2015 - 2016

Lending

Property lending

Mr E agreed to assist his son to get a loan by being a guarantor.  This approach was unsuccessful so they applied as co-borrowers with Mr E’s house as security. The loan was approved. The arrangement was that the son would pay the loan, but less than a year in he stopped payments and disappeared. Mr E was retired on a limited income with other debts, but started paying the loan because defaulting could mean losing his house.

Mr E’s Enduring Power of Attorney, Ms F, complained to the bank that it had provided an unaffordable loan. The bank offered to only pursue Mr E’s son for the debt repayment of the debt but it wouldn’t discharge the mortgage on Mr E’s property. It told Ms F she could bring her complaint to our office for an independent investigation.

It appeared Mr E was a vulnerable customer, possibly taken advantage of by his son.

We noted Mr E had received no benefit from the loan, but was equally responsible for paying it and the bank was entitled to sell his property at mortgagee sale if it wasn’t paid. In such circumstances, we would expect a bank to advise someone in Mr E’s position to seek independent legal advice to ensure they weren’t under any undue influence by that other borrower. But there was no indication the bank had done this.

The bank then promptly agreed to review its position. It:

• removed Mr E’s name from the loan agreement
• discharged the mortgage over his property
• reimbursed all payments he had made to the loan.

These actions by the bank pleased Ms F as they returned Mr E to the position he was in before taking out the loan.  But she wasn’t happy with its offer of $1,200 compensation for stress and inconvenience resulting from having to make the loan payments.

Mr E was living elsewhere because his home on the property had been damaged several years earlier. Ms F considered a higher compensation payment was warranted because he had had plans to put a portacom on the property and live in it, but could no longer afford that on his income once he entered into the loan agreement. The bank increased its offer but Ms F still thought it should be higher.

We considered the offer was reasonable because it wasn’t certain Mr E definitely would have been able to live on his property in a portacom because his health and financial situation pre-loan was poor. In light of our view, Ms F agreed to accept the bank’s $3,000 compensation offer.