Photo: 123RF
A 70-year-old who took out a loan he could not afford will be allowed to pay it back without interest after he complained his lender should not have approved it in the first place.
His was just one of a number of complaints about loan affordability dealt with by the country's financial disputes resolution schemes in recent months.
The schemes handle complaints that can't be resolved by the customer and provider directly.
The Insurance and Financial Ombudsman Scheme (IFSO), a third-party dispute resolution service for financial services providers, said it had received a number of complaints about credit and lending in the past year, including from people who felt they should not have been given loans.
In one case, IFSO investigated and found that a lender did not make sufficient inquiries before it approved a $35,000 loan to the 70-year-old borrower.
The man took out the loan in May 2022 to fund his daughter's home renovations.
It had a 19.99 percent interest rate and required him to pay $935 a month, with a total amount to be repaid of $56,107.80.
But he lost his job and became a caregiver for his wife and could not keep up with the repayments. He complained to IFSO.
Ombudsman Karen Stevens said responsible lending was a common issue among complaints.
"Under the Credit Contracts and Consumer Finance Act and Responsible Lending Code, lenders are required by law to ensure a loan is affordable and suitable by making reasonable inquiries to ensure the borrower can repay it, without suffering substantial hardship. We looked at whether [his] lender had done this before giving him the loan," she said.
She said the lender had reviewed his payslips but there was no evidence of any other inquiries, including about how much he expected to work over the loan term of five years. His pay slips also showed he used sick or annual leave regularly.
The lender said it could not consider his age because of the Human Rights Act but IFSO said it needed to make an individualised assessment of his circumstances.
"We concluded that the lender should have made further inquiries given [his] age, work hours, and loan purpose and, therefore, it had not met its obligations under the CCCFA," Stevens said.
To resolve the complaint, the lender agreed to waive $5062.09 from the loan balance and allowed the borrower to repay the loan with zero interest.
"This case shows the need for lenders to conduct comprehensive affordability assessments, especially when borrowers are older, or obtaining loans for someone else's benefit. If a lender fails to do this, they can be required to refund the consumer the interest and fees, which is what happened in [his] case," Stevens said.
Another dispute provider, Financial Services Complaints, also regularly deals with complaints about unaffordable loans.
In one it handled recently, a man obtained a loan for $3650 with repayments of $50 a week.
The loan was set to be repaid over years at 29.95 percent.
After just under a year, he could not make his payments.
He told FSCL the lender had not included his essential expenses in its affordability assessment and had listed his rent at a third of what it actually was.
FSCL said that the lender should have done more to ascertain his expenses and in that case, the lender agreed to waive interest fees and charges from the start of the agreement.
Another person borrowed $15,500 to buy a car, at an interest rate of 29.95 percent.
But he was a single parent of three, only receiving a benefit as income. He had trouble with the loan within the first two months and asked for hardship assistance. The lender told him he had not had the loan long enough.
The borrower told FSCL he didn't know how he qualified for the loan - he said that it was unaffordable from the get-go.
"We found that the lender had not completed a satisfactory assessment of [his] expenses. The lender's assessment appeared to use general statistics for expenses, didn't consider [his] three children, and didn't accurately record his rent or grocery costs. This meant that, when FSCL recalculated [his] estimated expenses, he had a weekly deficit of $220."
The lender agreed to refund interest and fees charged. He had already paid $19,000 towards his loan so he was given a refund of $6100.
FSCL said lenders had to ensure affordability assessments were completed for each consumer. "The affordability assessment should take into account the consumer's actual and reasonable expenses at the time that they are taking out the loan."
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