Our investigation 

Sam said her hardship included: 

• moving out of the house she was in because she could no longer afford to live there 
• taking a second job 
• relying on family members to help her out with money 
• taking on a bank overdraft and substantial credit card debt 
• being unable to afford to visit her sick father or attend his funeral, or to contribute to her daughter’s wedding and study. 

Information on the loan application made it clear that:   

• Her monthly expenses totalled $4,860, but the itemised expenses added up to less than this, so there was an unexplained difference. It appeared that the rental expenses were blanked out. Sam, in fact, had monthly rental expenses of $2,000.
• Sam and her co-applicant had separate living arrangements and wanted to buy an investment property that neither intended living in.   

We considered these points should have prompted the bank to make further enquiries about Sam’s living expenses. If the bank had sought copies of her account statements, her rent payments would have shown up.  

It appeared the bank had added up the itemised expenses and used this total to make a decision to lend. The bank admitted that it would have declined the loan application if Sam had included her rental expenses.  

The Code of Banking Practice says a bank should lend to a customer only when it believes, based on the information available to it, that the customer will be able to meet the terms of the lending. When a bank fails to do this, we work out the loss the customer has suffered by looking at his or her lending costs minus any property-owning benefits (such as rental income). We then consider whether the bank should be liable for the full loss. 

However, we did not have to formally calculate the loss because the bank offered Sam $30,420, which she did not accept. We thought the bank was liable for some, but not all, of her loss because customers also have a responsibility to take reasonable care when assessing how they will service debt.   

We considered the bank should also offer some compensation for the significant inconvenience and hardship Sam suffered as a result of the unaffordable loan. The bank increased its offer to $43,000. 

Outcome 

Sam accepted the bank's offer.