2015 - 2016

Lending

Property lending

Ms K purchased a rental property with a loan from her bank. She later bought another property, again with a loan from her bank. This new property had two certificates of title – worth $300,000 and $100,000 respectively. Due to a bank administrative error, the second title was not loaded in its system. Ms K found this out nearly eight years later. She complained to the bank and asked it to compensate her for any adverse financial effect caused. The bank acknowledged its error but didn’t believe there was any adverse effect. As a goodwill gesture, it offered $500 for inconvenience. Ms K wasn’t happy with this and asked our office to investigate.

She believed the bank had made certain lending decisions based on the loan to value ratio (LVR).  Due to the error, the LVR was recorded as much higher than it really was because the bank had only listed the value of one of the property’s titles – the $300,000 one not both. She complained:

• the bank refused to provide special low interest rates because of the LVR
• when she sold the rental property, she wanted to repay the loan and use any surplus to pay for her wedding, but the bank used the funds to reduce her other loans. She then had to borrow from a third-party lender to cover wedding costs
• her application to absorb her credit card into her home loan was declined.

We investigated and sought further information from the bank on a number of points. This resulted in the bank advising that if the LVR had been correctly recorded, its lending decisions would have been different. After examining points we raised it proposed to:

• refund the difference between the special interest rate and the rate Ms K was charged ($1,400 applied to her loan)
• refund the difference between third-party loan interest charged and what she saved by having the funds reduce her home loan ($7,500)
•  reimburse all credit card interest and fees since the application
• pay compensation for inconvenience ($3,000).

Ms K also said the bank charged her low-equity fees when she had sufficient equity to avoid the fee and declined loan repayment holiday and home loan applications. But the bank didn’t accept it acted wrongly saying it had correctly charged her but offered to reimburse $90 for the only low-equity fee charged. Its decision to decline the loan repayment holiday was based on commercial judgement and her ability to repay the loans, not on the LVR.  While it had declined a loan repayment holiday, it subsequently reoffered Ms K one when the error was discovered but she declined it.

Ms K asked for our opinion on the bank’s offer. Based on information available, we advised it was fair and reasonable. She then accepted the offer and the complaint was resolved.