Records revealed inadequate effort to assess whether lending affordable

Concerns about lending decisions,
Tahira earned the minimum wage, received Work and Income support and had bank debts totalling $25,000. She had also been diagnosed with a mental illness and her family believed her debts were contributing to her condition. The family lent her $10,000 to help reduce her debts and also arranged for her credit card limit to be lowered.
April 2020

Two years later, the family learned Tahira had got a new loan from the bank and increased the limit on her credit card. Her bank debts stood at $24,000. Tahira’s earnings had not gone up and she was still receiving Work and Income support. The family was not satisfied with the bank’s explanation of how it had decided she could afford the loan and asked us to investigate.

Our investigation

Our examination of the bank’s records showed successive increases in Tahira’s credit card limit since she got the card in 2011. However, there was almost no evidence on how the bank had assessed whether she could afford the increases, which the bank said was partly caused by the limited information held on file due to the amount of time that had passed.

The size of the lending increases worried us because several diary notes referred to her difficulty in meeting repayments. One of these diary notes was made just a month before the bank approved an increase. We were not satisfied the increases were affordable. 

In relation to the loan, documentation showed that the bank had relied solely on information Tahira had provided in her application despite the fact there were discrepancies that should have alerted the bank to the need to verify the information, which it failed to do. 

Our conclusion was that the we did not have enough information to show that the bank had determined the lending was affordable, and we told the bank this. The bank offered to reduce the debt from $24,000 to $10,000, a significant deduction as well as a recognition of the stress and inconvenience the bank had caused Tahira. The bank also offered a lower interest rate on the outstanding $10,000 and more affordable repayment terms. We considered this a reasonable offer. It was also in line with the general approach to irresponsible lending, which is that the customer must repay the principal debt but not the cost of lending.


Tahira accepted the offer.

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