The bank did as he requested, but he complained that the bank incorrectly applied the start and end dates for their fixed-rate loans. He said the bank charged an extra day of interest for each fixed-rate period. He said the bank did this without telling them, or, indeed, other customers in the same situation. He was concerned this had the effect of extending the term of their loan. He wanted the bank to correct the fixed-rate dates and refund the extra interest they wrongly incurred.

Our investigation

We looked at how the bank calculated interest and how it set the start and end dates of fixed-rate periods. We found the bank calculated the interest correctly, but that it applied each fixed-rate period for one day longer than the agreed term.

The loan agreement and letters sent to Floyd and Molly said the bank would apply a fixed rate for one year from the date of taking out the loan. There was no indication in the bank’s communications or agreements that the fixed rate would run beyond the ordinary meaning of a year (being 365 days or 366 days in the case of a leap year). However, the bank’s practice was to end the fixed-rate period after 366 days (or 367 days in a leap year). We found the bank had not applied the fixed rate for the agreed period, and therefore breached the agreed terms of its contract with Floyd and Molly.

This did not extend the overall loan term, which ended when the loan was repaid. However, the bank’s practice meant Floyd and Molly paid interest for an extra day when they repaid one loan early. They were also charged the previous higher fixed rate for an extra day before the new rate began, which together resulted in about $30 of extra interest.

Outcome

We upheld Floyd’s complaint and recommended they accept the bank’s offer of $500 compensation, which they did. This compensation recognised the extra day of interest charged on both loans and the inconvenience the bank caused them. Given the potential impact of the bank’s practice on other customers, we also reported the matter to the regulator.