Loan Forfeited After Lender Didn’t Ask About Regular Withdrawals
The woman needed a vehicle to move her staff.
- The lender misjudged the borrower’s income because it did not take cash withdrawals into account.
- Her income was insufficient to cover the reimbursements and the car was repossessed when she fell ill.
- FSCL said the lender breached responsible lending rules and suggested fees and interest be refunded on the loan.
- The lender agreed to sell the car and cancel the remaining debt.
A lender who overstated a borrower’s income agreed to cancel the woman’s loan.
The woman, who received the pension, supplemented her income by leading a kiwifruit harvesting team. She needed to replace the vehicle she was using to move workers, and a car dealership offered to help her apply for a car loan.
But when things went wrong, the woman’s financial mentor complained to Financial Services Complaints (FSCL), a dispute resolution service.
The borrower gave the car dealer his bank statements and a payslip from the kiwi orchard, showing a weekly income of $1,200, FSCL said.
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Her statements also showed that she withdrew that $1,200 per week in two withdrawals of $600.
But the car dealer calculated that she had a weekly income of $1,500 and expenses of $450. On this basis, the lender accepted a car loan of $34,000, repayable at $250 per week.
About a month after buying the car, the woman was diagnosed with cancer and couldn’t work.
She told the lender that she could not afford the loan because she had no kiwi income and depended on her $300 a week pension.
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Over the following months, the lender immobilized the car from time to time due to the late payment of the loan. The woman’s daughter contacted Work and Income for help, who agreed to provide the loan if she could get help from a financial mentor.
The financial mentor feared that the loan was unaffordable from the start, but the lender disagreed and the financial mentor complained to FSCL.
The car was later recovered.
The mentor said a mistake was made in the application because she was only keeping $200 of the kiwi fruit income for herself. This would make the loan unaffordable.
The lender replied that he was unaware that she was distributing the income from picking kiwifruit to her team. There was no indication of this on the payslip presented.
The lender said when the car dealership asked her about withdrawals from her bank account, she said it was her “lifestyle preference”. Based on the information available during the assessment of the application, the lender was confident that it had fulfilled its responsible lending obligations.
The mentor said if the woman had been asked, she would have explained that she only kept $200 and that English was her second language.
FSCL’s case manager said the lender should have asked more questions about the withdrawals.
“We also felt that a cash withdrawal of $1,200 by someone with a fairly modest income was a lot to spend on discretionary items and should have prompted further questions from the lender.
“Despite this, we also considered it reasonable for [her] to have known that the lender would rely on the payslip to calculate the affordability of the loan and that she should have explained that she was distributing the income to her team.”
FSCL said responsible lending rules were broken and initially suggested the lender repay the $7,000 in interest and fees charged over the life of the loan, which would have reduced the amount owed from $39,000 to $32. $000. He also said the car should be sold to further reduce the loan.
The moneylender maintained that he could not have known that she was paying the money to his team.
But because it was clear she was very ill, FSCL asked if the lender would consider writing off the rest of the debt when the car was sold out of compassion.
Both parties accepted this proposal.
“Bank statements provide very useful information about a potential borrower’s spending habits, but if a borrower is withdrawing large amounts of cash income, this should act as a ‘red flag’ for a lender to investigate. to assess the affordability of the loan,” said the FSCL case manager.
“If a borrower withdraws cash income to pay expenses, a lender may need to rely on information collected directly from the borrower. It is important that the lender keep careful records of what the borrower tells them .”
The FSCL does not identify the people who complain, nor the organizations they complain about.