A woman who couldn’t repay the loans on two cars had the amount she owed reduced by $3,500 because a financial dispute resolution service said the loans were unaffordable from the start.
The woman first borrowed $8,500 in 2012 to buy a car. But she got into trouble when her benefits went down and she stopped paying. The lender repossessed the vehicle and sold it for $600.
Then, in 2019, she wanted to buy another car for $13,500 and asked the same company for a loan of $15,000 to cover the purchase plus expenses and insurance.
She and the company had changed names, so neither recognized the other.
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She couldn’t pay the loan alone, so she had her mother-in-law as a co-borrower. She lived with her partner, their children and her mother-in-law at the time.
According to information submitted by the lender, the pair had a weekly income of $1,023.43 against expenses of $881, leaving a budget surplus of $142.43. After making the weekly loan repayments of $139, they would be left with $3.43 per week.
But in April 2019, she stopped repaying the loan. In June, the lender repossessed the car and auctioned it off in July of that year for $1,500.
The lender attempted to contact the two women in late 2021 about repaying the remaining $15,200.
Neither made regular payments. The main borrower was located in 2021 and said at that time that she was studying and could not afford to repay the loan.
The lender went to court, first for the 2012 debt, for which the borrower was told $35 would be deducted from her benefits each week, then for the 2019 debt. The borrower offered $10 a week for this, but she defaulted and a seizure order was applied for an additional $35.
The woman approached a financial mentor for help, who feared that a total of $70 a week would be taken from her benefits each week, and complained to the FSCL on her behalf.
The mentor said she shouldn’t have received the 2019 loan when she couldn’t pay the 2012 loan.
The financial mentor opined that both loans were probably unaffordable because she had defaulted on payments within months. The financial mentor also questioned the process of selling the cars, as they sold for far less than she paid.
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But the lender did not accept that the loans were unaffordable and was confident that it had met its responsible lending obligations.
He said he could not control the amount the borrower paid for the vehicles and that they were sold through a reputable auction house.
FSCL did not investigate the complaint about the 2012 loan as it was before the responsible lending rules came into force in 2015.
He accepted that the woman’s name changed between 2012 and 2019, so the lender did not realize the same woman was involved.
He could not review the issues that had been considered by a court, but could review whether the 2019 loan had been made responsibly, as that had not been resolved.
The FSCL case manager said even the small surplus that was shown in the women’s budget in their 2019 application disappeared when it was looked at further.
“We were of the view that the loan was unaffordable from the outset and that the lender had breached its responsible loan obligations…We recommended that the lender repay $3,500 in interest and fees to [her] residual debt.
FSCL also expressed concern that a vehicle purchased for $13,500 in February could sell in July of the same year for $1,500.
“We suggested to the lender that they might wish to reduce [the] debt as an acknowledgment that something may have gone wrong in the sales process to cause such a large discrepancy.
The lender disagreed.
The borrower accepted FSCL’s conclusion that the lender should reduce its debt by $3,500.
“As the deductions from the seizure order seemed to cause [her] financial difficulties, we have suggested that she asks the court to reduce her payments to a more affordable amount and that the lender agrees not to contest this request,” FSCL said.
The FSCL said that when a vehicle is repossessed and sold, it may sell for less than the borrower and lender expected, leaving a borrower with significant debt and nothing to show for.
“We encourage borrowers to exercise caution when buying a car to ensure it is worth the price the car dealership is asking. If a borrower cannot afford to repay a loan, they may also consider selling the vehicle privately, with the consent of the lender, giving them more control over how much they sell for.