Bank acted responsibly in approving student loan

Concerns about lending decisions,
Nikau had a $1,000 student overdraft in place when he applied to another bank for a $2,000 student overdraft. The bank approved the application on condition the other bank overdraft was repaid and closed. Nikau accepted the offer, and the bank provided the $2,000 overdraft. He repaid his other bank overdraft of $1,000, and closed that account.
August 2019

Nikau drew up to the limit of $2,000 relatively quickly.  The bank did not charge interest on the student overdraft as long as Nikau kept within the overdraft limit.  He did not do so however, and was charged interest for the amount drawn above the limit. 

His father Rawiri complained that the new bank should not have given Nikau a $2,000 overdraft loan in the first place because Nikau owed $1,000 to the first bank and had limited means to repay the money. He said the new bank failed to make reasonable enquiries into Nikau’s financial situation to ensure his son could afford to meet repayments on the increased loan overdraft. He said the bank failed to explain clearly how an overdraft worked, or the interest and fees he would be charged if he exceeded the overdraft limit. As such, Rawiri requested the new bank waive Nikau’s entire debt.

The bank responded that it had followed its assessment procedures correctly before approving the overdraft. It had analysed Nikau’s outgoings and income and had disclosed the terms of the facility. It believed it had acted carefully and responsibly in evaluating Nikau’s overdraft application and would not therefore waive the amount owing. 

Our investigation

We looked at the information held in the bank’s files and concluded the bank had conducted sufficient checks of Nikau’s financial circumstances before approving the new overdraft. We also found evidence in the bank’s files to support its position that it had explained to Nikau that exceeding the overdraft would result in fees and interest. We concluded the bank had acted reasonably and had not breached responsible lending principles.

In assessing whether Nikau had experienced any direct financial loss from incurring the debt, we noted Nikau had benefit of the $2,000 he had spent. The bank had also waived the interest charges incurred when Nikau went over his limit as a goodwill gesture.


Rawiri withdrew his complaint.


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