It questioned the affordability of the new lending and complained to the bank on her behalf. However, the bank maintained the lending had been affordable. It said it had used a standardised figure for her living expenses and, after taking account of her existing debts, had concluded she had ample uncommitted monthly income. 

Our investigation

Banks can use a standardised figure for living expenses when assessing loan affordability. However, the Responsible Lending Code in force at the time said a standardised figure had to be current, reliable and suitable for the particular type of borrower. The code also said there had to be little risk the figure would be lower than the borrower's actual expenses. We reviewed the bank's affordability assessment using the standardised figure. The standardised figure had last been updated in 2016 and was not therefore current. 

The suitability of the figure to the circumstances of a solo mother with five dependants was questionable, but regardless, the figure was considerably lower than Juno’s expenses as detailed in the bank statements she attached as part of her loan application. This particularly applied to weekly expenses for church contributions and schooling costs. There was also very high spending at petrol stations. In short, the bank asked for loan statements when assessing her application, but largely disregarded them in favour of an unsuitable standardised figure.

Outcome

The $8,000 loan to Juno was not affordable. While Juno received the benefit of the $8,000, the bank was not able to profit from the loan. It therefore agreed to refund all interest and fees for the lending, and a portion of the refund was used to repay the amount left owing on the loan.