Loan a month off completion, but cash contribution must still be repaid

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Loan a month off completion, but cash contribution must still be repaid

Categories:

Early repayment charges,

Summary:

Sydney took out a three year fixed-interest rate loan with the bank. About two and a half years later, he began looking around for cheaper rates. He asked the bank about the early repayment cost (ERC) for repaying the loan early. The bank provided him with the ERC amount. Sydney then broke his fixed-term loan and went to another bank. His first bank charged him $2,000 to recoup the cash contribution it had given him three years earlier as an incentive to take out a loan with it.

Published:

November 2019

Sydney complained that the bank did not properly disclose the full cost of breaking the loan and he wanted the return of the $2,000. He also said the bank suggested it may waive the cash contribution clawback or apply it on a pro rata basis.

The bank replied that the terms and conditions of its cash contribution agreement with Sydney entitled it to repayment of the contribution if he left the bank during the three year term.

Our investigation

We considered the bank had met its obligations to disclose that it would recoup the cash contribution if Sydney broke his loan. The terms of the cash contribution were clear. While Sydney hoped the bank would waive the clawback or apply it on a pro rata basis, the bank did not say it would do so in its calls with Sydney. When we listened to the calls, we could find no evidence the bank misled Sydney about the costs of repaying the loan early.