Nicole signed a loan agreement to purchase a car. She was required to pay 207 weekly repayments of $128 and one final repayment of $118.
When Nicole entered into the agreement, she was working full time as a call centre operator but her hours varied on a weekly basis. While she also received Centrelink benefits, she had a son to care for. Her combined income was approximately $837 a week.
Although Nicole made the first 10 repayments, she couldn’t pay them when she got sick.
So Nicole approached the Credit and Investments Ombudsman. She said that the credit provider should not have given her a loan as she could not afford the repayments and was already struggling with her weekly living expenses prior to entering the agreement.
The credit provider denied this, saying they took steps to confirm Nicole’s income and expenses, and asked her to provide documents, such as payslips, bank statements and Centrelink statements, so that they could verify her financial information.
From this, the credit provider used a benchmark, known as the Household Expenditure Measure (HEM), for her living expenses.
The Credit and Investments Ombudsman gave the credit provider a Preliminary Review that they had failed to comply with responsible lending obligations imposed by the National Credit Act. This is because:
- a review of Nicole’s bank statements showed that she was having difficulty with meeting her current living expenses as she had low balances at the end of every month in the three months prior to entering the loan agreement,
- Nicole’s credit report showed over 35 inquiries made by her for small credit amounts,
- the credit provider applied a standard benchmark for Nicole’s expenses without considering her actual expenses,
- the credit provider failed to make further inquiries with her about how she was going to afford the repayments, and
- we conducted our own credit assessment and found that Nicole would not have been able to pay the required amounts on the loan agreement without significant hardship.
The credit company responded to the Preliminary Review and offered to take back the car at their expense, cancel the loan agreement, release Nicole from any further liability, and refund all monies paid to Nicole.