However, Scotty and Marisol learned the bank had set repayments at $559 a week and would not allow extra payments totalling more than five per cent of the fixed loan’s balance each year. They complained to the bank, which offered to increase repayments, which would have shortened the term of the fixed rate loan but would have left them without the flexibility to reduce repayments later. They were unhappy with this offer because interest rates had been steadily increasing, and they would be able to reduce payments later on only by breaking the loan, which would expose them to a higher interest rate. The bank offered them $1,500 as compensation for not restructuring their lending in the way they had expected, but they considered this amount did not adequately reimburse them for the impact of the bank’s error on their finances and financial planning.

Our investigation

We examined the bank's communications with Scotty and Marisol and found the bank had failed to make clear it could not give them what they wanted. The simple fact is, banks do not offer the flexibility they were seeking from a fixed interest rate loan. Only a floating interest rate loan could give them that. To assess whether and to what extent the couple’s finances had been affected by this failure in communications, we looked at what would have happened if the bank had told them it couldn’t give them what they wanted. Scotty and Marisol said they would have taken a deal offered by another bank if they had known at the outset that the bank could not do as they asked. The other bank had offered them a slightly better interest rate, which meant they would have paid less interest, and it also gave them a cash contribution of $5,720. Offsetting that, however, would have been refinancing costs in the form of legal fees and mortgage discharge fees, which we put at $1,050. But we also needed to take into account that they’d had the benefit of the lower repayments, and had used the surplus money to pay off other, higher-cost debt. All in all, we estimated the couple would have been $3,800 better off with the other bank.  

Outcome

The bank offered them $5,000 to resolve their complaint, which they accepted.