Bank’s communication about cash incentives led to misunderstanding

Early repayment charges,
John and Judith’s mortgage broker negotiated cash payments totalling $7,500 when they borrowed from the bank to renovate their home. When they switched banks a year later, they discovered they had to repay the $7,500 because they had refinanced within 24 months.
September 2019


Our investigation

The couple’s loan agreements stated they would have to repay in full any “incentives” if they refinanced within 24 months. In the bank’s communication with the mortgage broker, it used different terms, such as “cash”, “cashback” and “contribution to costs”, but it was nonetheless clear the couple would have to repay these various amounts if they refinanced early.

When the bank deposited the $7,500 in their bank account, it called the money a “legal fee subsidy”. The bank said it made clear to the broker the conditions attached to this payment, and there was evidence the broker understood those conditions and undertook to explain them to John and Judith.

However, we could see how the couple did not appreciate the legal fee subsidy was an incentive as set out in the loan agreement. We considered the loan documentation should have made it clearer that the couple would have to repay the $7,500 if they refinanced within 24 months. The bank could have done this by drawing up a separate document for John and Judith to sign confirming this fact.

The bank offered to refund $3,750 in recognition of the potential misunderstanding caused by how it explained the various incentives. It also updated the terms used in documents explaining cash incentives, ensuring it was clear and consistent language moving forward.


John and Judith accepted the offer, which we considered a reasonable one. 


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