2015 - 2016

Lending

Property lending

Mr and Mrs L had bank credit facilities, secured by a mortgage over their home.  The credit facilities included a revolving credit facility, with a $40,000 undrawn portion. 

Mr L had an opportunity to purchase a business and commercial premises, and the couple discussed purchase finance with their bank.  They also wanted to put their family home into a trust. 

The bank wrote to them saying it was prepared to refinance the current home lending into the family trust and provide $500,000 in new lending, with a lending limit of $840,000.  The finance offer was subject to the provision of sale and purchase agreements for both the business and commercial premises, and valuations for the house and business building. 

Three months later, Mr L and the vendor completed negotiations, and a sale and purchase agreement for the business was signed.  This was provided to the bank, which confirmed it would provide funds for the business purchase and re-document the existing lending into the family trust.  Mr and Mrs L’s lawyer sent the bank a letter setting out the structure for the credit facilities sought.  The total amount sought was $800,000, to be provided through seven credit facilities. 

The bank provided a letter of offer setting out the seven facilities and amounts for each.  The total amount was $800,000, though this total was not stated in the letter. 

Several days before settlement, Mr and Mrs L met with the bank and confirmed interest rates for the facilities.  Also, one of the facilities was re-documented into two. 

Settlement occurred, and the bank advanced $800,000.  The settlement didn’t go smoothly, and Mr and Mrs L’s lawyer was unable to reconcile some of the sums received with the agreed facilities.  It took some time and further legal costs to sort out the matter.  It also became clear to the couple that the full $840,000 initially sought hadn’t been provided.  They had intended using the undrawn amount of their existing facilities to cover living costs while Mrs L was on maternity leave. 

They met with the bank a few days after settlement to discuss this.  The bank was unable to provide a further $40,000 at secured interest rates as the bank’s lending was at the maximum it could provide against the securities.  It did, however, offer to provide a personal loan at the bank’s unsecured interest rate.  Mr and Mrs L didn’t respond to the bank about this offer. 

Several months later, Mr and Mrs L refinanced their lending with another bank.  They then submitted a complaint to the bank, saying it was responsible for the early repayment costs they had had to pay refinancing.  They said they had had no option but to refinance given the bank’s failure to lend them the full $840,000 and the confusion that had occurred on settlement day.  They sought $10,000 compensation for costs of moving banks, which consisted of legal costs, mortgage discharge costs and early repayment fees.  They also sought compensation for stress and anxiety. 

The bank offered to reimburse the extra legal costs associated with the settlement day confusion.  However, it wasn’t prepared to compensate for refinancing costs.  It accepted it could have been clearer about the amount it was prepared to lend, but had offered the personal loan solution.  It was Mr and Mrs L’s decision to refinance. 

Mr and Mrs L complained to us that the bank didn’t provide the full $840,000 it had initially agreed to lend, leaving them in a difficult financial situation when Mrs L went on maternity leave. 

We noted that the later lawyer-bank correspondence referred to total borrowing of $800,000, and that the bank had provided this.  The difference was due to house and business valuations which weren’t sufficient to support higher lending. 

We considered that while the first approval was conditional on the valuations, the bank should have made it clearer that the first figure was provisional and could change.  We also believed the bank should have confirmed that Mr and Mrs L wished to only borrow $800,000 when it received the lawyer’s letter. 

However, we also considered they had some responsibility for the misunderstanding.  The bank had received the lawyer’s letter setting out a lending structure for $800,000 and responded with letters of offer.  Mr and Mrs L had the opportunity to review the letters to ensure the offer met their needs and to make contact if they had questions.  They also signed the loan documents for each facility.  Further, a simple addition of the amounts for the individual facilities the bank was offering Mr and Mrs L would have revealed they were borrowing $800,000, not $840,000.  

Our view was that the bank should not compensate Mr and Mrs L for the cost of moving banks.  The decision to move banks was entirely theirs.  However, we did consider the bank should make a further offer to Mr and Mrs L as they had clearly experienced stress and anxiety as a result of its lack of clear communication about the loan funds and for the confused settlement process.  We considered that $2,000 was appropriate compensation.  

Mr and Mrs L didn’t accept our view, and submitted a further compensation claim for costs in moving banks.  The bank was prepared to settle the complaint on payment of $4,000 which Mr and Mrs L accepted.