Bank partially responsible for customer’s reliance on loan pre-approval

Categories:

Delays, Advice & information, Bank decisions, Lending,

Summary:

In January 2022, Alma signed conditional contracts to buy a piece of land and build a house on it. These contracts became unconditional after she obtained pre-approval from the bank for a loan featuring a low interest rate for the first three years. To secure this special loan Alma had to satisfy certain conditions within 90 days, including conditions related to the build. Alma was unable to satisfy these conditions and the bank stopped offering the special loan. Alma obtained loans to complete the purchase and build the house at the bank's standard interest rate. In going with a standard rate, Alma faced higher loan repayments for the first three years.

Published:

July 2025

Alma complained that the bank was responsible for the higher repayments because it had left her with no choice but to take its standard loan: the alternative was to be in breach of her unconditional sale and purchase agreement. The bank disagreed, saying the pre-approval had an expiry date and was not a guarantee for the special loan. It said Alma had been free to shop around for a better rate elsewhere and had not done so. Alma asked us to investigate.

Our investigation

A pre-approved loan subject to certain conditions is not a guaranteed loan. Rather, it is an offer to provide a loan if certain conditions are met by a certain date. Customers who choose to enter into unconditional sale and purchase contracts with such pre-approved loans do so at their own risk. However, there was more to it in this case. Alma told the bank the construction timeline at the outset, and the bank knew before it even issued the pre-approval that Alma would not be able to meet its conditions before the expiry date. The bank also told Alma that pre-approvals for the special loan could be extended as needed – although there was no guarantee this would happen. Given all this, the bank should have taken care to ensure Alma understood the risks that it could withdraw the special loan, and that any extension or further pre-approvals might not be at the discounted rate. It failed to do this. We also found that the bank failed to properly respond to a complaint Alma made when it withdrew the special loan.

Alma had a responsibility to explore better rates elsewhere, but we could not determine that she would have secured a better rate if she had done so. We therefore considered the bank had to share responsibility for Alma proceeding with lending without the benefit of the low interest rate. We could not find that the bank’s wrongdoing had caused Alma a direct financial loss, but were satisfied it had caused significant stress and inconvenience. We proposed that the bank pay Alma $8,000 for the significant inconvenience it had caused her.