Bank acted correctly over lapsed trust loan

Home Guides & cases Case notes Lending - 80832

Bank acted correctly over lapsed trust loan

Categories:

Overdrafts,

Summary:

Hassan’s family trust, of which he was a trustee, took out a $300,000 10-year, interest-only loan with the bank in December 2010. The loan was due to mature in December 2020. In November, the bank sent a letter to the trust's registered address reminding it of the loan's impending maturity and what would happen if it had not made alternative arrangements by then. The bank also tried unsuccessfully to call both phone numbers on file, one the mobile of a trustee now living in Australia, and the other a no longer valid number. The bank could not get hold of the trustees.

In December, the full amount of the loan was repaid to the bank, causing the trust’s transactional account to become overdrawn by $290,000. The bank continued to send letters to the trust's registered address and kept trying to reach the trustee living in Australia on his mobile. Hassan’s father lived at the trust's registered address. In June 2021, Hassan’s father called the bank after reading one of the bank’s letters. Within a few days, the bank was able to get in touch with Hassan.

In September 2021, the bank conditionally approved a loan application by the trust to repay the overdraft. One condition of approving the loan was that the bank would first monitor the trust’s payments performance for six months because of the trust’s unsatisfactory record. This period ended – successfully – in May 2022, after which the bank took a further six months to gather more information from the trust to finalise the loan.

Hassan complained to us that he bank failed to fulfil its lending obligations when it gave the trust a loan in 2010, that it failed to collect adequate identification information about the trust and its trustees, that it failed to adequately communicate the impending maturity date in December 2020, that it continued to add interest and fees to the trust account, and that the condition of a six-month monitoring period had been oppressive. Hassan also said the bank was at fault for the delays in reinstating the trust's loan.

Published:

November 2024

Our investigation

We could not consider Hassan’s complaint about lending in 2010 because it had taken place more than six years ago and was therefore outside the time limit set by our rules. We found the bank had adequately communicated about the term of the loan and the maturity date. It did so when the loan agreement was signed, and then every six months subsequently when it sent statements to the trust's registered address. The trust had an obligation to check the statements. The bank had also sent a reminder a month before the maturity date.

The trustees had given the bank their contact details in 2014 when the trust took out a loan, and the bank should have followed best practice by updating these details. Even so, the bank still met its obligation to communicate clearly and effectively about the loan’s term and maturity date. We found the bank continued to communicate clearly and effectively with trustees once the account became overdrawn. We found the bank had not acted oppressively by requiring a payment monitoring period. Banks are entitled to set lending conditions based on their own commercial judgment. It is up to the customer to decide whether to agree to the conditions. As for the delay in processing the trust’s loan application, the bank could have acted more promptly in gathering information and finalising the loan application, but equally the trustees had themselves contributed to the delays, so we found the bank did not breach any duty or obligation in this regard.

Finally, the trust had suffered no direct financial loss as a result of the bank’s alleged actions or inactions: the bank had reimbursed all the fees and interest accrued on the account – totalling $150,000 – while it was overdrawn.