Bank lends readily after inadequate assessment

Concerns about lending decisions,
Gavin ran a small business and from 2016 made numerous requests to the bank for money for himself personally and his company. Over the next few years, Gavin took out a personal loan of $5,000, a business credit card (on which he owed $5,000) and a business overdraft of $5,000. Due to a bank error, the overdraft was increased to $8,000. But since Gavin had already made plans for the funds, the bank allowed him to keep this limit.
December 2020

Gavin wanted the bank to restructure the lending to something with more favourable terms, but the bank said no. Gavin then complained that the bank had given him unsuitable and unaffordable lending. The bank offered to write off the extra $3,000 and pay Gavin $1,000 compensation for inconvenience, but he declined this offer and asked us to investigate.

Our investigation

A review of Gavin’s bank statements showed a willingness to borrow that was not matched by an ability to service the debt. When lending was approved, it was quickly drawn down to its maximum or almost its maximum. Much of the money appeared to have been spent on day-to-day expenses. Within a few months, the bank approved three different lending facilities totalling $13,000 – notwithstanding declined applications in the same period. This type of customer conduct suggested an unhealthy reliance on lending and indicated the lending might have been unaffordable or unsuitable.

There were also significant discrepancies in Gavin’s stated income and outgoings, which would have been apparent had the bank checked these against his bank statements. His rent was double what he had stated it to be, and his weekly income was from a Work and Income New Zealand benefit (and $140 less than he said it was). In one application, Gavin said he was earning $2,000 a month in addition to his benefit, and in another he said his income was $100,000 a year. But his bank statement did not show any such income.

We had concerns about whether this was responsible lending.


Gavin had enjoyed the use of the money, so it was fair he pay it back. However, we thought the bank should cover the cost of the lending. With our help, Gavin and the bank agreed to the following:

  • a refund of all fees and interest on the lending facilities (about $10,000, which reduced the balance to $7,000)
  • a consolidation of the debts into one interest-free overdraft with monthly repayments of $150 until repaid in full
  • compensation of $1,700 for the stress and inconvenience associated with this matter.
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