Bank properly informed customer about early repayment charges

Categories:
Early repayment charges
Summary:
Zhang took out three housing loans with his bank. The loans' interest rate was fixed for three years. Four months later, Zhang asked the bank what it would cost to repay the loans early. He was told what the early repayment charges would be. He repeated this request three more times during the next two months. The answers were higher than the first estimate. Zhang eventually refinanced with another bank. The early repayment charges were $5,000 higher than initially quoted.

Our investigation

Zhang complained that the bank didn’t disclose how it calculated the charges when it gave him the loans. He also complained that the bank didn't give him a copy of the loan terms and conditions document when he took out the loans. This document sets out the bank’s formula for calculating early repayment charges. Finally, he complained that the bank should have required him to sign the terms and conditions document. 

We reviewed the process the bank used to disclose loan terms and conditions. The bank's lending contracts consisted of an offer letter setting out the key terms in a customer's contract, along with a separate, more detailed loan terms and conditions document. The bank asked customers to sign the offer letter, but not the terms and conditions document. The offer letter stated that an early repayment charge might apply if the loan was repaid early and the bank incurred a loss as a result of the early repayment. The letter also referred customers to the terms and conditions document for more information on how the bank calculated early repayment charges. 

The bank would send the offer letter and the loan terms and conditions document to a customer’s lawyer, along with a letter of instruction to arrange for the preparation and registration of mortgages and make disclosure of the loan documents. 

It was clear the bank had posted the offer and instruction letters. We weren’t able to establish whether the bank included the terms and conditions document in the envelope, although the bank’s system recorded that it had been sent. However, we noted that, in signing the offer letter, Zhang acknowledged having been given the loan terms and conditions. Also, in the instruction letter to the lawyer, the bank listed the documents enclosed and wasn’t advised that any documents were missing. 

Therefore, we found there was enough evidence to conclude that the bank had given Zhang the loan terms and conditions, which set out the formula for calculating early repayment charges.

We also found that the bank was not obliged to require Zhang to sign the terms and conditions document. Its obligation extended only as far as disclosing the information in the  document. In signing the offer letter, Zhang accepted the bank’s offer to lend him money on the terms set out in that letter and in the loan terms and conditions document. He also acknowledged receiving the loan terms and conditions document. 

Outcome

We did not uphold his complaint.

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