trust us to be fair

Case - 46226

2015 - 2016

Lending

Property lending

Ms L and Mr M, her husband, had a home loan, personal loan and overdraft facility with their bank.  They also had a loan repayment insurance policy which covered loan payments in the event of total disablement.  The couple’s relationship suddenly ended and Mr M left the family home.  Following the separation, Ms L complained the bank supported Mr M more than her.  She complained it:

  • didn’t consult her before approving Mr M’s request for a joint loan repayment holiday
  • threatened mortgagee sale proceedings if the house wasn’t sold
  • provided incorrect information about how to claim under the loan repayment policy.

We reviewed the bank’s file on its dealings with Ms L and Mr M following the separation.  The couple disagreed about what should happen with their home; Ms L wanted to keep it while Mr M wanted to sell.  Mr M was about to lose his job and had no way to keep repaying the loan.  The bank wasn’t initially aware of the disagreement over the house and the loans. 

Mr M asked the bank for a loan repayment holiday given his financial circumstances.  The bank approved his request and told Ms L, who was upset she hadn’t been consulted.  She accepted a loan repayment holiday was necessary, but we considered that when a bank is aware joint borrowers have separated, it should discuss any changes to lending arrangements with both parties. 

Ms L was also upset at the bank’s verbal advice that it would begin mortgagee sale proceedings if the house wasn’t sold.  She felt the house sale was what Mr M wanted, so the bank was pressuring her to do what he wanted.  The bank said it didn’t mention mortgagee sale proceedings.

We considered it likely the conversation covered what could occur if loan payments weren’t resumed after the loan repayment holiday, and that Ms L would have been shocked to hear a mortgagee sale was possible.  However, we didn’t consider it inappropriate that the bank explained possible consequences if the loan went into default. 

We also didn’t have sufficient information to say the bank applied inappropriate pressure on Ms L to agree to the sale.  We noted the bank subsequently provided a further loan repayment holiday and deferred taking action for some months when the loan was in arrears so Ms L and Mr M could sell the property themselves. 

Ms L also complained the bank failed to give her and Mr M information about how to lodge a claim under the loan repayment insurance policy.  Shortly after the loan repayment holiday was granted, Ms L emailed the bank asking why it didn’t use the insurance policy for loan repayments. The bank advised it wasn’t aware Ms L and Mr M had a policy which would cover loan instalments. 

Ms L complained to us that Mr M was off work sick at the time, and they could have claimed under the policy for the ‘total disability’ benefit to pay the loan instalments.  She said the bank was aware of Mr M’s illness and was wrong saying there was no policy. 

We reviewed email correspondence between all the parties.  There was no mention of Mr M’s illness.  While Mr M supplied our office with a doctor’s certificate, there was nothing to indicate that the bank was told.  

We also noted that in saying that Ms L and Mr M didn’t have a policy to cover loan instalments, the bank meant that Mr M’s loss of employment wasn’t a claimable event under the policy. 

We thought that the bank’s statement was confusing given there was an existing policy.  However, we weren’t satisfied the situation would been different if the policy was mentioned.  If it had been, Ms L and Mr M would have had the opportunity to submit a claim for Mr M’s illness.  However, we weren’t able to say that any claim for total disablement would have been successful as there was no information to show Mr M was totally disabled. 

Overall, we considered the bank behaved reasonably in its dealings with Ms L, though we identified some administrative failings, including:

  • its failure to discuss Mr M’s loan repayment holiday request with Ms L before approving it
  • giving a confusing response to the insurance policy question. 

We recommended the bank make a small payment to recognize the inconvenience Ms L suffered as a result, and it agreed to do so.  Ms L initially didn’t accept our findings, and reviewed the case, confirming our initial findings.  Ms L was disappointed with the outcome, but she accepted the recommended compensation.