Bank not obliged to reassess customer’s lending

Categories:

Bank decisions, Lending,

Summary:

In 2012, the bank gave Angelica a $380,000 line of credit for investment purposes. She had an existing $120,000 line of credit for personal expenses. Both were secured by a mortgage over her home. Between 2012 and 2018, Angelica used the investment line of credit for various property development purposes. Angelica would partly or fully draw on the facility and repay it with payments from the property developments. In April 2022, Angelica drew on both lines of credit to invest in another property development – which failed. Both lines of credit were fully drawn, and Angelica was unable to make repayments.

Published:

August 2025

Angelica complained that the bank did not act responsibly when it allowed her to draw down the two lines of credit in 2022. She said the bank had an obligation to continually assess the affordability and suitability of the lines of credit extended to her, including up to the present time. She said her circumstances had changed significantly: she was now retired and no longer earned a salary. She said the bank should have considered whether it was appropriate for her, at her age and stage in life, to retain access to $500,000 of revolving credit.

Our investigation

Banks are under no legal obligation to continually reassess the suitability and affordability of a loan. Also, banks are not required to insulate customers from risk, especially investment risk. It is the customer who is responsible for his or her investment decisions, not the bank.

However, the bank did, in fact, conduct what it called financial wellbeing reviews to check on Angelica’s immediate and future banking needs and to help her achieve her financials goals. During the first financial wellbeing review in 2013, Angelica told the bank she was comfortable with her level of lending. During a later review, in September 2020, she told the bank she was planning to retire at the end of 2021, and as a result her only regular income would be pension payments. At this time, Angelica was 69, and the two lines of credit were mostly undrawn. The bank was not obliged to conduct these financial wellbeing reviews, and nor was it obliged to reassess the affordability and suitability of Angelica’s lending after hearing she planned to retire.

However, we recommended the bank improve its financial wellbeing review process to actively detect and respond to changes in customers’ circumstances. Financial wellbeing reviews were an opportunity to promote good customer outcomes and to ensure the products and services it offered customers did, in fact, continue to meet their financial needs.