioned the break cost fee formula that was disclosed in the contract. He said that the break cost fee formula was either incomplete or incorrect because the lender was unable to calculate the break cost fee. Consequently, Mr C requested that the break cost fee be waived.
We agreed with Mr C and negotiated a favourable outcome for him. He was able to convert his loan to a variable rate loan without incurring the break cost fee. The lender also credited the difference in the interest from the time Mr C wanted to convert his loan and to when the lender actually converted his loan.
Facts of the case
When Ms J separated from her husband, she contacted the credit card provider to inform them of this and to close her account. As far as she was aware, the account was closed.
Ms J later checked her credit file and noticed a payment default for the non-payment of an outstanding debt from a joint credit card account issued by the credit card provider. The information on her credit file indicated that the debt had been assigned to a debt purchaser.
In her complaint to CIO, Ms J told us that she did not receive any statements or notices about the outstanding debt or that a payment default may be recorded on her credit file. When she raised her complaint with the original credit card provider, she was told that all the transactions for the outstanding debt were made by her ex-husband who was a joint account holder. She had not completed a release of liability form so she was jointly and severally liable for the outstanding debt.
Ms J wanted the payment default removed from her credit file and not to be made responsible for the outstanding debt.
During our investigation of the complaint, we noted that the original credit card provider’s file notes referred to Ms J’s ex-husband as the primary account holder and all the notices had been sent to him. Ms J could not recall whether she had applied to be a joint account holder or whether she was an additional card holder.
We asked the debt purchaser to provide us with information to show that Ms J was a joint account holder, for instance, the credit card application form, statements, notices or other file notes. However, the debt purchaser was not able to provide us with any information to confirm this.
For this reason and because the outstanding debt was incurred by Ms J’s ex-husband after the credit provider was told of their separation, we recommended to the debt purchaser that they not pursue Ms J for the debt and to remove any payment defaults recorded on her credit file. The debt purchaser agreed.
Facts of the case
Mr V’s business was not doing very well and he fell behind on his business car loan.
When the lender’s agent came with a tow truck driver to repossess the car, Mr V asked the agent for a copy of the court order allowing the agent to repossess his car. The agent told Mr V that he did not have one. Mr V asked the agent and the tow truck driver to leave his property, however, the agent stayed on the property and the tow truck driver towed the car from Mr V’s driveway.
Mr V made a complaint to us asking for the return of the car and the chance to sell the car himself privately. He said that the lender did not have a court order and repossessed the car from his home without his consent.
Financial Services Provider’s Position
The lender disagreed, stating that Mr V’s contract included a term where Mr V gave his consent for the lender to enter Mr V’s property to repossess the car.
Our position was that, even if Mr V had given the lender or their agent consent to enter his property to repossess the car, he could withdraw his consent at any time. When the agent and the tow truck driver refused to leave his property despite being asked to, we considered that they were trespassing on Mr V’s property.
In view of the above, we made a formal written Recommendation that the lender:
The lender eventually accepted our Recommendation and also Mr V’s request for time to sell the car himself.
Facts of the case
Ms J had a transaction account with an approved deposit-taking institution (ADI) that could be accessed by a debit card and personal identification number (PIN).
The ADI notified Ms J that the security of her debit card may have been compromised as a result of a scam. As a precaution, the ADI cancelled Ms J’s debit card, issued her with a new one, and advised her to check the recent transactions on her account for unauthorised transactions.
When Ms J checked her statements for the previous 18 months, she identified 60 transactions totalling almost $15,000 that she believed were unauthorised. All the disputed transactions were cash withdrawals made from automatic teller machines. Ms J made a claim with the ADI for reimbursement of the disputed transactions.
Financial Services Provider’s Position
By the time Ms J made her claim, the ADI had confirmed that Ms J’s debit card had not been compromised as a result of the scam.
In considering Ms J’s claim, the ADI noted that Ms J’s card was used for each of the disputed transactions and the correct PIN was entered on the first attempt each time.
Ms J’s claim was declined on the basis that:
Ms J lodged a complaint with us.
Ms J stated that her debit card had not been lost or stolen and that she had not disclosed her PIN to anyone or kept a copy of it with the card. Ms J also said that she only withdrew cash using EFTPOS because she was worried about scams at automatic teller machines.
Our investigation indicated that:
the disputed transactions ranged between $150 and $500 and were always far less than the funds available in the account.
We considered that if another person was using Ms J’s card, they would have had to have taken it without her knowledge, used the debit card and returned it without her noticing on over 60 occasions. On the information available to us, we were unable to conclude that the disputed transactions were unauthorised.
Facts of the case
Mr and Mrs A approached a financial planner for advice about investing $285,000. They wanted to purchase a business within three years but wanted to invest the amount in a short term investment in the meantime. Their goal was to have a short term income supplement of $25,000 per year.
The financial planner recommended several investments including investing $135,000 into an aggressive unlisted property trust with a projected annual return of 20% (which equated to $27,000 per year). 18 months after Mr and Mrs A invested in the unlisted property trust, the funds were frozen. They nonetheless received frequent notices assuring them the company would soon recover. Recently, administrators were appointed and Mr and Mrs A were informed that their investment would not be repaid.
Mr and Mrs A made a complaint alleging that the financial planner provided them with inappropriate advice.
Financial Services Provider’s Position
The financial planner denied liability. He submitted that the advice was provided more than six years before so the complaint was made outside the required time. The financial planner also submitted that, in any event, the advice was appropriate because Mr and Mrs A had previously held growth assets and had a relatively aggressive risk profile.
We decided the complaint was made within time because it was made within six years of Mr and Mrs A first becoming aware of their loss.
The investment in question was projected to return $27,000 per year. Thus, the entire income supplement which Mr and Mrs A sought was projected to be provided from this one investment. In addition, we considered that a reasonable person would see this as very aggressive for a short term investment. Consequently, we took the view that the investment was far more riskier than was required to achieve Mr and Mrs A’s goals.
We provided the parties with a formal written Recommendation recommending compensation for the failed investment. The financial planner did not agree with the Recommendation. The complaint was referred to the Ombudsman to review and he issued a Determination in terms consistent with the Recommendation.
Mr and Mrs A received compensation for the full value of their complaint being a return of the $135,000 invested plus interest.
The borrower obtained a loan for $7,000 to purchase a car for business purposes. The loan was secured by a mortgage over his home. The term of the loan was 3.5 years.
The borrower fell ill and was unable to continue working. Without an income, he was unable to make payments on the loan and was solely reliant on Centrelink benefits.
After the borrower failed to make any payments for almost 12 months, the lender commenced proceedings in the Supreme Court to take possession of the borrower’s home. By this time, the debt had increased to about $20,000, after the inclusion of default and enforcement costs.
The borrower asked the lender for a financial hardship variation, and sought to pay the outstanding amount over 25 years. When the lender declined his application, the borrower’s solicitor made a complaint to us.
Financial Services Provider's Position
The lender was not initially inclined to agree to a variation to the borrower’s payment obligations, given that the loan was for business purposes and was not therefore regulated by the Consumer Credit Code. However, we reminded the lender that the Rules of the Credit Ombudsman Service required a lender (who was a Member of CIO) to consider in good faith all applications to vary payment obligations on grounds of financial hardship, even if the loan was for a business purpose.
We opened discussions with the borrower’s solicitor and the lender. We pointed out to the borrower’s solicitor that the borrower’s request to pay the outstanding debt over 25 years was unrealistic given that the loan was originally only for a term of 3.5 years. [The borrower’s solicitor had not been aware that the loan was short-term finance.]
The lender reviewed our Position Statement No. 2. The Position Statement explains in detail our approach to complaints relating to financial hardship. The lender then suggested an arrangement that would have enabled the borrower to keep his home. The lender offered to reduce the debt to $9,000 provided that the borrower paid the debt off over 5 years in equal fortnightly installments. The lender also made it a condition of the variation agreement that the borrower would be given 10 days to rectify any default, but that if the borrower defaulted on more than 3 occasions, legal proceedings would be commenced to recover the amount originally owing.
The borrower accepted the lender’s offer because he was able to make the required payments according to his budget.
The borrower worked as a contractor for a building company. She was paid a commission based on the number of sales she closed. Unfortunately the building company was affected by the global financial crisis. Sales were down, as were her commissions.
She approached her lender on several occasions, asking for financial hardship assistance because her home loan repayments had fallen behind. However, the lender did not offer any assistance until some nine months later. They sent her a financial hardship application to complete, but by this time she had found another job and her financial situation had since improved.
When she returned the financial hardship application, the lender agreed to accept reduced repayments for three months. However, by this stage $40,000 in default fees and interest had already accrued. This comprised 60% of her loan arrears. The borrower believed that, had she not been charged default fees and interest, she would have been able to meet her normal loan repayments.
We looked into whether the lender should have assessed her financial circumstances sooner. We found that the borrower had in fact sought financial hardship relief from the lender when she first found herself in financial difficulties.
There was no evidence that the lender considered, at that time, whether a repayment variation was appropriate on grounds of financial hardship. A failure to consider this was a breach of the code of practice to which the lender subscribed.
On reviewing the basis of the complaint, we considered that if the lender had agreed to a payment variation for a period of 6 months when they first learned of her financial hardship, the default fees and interest would have been far less, and would have allowed her to maintain her loan obligations. When we discussed this with the lender, they agreed to reverse the equivalent of 6 month’s worth of default fees and interest, totaling $30,000.
A borrower had incurred substantial losses while trading on the US stock market, and had also accumulated a number of personal loans and credit cards on top of his existing home loan. As a result, he was finding it hard to meet his financial obligations.
Some three months earlier he had fixed the interest rate on his loan for a period of two years – in case interest rates went up – however, with the subsequent reductions in the RBA’s official cash rate, the lender’s variable interest rate went down.
The borrower believed that he could better manage his debts if his loan was switched back to a variable interest rate, which was now considerably lower than his fixed interest rate.
The borrower contacted his lender to enquire as to the amount of the break cost fees that would be payable to switch his loan to a variable interest rate. It was a hefty $19,500.
As the borrower was already experiencing financial difficulties, a further cost of $19,500 wasn’t the best option. Therefore he advised his lender not to proceed with switching his loan to a variable rate.
Without mentioning his financial difficulties to his lender, the lender surmised that, based on certain tell-tale signs, he was having financial difficulties. The lender asked for a Statement of Financial Position to be completed and for the borrower to provide supporting documentation for the lender to assess his financial position.
The lender then offered to reduce the break cost fee to $7,588, waiving almost $12,000 in fees that it was entitled to recover under the loan contract. Although the borrower was appreciative of what was clearly a generous offer, he simply did not have the funds to pay any break cost fee. He asked the lender if they would add the fee to his total loan amount. The lender declined to do so.
Financial Services Provider's Position
The lender advised us that it had carefully considered the borrower’s application for financial hardship assistance, but that it was not prepared to add the break cost fee to the outstanding loan amount. The lender’s assessment found the borrower’s financial hardship was not of a temporary nature.
However, the lender was willing to uphold the previous offer to reduce the fee from $19,500 to $7,588 and reduce the interest rate on the loan once it was converted to a variable rate. Alternatively, the lender was willing to accept reduced payments for a period of time if the borrower chose to remain on a fixed rate.
At the time, we were unable to substitute our decision for that of the lender’s. However, in some cases, we ask the lender to reconsider its decision where, for example, the borrower has put forward a reasonable repayment proposal or where the lender hasn’t taken into account all factors.
We reviewed the borrower’s complaint along with a copy of the borrower’s Statement of Financial Position. The information indicated that the borrower had personal loans in the amount of $35,000, credit card debts of $90,000 and that his monthly expenditure (including loan and credit card repayments) was $5,000 more than his monthly income.
We reviewed the lender’s proposal and found that it had taken the appropriate action when needed. In addition, when assessing the borrower’s financial situation, it had taken into account all relevant factors required by the Consumer Credit Code and the MFAA Code of Practice.
A retiring couple decided to purchase a new home as the value of their existing home had increased considerably in recent years, giving them enough equity to apply for another property, keeping their existing property for investment purposes.
A family friend who was a mortgage broker (‘the broker’) suggested that, while they had adequate security for the new loan, they lacked the capacity to repay the loan if they chose to retain their existing home for investment purposes.
The broker suggested that they needed to sell their home first in order to service a loan for a new property. To maximise the sale price of their home, the broker suggested that it be painted and renovated. To pay for these renovations, the broker arranged for the Mortgage Manager to increase the couple's existing Line of Credit (LOC) held with a bank.
On completion of the renovations, the couple listed their home on the market and received an offer that matched their asking price. However, without having first exchanged contracts on the sale of their home, they exchanged contracts on the new property. Unfortunately for them, the sale of their existing home fell through and the couple were faced with the possibility of not being able to complete the purchase of the new property.
The couple again approached the broker for assistance, who arranged for a bridging loan through the Mortgage Manager.
The couple advised the broker that on the sale of their existing home, they wanted their bridging loan to be converted to a LOC. However, the broker neglected to advise the lender or the Mortgage Manger of this. Consequently, the Mortgage Manager discharged the existing LOC and converted the bridging loan to a standard principle and interest loan (‘P & I Loan’).
On the basis that their bridging loan had not been converted to a LOC as they had requested, the couple refinanced their new P & I loan with another lender. This resulted in the couple incurring a large “break fee”.
The couple were referred to CIO by the Mortgage Manager. The Mortgage Manager considered that that the broker had not exercised the requisite care and skill in not conveying the couple’s instructions to it, as required by the MFAA Code of Practice.
Due to the couple's friendship with the broker, the couple were not prepared to complain about the conduct of the broker. Instead, they sought to have the break fee waived by the Mortgage Manager on the basis that, prior to refinancing, the couple were advised in writing by the Mortgage Manager that they would not incur any “fees and charges” upon refinancing.
Financial Services Provider's response
The Mortgage Manager asserted that the representation was not intended to be misleading – the break fee was imposed by the lender, not the Mortgage Manager. According to the Mortgage Manager, the representation that the couple would not incur any fees and charges related only to fees and charges that were payable to the Mortgage Manager, not the lender.
While we considered that the couple were not financially disadvantaged as a result of their bridging loan being converted to a P&I loan instead of a LOC, it was of the view that the representation made by the Mortgage Manager was misleading and deceptive.
As a gesture of conciliation, however, the Mortgage Manager refunded to the couple the break fee. The couple indicated that they were satisfied with this outcome.
The Mortgage Manager subsequently reviewed its procedures for handling complaints and for discharging loans, and now contacts couple to confirm all details are correct prior to discharge.
Facts of the case
The borrower approached a broker to arrange finance for the purchase of an investment property.
The parties discussed the features of two particular loans offered by a lender, Loan A and Loan B. The borrower advised the broker that he was interested in Loan A as it offered an automatic reduction of 1% off the interest rate on the second anniversary of the loan.
The broker, however, provided the borrower with documentation relating to both Loan A and Loan B. When the borrower questioned this, the broker assured him that the features of both loans were the same.
They were not in fact the same. Under Loan B, lenders’ mortgage insurance (‘LMI’) was paid for by the lender, but recoverable from the borrower if the loan was discharged within the first 3 years. Also, Loan B did not, unlike Loan A, offer the interest rate reduction that the borrower had sought.
The borrower completed and signed the application for Loan B which was approved shortly thereafter. It operated for two years without incident.
On the second anniversary of the loan, the broker contacted the borrower and suggested that he apply to the lender for the interest rate reduction of 1%. When the borrower did this, he was informed that Loan B did not offer an interest rate reduction.
Despite this and as a gesture of goodwill, the lender reduced Loan B’s interest rate by 0.3%. The lender also informed the borrower that, if he stayed with them for another six months, they would see if they could refinance the loan ‘internally’ and not seek to recover the LMI from him.
Six months later the lender arranged for a valuation of the property. However, the property was valued at less than what would have been necessary to maintain the LVR, and as such the lender declined the loan.
As soon as the borrower was informed of this, he immediately refinanced his loan with another lender and lodged a complaint with CIO.
The borrower sought compensation from the lender for the extra interest he paid as a result of not having had the benefit of the full 1% interest rate reduction, for the deferred establishment fee paid to the lender when he discharged the loan, and for the cost of the valuation.
We sought and received a copy of the loan agreement, the original loan offer and other relevant documents.
The loan agreement did not describe or name the type of loan being offered. The original loan offer did describe the loan as Loan B, but as the borrower had been assured that Loan A and Loan B were the same, there was nothing to suggest that the borrower knew otherwise. Nonetheless, CIO concluded that the borrower was not entitled to the 1% interest rate reduction offered by Loan A.
CIO also considered that the lender’s decision not to proceed with the ‘internal refinance’ was a commercial decision that it was entitled to make in the circumstances. Under CIO’s Rules, a financial services provider’s commercial judgment about lending or security for a loan is generally outside of its jurisdiction.
CIO was also of the view that the borrower’s decision to refinance his loan with another lender was entirely his decision and could not be attributable to the lender’s conduct.
Consequently, CIO concluded that there were no grounds for the borrower’s complaint against the lender.
CIO, however, considered that the broker had clearly been negligent:
In this particular case, however, the broker was neither a MFAA nor a financial services provider member, and CIO was unfortunately not able to consider the borrower’s complaint against her.
Facts of the case
An elderly couple receiving Centrelink benefits intended to make renovations to their home and sought to refinance their existing home loan for this purpose.
On approaching a Broker, he advised them to sign a blank application form and assured them he would later complete. However, relevant parts of the loan application (income and their ability to repay the loan) were not completed. The Broker requested that they sign a “Borrower Self Certification Income and Affordability Statement” and a “Business Purpose Declaration”. By signing the Business Purpose Declaration, the couple were declaring the loan was predominantly for business or investment purposes.
The couple claimed that they only sought to borrow $20,000. This would be in addition to their existing loan of $63,600. They allege the Broker increased this amount to $143,000. The loan was approved by the Lender on the security of the Complainants sole asset their home.
Three months later, the complainants husband died and she fell into depression and over a two month period, drew down $52,500 of the loan and gambled it away.
The complainant asked CIO to investigate her complaint against the Lender, who was a participating financial services provider of the CIO scheme. She alleged that she had incurred losses of $97,500, which included fees, stamp duty, gambling losses and interest paid. She claimed that the Lender had acted unconscionably and that she should be compensated for all losses flowing from the loan, given their financial circumstances at the time they applied for the loan.
In reviewing the complaint, we considered that the loan was regulated by the Consumer Credit Code despite the Complainants having signed the Business Purpose Declaration. There was ample evidence that the Broker knew or had reason to believe that the loan was only for personal, domestic or household purposes.
We also considered that the loan was unjust under section 70(2) of the Credit Code because, among other things, neither the Broker nor the Lender made reasonable enquiries as to whether the Complainants could afford to repay the loan. Furthermore, we considered that the Code of Practice of the Mortgage and Finance Association of Australia had been breached. The Code requires, among other things, its scheme participants to always make such enquiries as are necessary to determine an applicant’s capacity to repay the proposed loan.
In considering what might be an appropriate amount to compensate the complainant, we were of the view that it was inappropriate, given recent judicial pronouncements, to suggest that the Lender had a duty to prevent the Complainant from using the loan proceeds for gambling. We also considered that the complainant had the benefit of the funds that she had drawn down and that she should have mitigated her loss by limiting the amount drawn down to the cost of the renovations only.
We recommended that the Lender compensate the complainant for other losses so as to, as far as possible, return her to the position she was in prior to obtaining the loan.
The Lender made an appropriate offer to settle the dispute and this was accepted by the complainant, who had been well represented by a Consumer Credit Legal Centre.
Facts of the case
The complainants responded to an advertisement by the financial services provider, a broker, who professed to specialise in bad credit loans. They were looking to refinance their existing home loan and borrow a little extra to convert their garage into another bedroom.
Their existing loan was in arrears and they were about to lose their home. The complainants were both unemployed and on Centrelink payments, with four children and another on the way. The Broker was aware of this.
Nonetheless, the Broker arranged two new loans for them one for $110,000 at 8.95% (plus 3% on default) and the other for $72,317 at 23.60%. The loan was repayable in twelve months and was substantially more than the amount the complainants initially sought. As it turned out, most of the increase was attributable to inflated broker commissions and legal costs.
The complainants signed the loan agreement on the broker's assurance that they would be able to refinance the loan at the end of the term with a loan that had lower repayments, fees and charges.
The Broker sought and received a statement from the complainants to the effect that Affordability won’t be problem. We also confirm that it is still only a 12 month loan. All fees and charges have been disclosed to (us). This was dictated to them. On settlement of the loans, the financial services provider helped himself to $13,225 in brokerage fees and $1,200 in consultant’s fees.
The complainants defaulted on their very first repayment, as the new repayments were twice the amount of their previous repayments. The Lender predictably sought possession.
Financial Service Provider's Position
Despite our every effort to conciliate, attempts at resolution failed due to the broker's inflexibility. The Broker was adamant that he was not at fault. The matter was eventually referred to the Credit Ombudsman for a Determination.
The Credit Ombudsman considered that the Business Purpose Declaration was ineffective under the Credit Code, given that the broker knew or had reason to believe that the purpose of the loan was not for business, but to refinance a home loan. Furthermore, the lack of a Finance Brokers Agreement entitled the complainants to recover the commission they paid to the Broker.
The Credit Ombudsman found against the broker (the Lender was not a CIO scheme participant) under several heads of law and awarded the complainants compensation in an amount equivalent to the broker's commission, the Lenders legal fees (so far that it exceeded what was reasonable) and other disbursements associated with setting up the loan.
The Ombudsman also found that the financial services provider had acted unconscionably as he would have been aware that the complainants:
The Ombudsman determined that the broker took unconscientious advantage of his position as their agent by arranging a loan for the Complainants:
Facts of the case
The borrower advised her broker that she recently received some funds on her divorce settlement. She intended to use a small portion of the funds for school fees and clothes for her children. The larger portion would be directed towards the purchase of a property.
She completed and signed a finance broking contract authorising the broker to act on her behalf to arrange a loan for 95% of the purchase price. Despite the broker advising her that such a high loan to value ratio could leave her with little room to move if something went wrong, she was keen to proceed with the purchase.
They discussed loans that were on offer from several lenders. However, due to the her adverse credit history, her choice of loans and lenders was limited.
The broker canvassed their requirements with several lenders specialising in loans for people with a poor credit history before finally selecting a lender. The loan was for 95% of the purchase price, less settlement costs and fees.
Shortly before the loan was approved, the borrower, without the knowledge of the broker, entered into a contract to purchase a property and paid the requisite deposit. Unfortunately, the contract did not contain a ‘subject to finance’ clause.
A week later, the lender unconditionally approved the loan. However, two days before settlement, the borrower advised the broker that she did not have sufficient funds to settle on the purchase. She had miscalculated the amount of fees and charges that would be deducted from the loan at settlement, thinking the loan was for 100% of the purchase price, not 95%.
In an attempt to save her deposit from being forfeited by the vendor, the broker asked the lender if it would be prepared to approve a loan for 100%. Although the lender declined to do so, it agreed to capitalise (add on top of the loan) some of their fees and charges to free up extra funds for settlement.
Despite this, she never returned the signed loan documents and the loan consequently did not settle and she lost her deposit.
The borrower alleged that the broker:
Having lost her deposit because she was unable to settle on the property, the borrower sought compensation from the broker for this amount.
After reviewing the information provided by all parties, we formed the view that the broker:
We noted that the broker had retained a copy of a cheque drawn in favour of the borrower from her divorce settlement. The broker had therefore verified the borrower’s claim that she had her own funds to put towards the purchase.
Further, despite the borrower’s assertions, the broker’s file notes showed no record of the borrower advising the broker that she had paid a deposit on the property. Nor did it indicate that she had contacted him about the ‘subject to finance’ clause.
We noted from the broker’s file notes that the borrower was represented by a lawyer to whom the broker forwarded details of the loan disbursements and a request to ensure that the borrower had sufficient funds to settle. We also noted that the broker had advised the borrower to speak to her lawyer and discuss the loan documents with them.
According to the file notes, the borrower advised the broker only after the loan had been approved that she did not want to contribute more than a small portion of her divorce settlement towards the purchase of the property.
When the loan documents were not returned by the borrower, the broker made numerous calls to both the borrower and her lawyer to ascertain the borrower’s intentions. The borrower directed the broker to speak to her lawyer instead. The lawyer, however, refused to take the broker’s calls. The broker was able to produce a record of every call that he made.
As the broker retained extensive and detailed file notes and kept copies of documents provided by the borrower, the broker was able to respond in great detail to the issues raised in the borrower’s complaint and substantiate his assertions.
We did not consider that the borrower’s loss was attributable to the conduct of the broker, as was alleged, and the complaint was closed.
Facts of the case
A couple applied for a loan to purchased an investment property in NSW. Shortly after the loan settled, they began to default on their repayments. At the time the loan was approved, they allege they were already servicing a high level of debt and asserted that there was little prospect of them servicing the new loan and the loan should not have been provided to them.
The couple claimed the lender was indifferent as to whether they would be able to meet their repayment obligations and alleged that the lender was prepared to rely on the value of the security alone, rather than conducting a proper assessment of their loan application and capacity to repay the loan.
The couple alleged that the loan contract was unjust and wished to receive the maximum amount of compensation available; that is $250,000.
Financial Services Provider's Position
The financial services provider (FSP) asserted that they relied on the information in the loan application and supporting documents provided by the couple. It was confident in its belief that it had sufficient evidence to show that the couples’ employment and rental income would support the loan.
The FSP therefore denied the couples’ assertion that it was indifferent to the question of whether they were able to meet their repayment obligations. The FSP also denied that the loan was unfair or unjust.
In considering whether the borrower’s loan was unjust at the time it was entered into, we had regard to sections 7 and 9 of the Contracts Review Act (NSW) 1980. Similar provisions in the Uniform Consumer Credit Code were not applicable in the present case as the loan was for investment purposes.
We considered that, based on current law, a loan was not unjust merely because it was a ‘pure asset lend’; that is, a loan made on the basis of the value of the security only and without having regard to the borrowers’ ability to repay it. If it were otherwise, reverse mortgage loans and certain bridging loans would be unenforceable.
The Courts have suggested that it is generally not enough for a borrower to be foolish, gullible or greedy for the contract to be unjust - ‘something more’ was required.
On the facts of the present case, the security for the loan was not the family home or the borrower’s sole asset. Nor were the borrowers unable to protect their own interest because they were in a position of special disadvantage or disability.
Accordingly, we considered that the contract was not unjust in the circumstances.
Facts of the case
A couple intended to purchase a vacant block of land (‘new property’), with a 60-day settlement period. A 3% rebate was available if the finance was unconditionally approved within 14 days, and the settlement occurred within 30 days of the date of the purchase contract.
The couple asked a broker to arrange finance for the purchase. As the couple were existing customers of the lender, the lender undertook to retrieve their financial information from their last loan application, but still required updated financial details and rental estimates for their existing investment properties.
The bank later advised that they were unable to retrieve the previous loan application and therefore required a full application, along with the couples’ “income details in full for assessment”.
The broker forwarded the bank’s request for full income details and the loan application form to the couple. The broker also advised them that 30 days should be sufficient to arrange finance and settle the purchase.
The couple completed, signed and returned the loan application to the broker, but did not provide the rental estimates. The couple then proceeded to sign the Contract for Sale prior to leaving for a 16-day holiday, but did not provide the broker with their contact details while away.
On the couples’ return, the broker advised them that their updated rental income estimates were still outstanding, whereupon they sent the broker a brochure containing a rental estimate for one of their properties. This was inadequate for the bank’s purpose. The couple then provided the broker with a contact number for the manager of the investment property from whom he could obtain the required information directly.
The couple then advised the seller of the property that the purchase contract could be treated as unconditional on the basis that finance had been approved even though it had not. They alleged that the broker had assured them that they could do this.
The broker attempted on several occasions, without success, to obtain the rental estimates from the manager of the investment property. It was not until the couple intervened much later that the information was provided.
As it turned out, the rental estimates were lower than expected and the serviceability of the loan became an issue. The loan application now required the approval of the bank’s State Manager, or in his absence, its head office in Sydney. To prevent further delays, the broker made a special request to the bank for a “Relocation – No End Debt” loan to be approved. This did not require an income assessment, but was not ordinarily available on purchases of vacant land where no building contract was in place.
Due to the delays and several other delays beyond the control of the broker, the 3% rebate was no longer available. The purchase was however settled within the 60 day period.
We considered that when the broker received the newly completed loan application from the couple, he was aware that the application was not accompanied by the rental estimates requested by the bank, and that it was necessary to have followed this up before the couple went on holiday. By not having done so, the broker could be regarded as having breached his duty of care. It was reasonably foreseeable that the broker’s failure to follow up the information would cause the couple to lose the rebate.
However, the duty to exercise reasonable skill and care does not necessarily mean that a particular result will be achieved, but only that he will use reasonable care and skill. For instance, the surgeon does not warrant that he will cure the patient.
At law, the broker’s act or omission need not have been the sole cause of the loss. The broker may have been responsible for the loss even if his conduct was only one of the causes of the loss.
Although there were several factors that contributed to the loss of the rebate and which were beyond the broker’s control, none of these were of such a nature as to break the link between the broker’s conduct and the loss of the rebate.
However, it was also clear that the couple significantly contributed to their own loss. They only provided the broker with the completed loan application and not their full income details or rental estimates as requested. Significantly, the couple were not first time investors, and should have realised that the bank’s request for “income details in full for assessment” would necessarily have included rental estimates of their properties. Surprisingly also, the couple did not provide the broker with their contact details while away. In addition, they ought to have sought the rental estimates themselves before going on holidays, rather than asking the broker to obtain them on their return.
Consequently, although the broker was ultimately responsible for the loss, the couple contributed significantly to this. We therefore found that the compensation for the loss rebate payable by the broker should be reduced by 80% to reflect the extent by which the couple were responsible for their own loss.
Facts of the case
A couple approached a Broker they had used before to refinance their home loan and to borrow an extra amount to assist in the purchase of another property in Gordon ACT. They intended to sell their home, but there was no necessity to do so in order to purchase the Gordon property.
Soon after applying for the loan, the couple placed their existing home on the market. As a result of extensive delays by the lender, the loan did not settle for 3 months.
The couple alleged that:
The Broker suggested that the couple might wish to delay settlement of the purchase of the Gordon property in order to lower the cost of the LMI. He pointed out that if settlement was delayed and the loan amount sought reduced by a specific amount, any penalties incurred as a result of the late settlement would be significantly offset by a reduction of LMI, to the tune of $9,800. (CIO found that the Broker's assertion was correct.)
Having relied on the Broker's suggestion, the couple incurred some default fees for the late settlement and interest on the late payment of stamp duty. The couple nonetheless sought to be compensated by the Broker for these. Furthermore, because the couple were required to travel to Sydney to sign the amended loan agreement, they sought to recover from the Broker the cost of doing so. This included the cost of petrol, the proportional cost of private school fees as a result of keeping their children away from school on the day, their loss of income for the day and phone expenses.
We considered that our Rules did not permit the couple to recover losses they alleged were incurred in having to travel to Sydney, such as the cost of petrol, proportional private school fees, and loss in income and phone expenses. We also found that the delays in the loan approval process were almost wholly attributable to the Lender and not the Broker. The complainants had in fact already received compensation from the Lender for the delays.
We found that the complainants had not made out their case against the Broker in relation to the allegedly incorrect amount of the loan and its structure and the Broker's estimate of the LMI. The complaint was therefore closed.
Facts of the case
A couple applied for a new product a lender had just begun offering; a home loan with a debit card facility attached. Unfortunately, the time taken to approve the loan elapsed to 10 weeks. Furthermore, after the loan had settled it took a further six weeks longer than what was indicated in the lenders advertising to be delivered.
The couple also claimed that the lender's website was misleading because it stated that an application fee would not be payable. The couple argued that the legal documentation fee of $310 charged on the loan was effectively an application fee.
The lender offered to compensate the couple for the cost of calls made and provide the couple with certain other benefits that were not otherwise available under the loan facility. A case of wine was also delivered to the couple as a token of good faith.
The couple, in addition to the resolution offered by the financial services provider, sought monetary compensation for the delay in settlement, late receipt of the debit card, their inability to access the loan proceeds until receipt of the debit card, and also sought reimbursement of the legal documentation fee they incurred.
Financial Services Provider's Position
The financial services provider asserted that no loss had in fact been suffered by the couple and that the delay in settlement was not wholly attributable by them.
Whilst the lender was responsible for some of the delays, the delays were predominantly the result of the couple having made changes to the loan application during the approval process and having been tardy in returning documentation to the lender.
We also found that the delay in the couple's receipt of the debit card was neither the fault of the lender nor the couple. The cards had been lost in the post, but in any event, the couple had in fact been able to access the loan funds through internet banking and direct redraw request from the lender.
We found that the legal documentation fee was clearly distinguishable from the application fee on the lenders website.
As a result of our review, we determined that the complaint had not been made out by the complainant and therefore the complaint was closed.
Facts of the case
A borrower had been conducting her loan satisfactorily until she lost her job. Not being able to maintain her loan repayments, she contacted the financial services provider (a lender and participant of the CIO scheme) to let them know of her financial hardship and sought to discuss possible payment arrangements while she was without a job.
The financial services provider advised her to allow her repayments to go into arrears, and then apply to APRA (Australian Prudential Regulation Authority) for the early release of her superannuation benefits to pay the arrears on her loan. (APRA only permits the early release of benefits on very limited grounds, including severe financial hardship.) Acting on the financial services provider's advice, she applied for the release of her superannuation benefits, but for reasons outside her control, the release of the benefit payment was delayed.
During this time, she had to deal with three different staff members of the financial services provider, with the third one refusing to allow her more time to receive her superannuation benefit. The arrears on her loan had by this time increased to the extent that, when the superannuation benefit was eventually received, it was insufficient to repay the outstanding arrears.
During this period she had found another job and offered to make additional fortnightly repayments in order to reduce the arrears. This proposal was rejected by the financial services provider (FSP) on the basis that it would extend the term of her loan, increasing the loan to value ratio (LVR) beyond that which was acceptable to the member's mortgage insurer. The FSP commenced legal proceedings to repossess the property.
The complainant asserted that she took the advice of the member to stop making payments on her loan and to seek the release of superannuation which was delayed, therefore the Member should be lenient when discussing an arrangement to repay the arrears on the loan.
Financial Services Provider's Position
The member agreed to halt any repossession while CIO reviewed the complaint.
As the loan was subject to the Consumer Credit Code, we advised the member that it had not considered the complainant's financial circumstances for the purposes of section 66 of the Code.
The parties agreed to change the terms of the loan so that additional fortnightly payments were made to reduce the arrears, on top of the usual normal monthly repayment. As a gesture of good will, the FSP also waived the interest on the arrears, the monthly default fees and dishonour charges, and agreed to cease any legal action.
Facts of the case
A borrower was in prison and was not due to be released until June 2011. His loan fell into arrears and he contacted his lender to request a repayment variation on the grounds of financial hardship.
He advised the lender that a real estate agent had indicated that he could let the security property for $130 per week. (Incidentally, this would have meant that his family had to vacate the premises).
The complainant was confident that once he was released from prison, he would find employment, continue making the loan repayments and pay off the arrears and therefore the Financial Services Provider should reconsider its decision.
Financial Services Provider's Position
The lender re-considered the decision at our request, but again declined the application for a payment variation of grounds of financial hardship. They explained to us that the borrower had not established that he could reasonably meet his on-going obligations, either before or following his release in June 2011.
The lender also suggested that because the borrower’s financial hardship had been caused by his own conduct, it did not meet the requirement under section 66 of the Consumer Credit Code that the financial hardship must be due to illness, unemployment or other reasonable cause.”
We disagreed with the Financial Services Provider's position and considered that incarceration could amount to a “reasonable cause” for which an application for a payment variation could be made on grounds of financial hardship.
However, we found that the lender had in fact taken into account relevant factors in accordance with the Consumer Credit Code. This was because the borrower had not provided any information to show that he had actively sought to rent the security property. In addition, his prison release date in June 2011 also suggested that his financial difficulties were not temporary.
As the borrower’s hardship was not temporary and there was insufficient information to support his claim that a variation would allow him to pay off the arrears and discharge his payment obligations under the loan, relief under section 66 of the Consumer Credit Code was not available to the borrower in any case.
Facts of the case
A borrower had accumulated a number of personal loan and credit card debts in addition to his existing fixed interest rate home loan. He believed that he would be able to better manage his debts if he switched to a variable interest rate loan and was advised by his (non-bank) lender that the break cost fee payable on switching his loan to a variable interest rate was $19,500.
He advised the lender that he was having difficulty meeting the repayments at the fixed rate, but that he had no funds to pay the fixed rate break cost fee. The lender asked him to complete a “Statement of Financial Position” and provide it with supporting documentation so as to enable it to properly assess the borrower’s financial position.
Having done so, the lender offered to reduce the break cost fee to $7,588, thus waiving almost $12,000 in fees that it was entitled to recover under the loan contract.
As the borrower had no funds to pay the reduced break cost fee and was experiencing financial hardship to the high fixed interest rate, he requested that the lender capitalise the fee.
Financial Services Provider's Position
The financial services provider advised CIO that, according to the borrower’s Statement of Financial Position, the borrower had personal loans in the amount of $35,000, credit card debts of $90,000 and that his monthly expenditure (including loan and credit card repayments) was $5,000 more than his monthly income.
The financial services provider also advised that both the lender and the mortgage insurer were not inclined to capitalise the break cost fee. The lender correctly pointed out that the borrower’s financial hardship was not of a temporary nature. However, the lender indicated that it was willing to reduce the fixed rate break cost fee, and to accept reduced repayments for a period of time if the borrower chose to remain on a fixed rate.
In considering a complaint of this nature, we are unable to substitute our decision for that of the lender’s. Rather, we will ask the lender to reconsider its decision where, for example, the borrower has put forward a reasonable repayment proposal or where the lender has taken into account inappropriate factors.
We found that the lender had taken into account the relevant factors required by the Consumer Credit Code and the MFAA Code of Practice. Consequently, CIO closed the case.
Facts of the case
The borrowers submitted an application to the franchisee of the lender to fix the interest rate on their loan. The application was promptly faxed to the lender for processing.
Unfortunately, the lender did not receive the fax and consequently failed to action the borrowers’ request to fix the interest rate. The loan therefore remained on a variable rate and was exposed to interest rate movements.
For eight months, the borrowers remained unaware that their loan was not on a fixed rate. On eventually becoming aware of this, they complained to the franchisee and the lender. On failing to negotiate an acceptable outcome, the borrowers referred their complaint to CIO.
The borrowers sought the following outcomes:
Financial Services Provider’s position
The lender acknowledged not having received the fixed rate application from the franchisee and consequently not having fixed the rate as requested, but suggested that the borrowers ought to have been aware that the loan remained on a variable interest rate because:
Nonetheless, in an attempt to settle the complaint, the lender offered the borrowers a fixed interest rate (‘new fixed rate’) for a term of two years. The new fixed rate was significantly less than that available in the market. In addition, they offered an interest adjustment from the time the borrower raised their complaint with them to the time of the new fixed rate.
After further facilitation by CIO, the lender also agreed to an interest adjustment from the time of the fixed rate application to the time the borrowers first received notice that the interest rate on the loan had increased (and were therefore on notice that the loan was not at a fixed rate).
The borrowers accepted the offer of settlement.
Facts of the case
The borrower intended to sell his investment property which was secured with a home loan through a lender. He was however a little concerned that he would not have enough funds from the sale to pay the loan off in full.
He approached the lender to confirm the fees to discharge the loan on three occasions:
On each of these occasions, the lender provided him with a breakdown of the fees which were payable on discharge. However, part of his loan had a fixed interest rate, the lender did not advise him if any fees were applicable (break cost fee) on discharging his fixed portion of the loan. Nevertheless, the lender did advise the borrower to allow $2,000 for any unexpected costs that may arise.
A month after he entered into the contract of sale he became aware that a break cost fee was payable.
At that time, the break cost fee was about $9,600. He claimed that if the lender had advised him of this fee when he enquired about discharging the loan, he would not have sold the property at the price that he did. He therefore was requesting compensation of $9,000 to resolve the complaint fairly.
Financial Services Provider's Position
The financial services provider provided information to show that the fee was disclosed in the loan agreement, which was signed by the borrower. In addition, when the borrower first approached the lender, the fee was $0, but increased to about $2,000 at the time the borrower entered into the contract of sale and one week after that.
The financial services provider relied on its advice to the borrower to allow $2,000 for any unexpected costs and asserted that, regardless of any subsequent increases in the break cost fee, the borrower was unable to validly terminate the sale contract once he entered into it.
However, as a gesture of goodwill and in view of the fact that the lender had failed to advise the borrower of the $2,000 fee, the lender offered the borrower $4,500 in compensation.
The borrower was unsure whether to accept the lender’s offer and asked us what would happen if he declined the offer. We advised him that his complaint would be investigated further, but that we would also look into whether he had suffered a loss by relying on the lender’s statements. In particular, we would confirm that if he could and would have sold the property at a higher price had the lender advised him of the break cost fee initially.
We suggested that the borrower seek his own legal advice before accepting any offer he was not entirely satisfied with.
On further review, the borrower advised us that he would accept the lender’s offer of $4,500 in full and final settlement of the complaint.
Facts of the case
A couple approached a franchise with a view to refinance their existing home loan and consolidate some other debts.
A number of options were presented, including:
A loan of $384,000 was given, $184,000 of which was used to consolidate some existing debts, leaving them with a surplus of $200,000 to be drawn down at a later date.
The couple had decided to go with the second option and a few weeks later they applied for a second loan which, when added to the undrawn surplus, enabled them to purchase a second property. After the purchase, the couple moved into the new property as their principal place of residence, with their previous home being the investment property.
The couple soon realised that they could not afford the prepayments on both loans, and decided to put their previous home up for sale.
The couple borrowed from family members initially, and soon after asked for the early release of their super to tide them through their financial hardship until the property was sold.
Unfortunately, due to the falling market and decline in property prices, they were initially unwilling to accept a lower offer, and did not wish to rent out the property. Their previous home was eventually sold some 18 months later, but at a substantially reduced amount.
The couple alleged that that they signed a blank loan application form and that the franchise had made the second loan available to them without verifying their ability to make repayments under that loan.
We found that the franchise was not liable to the complainants for the loss they claimed they suffered. A number of reasons supported this view:
The franchise wasn’t acting as a finance broker the couple which meant the franchise did not owe the couple a fiduciary duty. Furthermore, the couple should have acted reasonably to protect their own interests.
It was difficult to understand why the couple would sign a blank application form given they were educated, had taken out loans before, and appeared to be quite capable of protecting their own interests.
The couple had declared the loan was for business purposes, but claimed that they had not read nor queried the details of the documents presented to them, which was a misrepresentation on their part.
The repayments on the second loan were clearly set out in the loan agreement. The complainants would therefore have been in a position to determine if they could afford the repayments.
It appeared that, given the complainants had entered into a contract to purchase the second property (and this occurred even before the second loan was approved by the lender), they found themselves in a difficult position of having to settle on the second property without having sold the first property. In other words, the complainants placed themselves in a position where they needed the loan to settle on the second property. They could not therefore say that they suffered a loss as a result of the second loan having been made available to them.
We found that neither the franchise nor the originators conduct caused the complainants to suffer a loss for which they are entitled to be compensated.