Facts
A couple applied for a loan to purchased an investment property in NSW. Shortly after the loan settled, they began to default on their repayments.

At the time the loan was approved, they allege they were already servicing a high level of debt and asserted that there was little prospect of them servicing the new loan and the loan should not have been provided to them.

Complainants Position
The couple claimed the lender was indifferent as to whether they would be able to meet their repayment obligations and alleged that the lender was prepared to rely on the value of the security alone, rather than conducting a proper assessment of their loan application and capacity to repay the loan.

The couple alleged that the loan contract was unjust and wished to receive the maximum amount of compensation available; that is $250,000.

Members Position
The Member asserted that they relied on the information in the loan application and supporting documents provided by the couple. It was confident in its belief that it had sufficient evidence to show that the couples’ employment and rental income would support the loan.

The Member therefore denied the couples’ assertion that it was indifferent to the question of whether they were able to meet their repayment obligations. The Member also denied that the loan was unfair or unjust.

Our Position
In considering whether the borrower’s loan was unjust at the time it was entered into, we had regard to sections 7 and 9 of the Contracts Review Act (NSW) 1980. Similar provisions in the Uniform Consumer Credit Code were not applicable in the present case as the loan was for investment purposes.

We considered that, based on current law, a loan was not unjust merely because it was a ‘pure asset lend’; that is, a loan made on the basis of the value of the security only and without having regard to the borrowers’ ability to repay it. If it were otherwise, reverse mortgage loans and certain bridging loans would be unenforceable.

The Courts have suggested that it is generally not enough for a borrower to be foolish, gullible or greedy for the contract to be unjust - ‘something more’ was required.

The Resolution
On the facts of the present case, the security for the loan was not the family home or the borrower’s sole asset. Nor were the borrowers unable to protect their own interest because they were in a position of special disadvantage or disability.

Accordingly, we considered that the contract was not unjust in the circumstances.

Facts
A couple intended to purchase a vacant block of land (‘new property’), with a 60-day settlement period. A 3% rebate was available if the finance was unconditionally approved within 14 days, and the settlement occurred within 30 days of the date of the purchase contract.

The couple asked a broker to arrange finance for the purchase. As the couple were existing customers of the lender, the lender undertook to retrieve their financial information from their last loan application, but still required updated financial details and rental estimates for their existing investment properties.
The bank later advised that they were unable to retrieve the previous loan application and therefore required a full application, along with the couples’ “income details in full for assessment”.

The broker forwarded the bank’s request for full income details and the loan application form to the couple. The broker also advised them that 30 days should be sufficient to arrange finance and settle the purchase.
The couple completed, signed and returned the loan application to the broker, but did not provide the rental estimates. The couple then proceeded to sign the Contract for Sale prior to leaving for a 16-day holiday, but did not provide the broker with their contact details while away.

On the couples’ return, the broker advised them that their updated rental income estimates were still outstanding, whereupon they sent the broker a brochure containing a rental estimate for one of their properties. This was inadequate for the bank’s purpose. The couple then provided the broker with a contact number for the manager of the investment property from whom he could obtain the required information directly.

The couple then advised the seller of the property that the purchase contract could be treated as unconditional on the basis that finance had been approved even though it had not. They alleged that the broker had assured them that they could do this.

The broker attempted on several occasions, without success, to obtain the rental estimates from the manager of the investment property. It was not until the couple intervened much later that the information was provided.

As it turned out, the rental estimates were lower than expected and the serviceability of the loan became an issue. The loan application now required the approval of the bank’s State Manager, or in his absence, its head office in Sydney. To prevent further delays, the broker made a special request to the bank for a “Relocation – No End Debt” loan to be approved. This did not require an income assessment, but was not ordinarily available on purchases of vacant land where no building contract was in place.

Due to the delays and several other delays beyond the control of the broker, the 3% rebate was no longer available. The purchase was however settled within the 60 day period.

Our Position
We considered that when the broker received the newly completed loan application from the couple, he was aware that the application was not accompanied by the rental estimates requested by the bank, and that it was necessary to have followed this up before the couple went on holiday. By not having done so, the broker could be regarded as having breached his duty of care. It was reasonably foreseeable that the broker’s failure to follow up the information would cause the couple to lose the rebate.

However, the duty to exercise reasonable skill and care does not necessarily mean that a particular result will be achieved, but only that he will use reasonable care and skill. For instance, the surgeon does not warrant that he will cure the patient.

At law, the broker’s act or omission need not have been the sole cause of the loss. The broker may have been responsible for the loss even if his conduct was only one of the causes of the loss.

The Resolution
Although there were several factors that contributed to the loss of the rebate and which were beyond the broker’s control, none of these were of such a nature as to break the link between the broker’s conduct and the loss of the rebate.

However, it was also clear that the couple significantly contributed to their own loss. They only provided the broker with the completed loan application and not their full income details or rental estimates as requested. Significantly, the couple were not first time investors, and should have realised that the bank’s request for “income details in full for assessment” would necessarily have included rental estimates of their properties. Surprisingly also, the couple did not provide the broker with their contact details while away. In addition, they ought to have sought the rental estimates themselves before going on holidays, rather than asking the broker to obtain them on their return.

Consequently, although the broker was ultimately responsible for the loss, the couple contributed significantly to this. We therefore found that the compensation for the loss rebate payable by the broker should be reduced by 80% to reflect the extent by which the couple were responsible for their own loss.

Facts
A couple approached a Broker they had used before to refinance their home loan and to borrow an extra amount to assist in the purchase of another property in Gordon ACT. They intended to sell their home, but there was no necessity to do so in order to purchase the Gordon property.

Soon after applying for the loan, the couple placed their existing home on the market.

As a result of extensive delays by the lender, the loan did not settle for 3 months.

Complainants Position
The couple alleged that:

• the loan amount was incorrect;
• the proposed loan structure differed from the one they requested;
• the lenders mortgage insurance (LMI) would cost them $17,000, which was higher than the amount estimated by the Broker.

The Broker suggested that the couple might wish to delay settlement of the purchase of the Gordon property in order to lower the cost of the LMI. He pointed out that if settlement was delayed and the loan amount sought reduced by a specific amount, any penalties incurred as a result of the late settlement would be significantly offset by a reduction of LMI, to the tune of $9,800.(COSL found that the Brokers assertion was correct.)

Having relied on the Brokers suggestion, the couple incurred some default fees for the late settlement and interest on the late payment of stamp duty. The couple nonetheless sought to be compensated by the Broker for these. Furthermore, because the couple were required to travel to Sydney to sign the amended loan agreement, they sought to recover from the Broker the cost of doing so. This included the cost of petrol, the proportional cost of private school fees as a result of keeping their children away from school on the day, their loss of income for the day and phone expenses.

Our Position
We considered that our Rules did not permit the couple to recover losses they alleged were incurred in having to travel to Sydney, such as the cost of petrol, proportional private school fees, and loss in income and phone expenses. We also found that the delays in the loan approval process were almost wholly attributable to the Lender and not the Broker. The Complainants had in fact already received compensation from the Lender for the delays.

The Resolution
We found that the Complainants had not made out their case against the Broker in relation to the allegedly incorrect amount of the loan and its structure and the Brokers estimate of the LMI. The complaint was therefore closed.

Facts
A couple applied for a new product a lender had just begun offering; a home loan with a debit card facility attached. Unfortunately, the time taken to approve the loan elapsed to 10 weeks. Furthermore, after the loan had settled it took a further six weeks longer than what was indicated in the lenders advertising to be delivered.

The couple also claimed that the lenders website was misleading because it stated that an application fee would not be payable. The couple argued that the legal documentation fee of $310 charged on the loan was effectively an application fee.

The lender offered to compensate the couple for the cost of calls made and provide the couple with certain other benefits that were not otherwise available under the loan facility. A case of wine was also delivered to the couple as a token of good faith.

Complainants Position
The couple, in addition to the resolution offered by the member, sought monetary compensation for the delay in settlement, late receipt of the debit card, their inability to access the loan proceeds until receipt of the debit card, and also sought reimbursement of the legal documentation fee they incurred.

Members Position
The Member asserted that no loss had in fact been suffered by the couple and that the delay in settlement was not wholly attributable by them.

Our Position
Whilst the lender was responsible for some of the delays, the delays were predominantly the result of the couple having made changes to the loan application during the approval process and having been tardy in returning documentation to the lender.

We also found that the delay in the couples’ receipt of the debit card was neither the fault of the lender nor the couple. The cards had been lost in the post, but in any event, the couple had in fact been able to access the loan funds through internet banking and direct redraw request from the lender.

We found that the legal documentation fee was clearly distinguishable from the application fee on the lenders website.

The Resolution
As a result of our review, we determined that the complaint had not been made out by the complainant and therefore the complaint was closed.

Facts
A borrower had been conducting her loan satisfactorily until she lost her job. Not being able to maintain her loan repayments, she contacted the Member (a lender) to let them know of her financial hardship and sought to discuss possible payment arrangements while she was without a job.

The Member advised her to allow her repayments to go into arrears, and then apply to APRA for the early release of her superannuation benefits to pay the arrears on her loan. (APRA only permits the early release of benefits on very limited grounds, including severe financial hardship.) Acting on the Members advice, she applied for the release of her superannuation benefits, but for reasons outside her control, the release of the benefit payment was delayed.

During this time, she had to deal with three different staff members of the Member, with the third one refusing to allow her more time to receive her superannuation benefit. The arrears on her loan had by this time increased to the extent that, when the superannuation benefit was eventually received, it was insufficient to repay the outstanding arrears.

During this she had found and offered to make additional fortnightly repayments in order to reduce the arrears. This proposal was rejected by the Member on the basis that it would extend the term of her lo, increasing the loan to value ratio (LVR) beyond that which was acceptable to the Members mortgage insurer. The Member commenced legal proceedings to repossess the property.

Complainants Position
The complainant asserted that she took the advice of the Member to stop making payments on her loan and to seek the release of superannuation which was delayed, therefore the Member should be lenient when discussing an arrangement to repay the arrears on the loan.

Members Position
The Member agreed to halt any repossession while COSL reviewed the complaint.

Our Position
As the loan was subject to the Consumer Credit Code, we advised the Member that it had not considered the Complainants financial circumstances for the purposes of section 66 of the Code.

The Resolution
The parties agreed to change the terms of the loan so that additional fortnightly payments were made to reduce the arrears, on top of the usual normal monthly repayment. As a gesture of good will, the Member also waived the interest on the arrears, the monthly default fees and dishonour charges, and agreed to cease any legal action.

Facts
A borrower was in prison and was not due to be released until June 2011. His loan fell into arrears and he contacted his lender to request a repayment variation on the grounds of financial hardship.

He advised the lender that a real estate agent had indicated that he could let the security property for $130 per week. (Incidentally, this would have meant that his family had to vacate the premises.)

Complainants Position
The Complainant was confident that once he was released from prison, he would find employment, continue making the loan repayments and pay off the arrears and therefore the Member should reconsider its decision.

Members Position
The lender re-considered the decision at our request, but again declined the application for a payment variation of grounds of financial hardship. They explained to us that the borrower had not established that he could reasonably meet his on-going obligations, either before or following his release in June 2011.

The lender also suggested that because the borrower’s financial hardship had been caused by his own conduct, it did not meet the requirement under section 66 of the Consumer Credit Code that the financial hardship must be due to “illess, unemployment or other reasonable cause.”

Our Position
We disagreed with the Members position and considered that incarceration could amount to a “reasonable cause” for which an application for a payment variation could be made on grounds of financial hardship.

However, we found that the lender had in fact taken into account relevant factors in accordance with the Consumer Credit Code. This was because the borrower had not provided any information to show that he had actively sought to rent the security property. In addition, his prison release date in June 2011 also suggested that his financial difficulties were not temporary.

The Resolution
As the borrower’s hardship was not temporary and there was insufficient information to support his claim that a variation would allow him to pay off the arrears and discharge his payment obligations under the loan, relief under section 66 of the Consumer Credit Code was not available to the borrower in any case.

Facts
A borrower had accumulated a number of personal loan and credit card debts in addition to his existing fixed interest rate home loan. He believed that he would be able to better manage his debts if he switched to a variable interest rate loan and was advised by his (non-bank) lender that the break cost fee payable on switching his loan to a variable interest rate was $19,500.

He advised the lender that he was having difficulty meeting the repayments at the fixed rate, but that he did not have funds to pay the fixed rate break cost fee. The lender promptly asked him to complete a “Statement of Financial Position” and provide it with supporting documentation so as to enable it to properly assess the borrower’s financial position.

Having done so, the lender offered to reduce the break cost fee to $7,588, thus waiving almost $12,000 in fees that it was entitled to recover under the loan contract.

Complainants Position
As the borrower did not have funds to pay the reduced break cost fee and was experiencing financial hardship to the high fixed interest rate, he requested that the lender capitalise the fee.

Members Position
The Member advised COSL that, according to the borrower’s Statement of Financial Position, the borrower had personal loans in the amount of $35,000, credit card debts of $90,000 and that his monthly expenditure (including loan and credit card repayments) was $5,000 more than his monthly income.

The Member also advised that both the lender and the mortgage insurer were not inclined to capitalise the break cost fee. The lender correctly pointed out that the borrower’s financial hardship was not of a temporary nature. However, the lender indicated that it was willing to reduce the fixed rate break cost fee, and to accept reduced repayments for a period of time if the borrower chose to remain on a fixed rate.

Our Position
In considering a complaint of this nature, we are unable to substitute our decision for that of the lender’s. Rather, we will ask the lender to reconsider its decision where, for example, the borrower has put forward a reasonable repayment proposal or where the lender has taken into account inappropriate factors.

The Resolution
We found that the lender had taken into account the relevant factors required by the Consumer Credit Code and the MFAA Code of Practice. Consequently, COSL closed the case.

Facts
The borrower was on a one year fixed-rate loan. Towards the end of the fixed rate period, the borrower contacted the broker to arrange another fixed rate loan. During the course of the telephone conversation, the broker quoted the then current fixed rates applicable to different loan terms.

Based on this information, the borrower instructed the broker to arrange for her loan to be ‘re-fixed’ for a further period of three years on the expiry of the existing fixed rate loan. The borrower erroneously assumed that the interest rate would be fixed at the rate quoted by the broker.

The borrower’s loan was re-fixed at the expiry of the existing fixed rate period, but at a higher fixed rate than was quoted by the broker. The borrower protested that, had she known that the fixed rate would be higher than the rate quoted by the broker, she would have allowed the loan to revert to a variable rate loan.

Member’s position
The broker submitted that he could only provide the borrower with an indicative fixed rate because the rate was subject to change at any time before settlement. The broker also stated that the borrower could have entered into a ‘rate-lock’ agreement which, at a cost, would have locked in the rate quoted to the borrower. However, the broker had not mentioned any of these to the borrower.

The borrower referred her complaint to COSL.

COSL’s view
COSL considered that the broker should have advised the borrower that:

• there were risks in fixing the rate of interest on a loan;
• the fixed rates then on offer were indicative only and were subject to change prior to settlement; and
• a rate lock facility was available at a cost.

The advice was all the more important given that significant ‘break costs’ can be incurred by a borrower intending to discharge a loan during a fixed rate period, and given the length of time between when the borrower first enquired about the available fixed rates and the date her existing fixed rate term expired.

Based on the information received from both parties, COSL accepted that the borrower would not have instructed the broker to re-fix her loan had she known that the fixed rate could increase by the time her existing fixed rate term expired.

Outcome
The broker accepted COSL’s view and voluntarily reimbursed the borrower for the extra interest costs she would incur as a result of the fixed rate being 20 basis points above the fixed rate initially quoted by the broker.

Facts
The borrowers submitted an application to the franchisee of the lender to fix the interest rate on their loan. The application was promptly faxed to the lender for processing.

Unfortunately, the lender did not receive the fax and consequently failed to action the borrowers’ request to fix the interest rate. The loan therefore remained on a variable rate and was exposed to interest rate movements.

For eight months, the borrowers remained unaware that their loan was not on a fixed rate. On eventually becoming aware of this, they complained to the franchisee and the lender. On failing to negotiate an acceptable outcome, the borrowers referred their complaint to COSL.

Borrower’s complaint
The borrowers sought the following outcomes:

• The interest rate on the loan was to be fixed at the same rate as was available at the time of the fixed rate application; that rate to apply for a period equivalent to the term remaining had the loan been fixed as requested.
• Compensation for the interest paid by the borrower in excess of the interest that would have been paid had the rate been fixed as requested, from the time of the fixed rate application to the time the interest rate is fixed.

Member’s position
The lender acknowledged not having received the fixed rate application from the franchisee and consequently not having fixed the rate as requested, but suggested that the borrowers ought to have been aware that the loan remained on a variable interest rate because:

• The borrowers received five letters advising of interest rate rises before making a complaint;
• The borrowers also received five letters advising of changes in their loan repayments as a result of increases in the variable rates;
• The borrowers received loan statements showing the changes in the interest rates; and
• The borrowers had access to an online internet banking facility which would have shown that the loan was on a variable interest rate.

Nonetheless, in an attempt to settle the complaint, the lender offered the borrowers a fixed interest rate (‘new fixed rate’) for a term of two years. The new fixed rate was significantly less than that available in the market. In addition, they offered an interest adjustment from the time the borrower raised their complaint with them to the time of the new fixed rate.

After further facilitation by COSL, the lender also agreed to an interest adjustment from the time of the fixed rate application to the time the borrowers first received notice that the interest rate on the loan had increased (and were therefore on notice that the loan was not at a fixed rate).

Outcome
The borrowers accepted the offer of settlement.

Facts
The borrower intended to sell his investment property which was secured with a home loan through a lender. He was however a little concerned that he would not have enough funds from the sale to pay the loan off in full.

He approached the lender to confirm the fees to discharge the loan on three occasions:

• before the property was put up for sale;
• when he entered into the sale contract; and
• one week after he entered into the contract of sale.

On each of these occasions, the lender provided him with a breakdown of the fees which were payable on discharge. However, part of his loan had a fixed interest rate, the lender did not advise him if any fees were applicable (break cost fee) on discharging his fixed portion of the loan. Nevertheless, the lender did advise the borrower to allow $2,000 for any unexpected costs that may arise.

A month after he entered into the contract of sale he became aware that a break cost fee was payable.

Complainants Position
At that time, the break cost fee was about $9,600. He claimed that if the lender had advised him of this fee when he enquired about discharging the loan, he would not have sold the property at the price that he did. He therefore was requesting compensation of $9,000 to resolve the complaint fairly.

Members Position
The Member provided information to show that the fee was disclosed in the loan agreement, which was signed by the borrower. In addition, when the borrower first approached the lender, the fee was $0, but increased to about $2,000 at the time the borrower entered into the contract of sale and one week after that.

The Member relied on its advice to the borrower to allow $2,000 for any unexpected costs and asserted that, regardless of any subsequent increases in the break cost fee, the borrower was unable to validly terminate the sale contract once he entered into it.

However, as a gesture of goodwill and in view of the fact that the lender had failed to advise the borrower of the $2,000 fee, the lender offered the borrower $4,500 in compensation.

Our Position
The borrower was unsure whether to accept the lender’s offer and asked us what would happen if he declined the offer. We advised him that his complaint would be investigated further, but that we would also look into whether he had suffered a loss by relying on the lender’s statements. In particular, we would confirm that if he could and would have sold the property at a higher price had the lender advised him of the break cost fee initially.

We suggested that the borrower seek his own legal advice before accepting any offer he was not entirely satisfied with.

The Resolution
On further review, the borrower advised us that he would accept the lender’s offer of $4,500 in full and final settlement of the complaint.

Facts
A couple approached a franchise with a view to refinance their existing home loan and consolidate some other debts. A number of options were presented, including:

• keeping their existing home and purchasing an investment property;
• selling their existing home and purchasing a new home for owner-occupation; and
• retaining their existing home for the time being and purchasing a new home for eventual owner-occupation.

A loan of $384,000 was given, $184,000 of which was used to consolidate some existing debts, leaving them with a surplus of $200,000 to be drawn down at a later date.

The couple had decided to go with the second open and a few weeks later they applied for a second loan which, when added to the undrawn surplus, enabled them to purchase a second property. After the purchase, the couple moved into the new property as their principal place of residence, with their previous home being the investment property.

The couple soon realised that they could not afford the prepayments on both loans, and decided to put their previous home up for sale.

The couple borrowed from family members initially, and soon after asked for the early release of their super to tide them through their financial hardship until the property was sold.

Unfortunately, due to the falling market and decline in property prices, they were initially unwilling to accept a lower offer, and did not wish to rent out the property. Their previous home was eventually sold some 18 months later, but at a substantially reduced amount.

Complainants Position
The couple alleged that that they signed a blank loan application form and that the franchise had made the second loan available to them without verifying their ability to make repayments under that loan.

Our Position
We found that the franchise was not liable to the complainants for the loss they claimed they suffered. A number of reasons supported this view:

• The franchise wasn’t acting as a finance broker the couple which meant the franchise did not owe the couple a fiduciary duty. Furthermore, the couple should of acted reasonably to protect their own interests.
• It was difficult to understand why the couple would sign a blank application form given they were educated, had taken out loans before, and appeared to be quite capable of protecting their own interests.
• The couple had declared the loan was for business purposes, but claimed that they had not read nor queried the details of the documents presented to them, which was a misrepresentation on their part.
• The repayments on the second loan were clearly set out in the loan agreement. The complainants would therefore have been in a position to determine if they could afford the repayments.
• It appeared that, given the complainants had entered into a contract to purchase the second property (and this occurred even before the second loan was approved by the lender), they found themselves in a difficult position of having to settle on the second property without having sold the first property. In other words, the complainants placed themselves in a position where they needed the loan to settle on the second property. They could not therefore say that they suffered a loss as a result of the second loan having been made available to them.

The Resolution
We found that neither the franchise nor the originators conduct caused the complainants to suffer a loss for which they are entitled to be compensated.

Facts
The borrower advised her broker that she recently received some funds on her divorce settlement. She intended to use a small portion of the funds for school fees and clothes for her children. The larger portion would be directed towards the purchase of a property.

She completed and signed a finance broking contract authorising the broker to act on her behalf to arrange a loan for 95% of the purchase price. Despite the broker advising her that such a high loan to value ratio could leave her with little room to move if something went wrong, she was keen to proceed with the purchase.
They discussed loans that were on offer from several lenders. However, due to the her adverse credit history, her choice of loans and lenders was limited.

The broker canvassed the her requirements with several lenders specialising in loans for people with a poor credit history before finally selecting a lender. The loan was for 95% of the purchase price, less settlement costs and fees.
Shortly before the loan was approved, the borrower, without the knowledge of the broker, entered into a contract to purchase a property and paid the requisite deposit. Unfortunately, the contract did not contain a ‘subject to finance’ clause.

A week later, the lender unconditionally approved the loan. However, two days before settlement, the borrower advised the broker that she did not have sufficient funds to settle on the purchase. She had miscalculated the amount of fees and charges that would be deducted from the loan at settlement, thinking the loan was for 100% of the purchase price, not 95%.

In an attempt to save her deposit from being forfeited by the vendor, the broker asked the lender if it would be prepared to approve a loan for 100%. Although the lender declined to do so, it agreed to capitalise (add on top of the loan) some of their fees and charges to free up extra funds for settlement.

Despite this, she never returned the signed loan documents and the loan consequently did not settle and she lost her deposit.

The borrower alleged that the broker:

• acted in a manner contrary to his ‘fiduciary duty’ and as such the broker engaged in serious misconduct;
• failed to lodge a loan application which accurately reflected the borrower’s instructions (in doing so, she alleged that the broker falsely stated on the loan application that she had sufficient funds to complete the purchase);
• misled the borrower as to the amount of finance she would receive and had failed to take reasonable care to ensure that the borrower had sufficient funds to settle; and
• neglected to take reasonable care to ensure that the borrower insisted on, and properly understood the nature and effect of, a ‘subject to finance’ clause in a contract to purchase property.

Complainants Position
Having lost her deposit because she was unable to settle on the property, the borrower sought compensation from the broker for this amount.

Our Position
After reviewing the information provided by all parties, we formed the view that the broker:

• had not breached any relevant law or Codes of Practice;
• that their conduct was consistent with good practice in the credit industry; and
• that they acted fairly towards the borrower.

We noted that the broker had retained a copy of a cheque drawn in favour of the borrower from her divorce settlement. The broker had therefore verified the borrower’s claim that she had her own funds to put towards the purchase.

Further, despite the borrower’s assertions, the broker’s file notes showed no record of the borrower advising the broker that she had paid a deposit on the property. Nor did it indicate that she had contacted him about the ‘subject to finance’ clause.

We noted from the broker’s file notes that the borrower was represented by a lawyer to whom the broker forwarded details of the loan disbursements and a request to ensure that the borrower had sufficient funds to settle. We also noted that the broker had advised the borrower to speak to her lawyer and discuss the loan documents with them.

According to the file notes, the borrower advised the broker only after the loan had been approved that she did not want to contribute more than a small portion of her divorce settlement towards the purchase of the property.

When the loan documents were not returned by the borrower, the broker made numerous calls to both the borrower and her lawyer to ascertain the borrower’s intentions. The borrower directed the broker to speak to her lawyer instead. The lawyer, however, refused to take the broker’s calls. The broker was able to produce a record of every call that he made.

As the broker retained extensive and detailed file notes and kept copies of documents provided by the borrower, the broker was able to respond in great detail to the issues raised in the borrower’s complaint and substantiate his assertions.

The Resolution
We did not consider that the borrower’s loss was attributable to the conduct of the broker, as was alleged, and the complaint was closed.

Facts
The Complainants responded to an advertisement by the member, a Broker, who professed to specialise in bad credit loans. They were looking to refinance their existing home loan and borrow a little extra to convert their garage into another bedroom.

Their existing loan was in arrears and they were about to lose their home. The Complainants were both unemployed and on Centrelink payments, with four children and another on the way. The Broker was aware of this.

Nonetheless, the Broker arranged two new loans for them one for $110,000 at 8.95% (plus 3% on default) and the other for $72,317 at 23.60%. The loan was repayable in twelve months and was substantially more than the amount the Complainants initially sought. As it turned out, most of the increase was attributable to inflated broker commissions and legal costs.

The Complainants signed the loan agreement on the Brokers assurance that they would be able to refinance the loan at the end of the term with a loan that had lower repayments, fees and charges.

The Broker sought and received a statement from the Complainants to the effect that Affordability won’t be problem. We also confirm that it is still only a 12 month loan. All fees and charges have been disclosed to (us). This was dictated to them. On settlement of the loans, the Member helped himself to $13,225 in brokerage fees and $1,200 in consultant’s fees.

The Complainants defaulted on their very first repayment, as the new repayments were twice the amount of their previous repayments. The Lender predictably sought possession.

Members Position
Despite our every effort to conciliate, attempts at resolution failed due to the Brokers inflexibility. The Broker was adamant that he was not at fault. The matter was eventually referred to the Credit Ombudsman for a Determination.

Our Position
The Credit Ombudsman considered that the Business Purpose Declaration was ineffective under the Credit Code, given that the Broker knew or had reason to believe that the purpose of the loan was not for business, but to refinance a home loan. Furthermore, the lack of a Finance Brokers Agreement entitled the Complainants to recover the commission they paid to the Broker.

The Credit Ombudsman found against the Broker (the Lender was not a COSL member) under several heads of law and awarded the Complainants compensation in an amount equivalent to the Brokers commission, the Lenders legal fees (so far that it exceeded what was reasonable) and other disbursements associated with setting up the loan.

The Ombudsman also found that the Member had acted unconscionably as he would have been aware that the Complainants:

1. were not sophisticated in financial affairs
2. had defaulted on their previous loan
3. were anxious, if not desperate, to avoid losing their home
4. were unemployed and in receipt of Centrelink payments.

The Resolution
The Ombudsman determined that the Broker took unconscientious advantage of his position as their agent by arranging a loan for the Complainants that

1. required repayments of more than double those of their existing loan;
2. that was significantly larger than their previous loan, primarily because of the excessive broker commissions and lender fees charged;
3. that significantly reduced the equity in the value of their home from 32% to 15%; and
4. that was secured over their only asset, their home.

Facts
An elderly couple receiving Centrelink benefits intended to make renovations to their home and sought to refinance their existing home loan for this purpose.

On approaching a Broker, he advised them to sign a blank application form and assured them he would later complete. However, relevant parts of the loan application (income and their ability to repay the loan) were not completed. The Broker requested that they sign a “Borrower Self Certification Income and Affordability Statement” and a “Business Purpose Declaration”. By signing the Business Purpose Declaration, the couple were declaring the loan was predominantly for business or investment purposes.

The couple claimed that they only sought to borrow $20,000. This would be in addition to their existing loan of $63,600. They allege the Broker increased this amount to $143,000. The loan was approved by the Lender on the security of the Complainants sole asset their home.

Three months later, the Complainants husband died and she fell into depression and over a two month period, drew down $52,500 of the loan and gambled it away.

Complainants Position
The Complainant asked COSL to investigate her complaint against the Lender, who was a member of COSL. She alleged that she had incurred losses of $97,500, which included fees, stamp duty, gambling losses and interest paid. She claimed that the Lender had acted unconscionably and that she should be compensated for all losses flowing from the loan, given their financial circumstances at the time they applied for the loan.

Our Position
In reviewing the complaint, we considered that the loan was regulated by the Consumer Credit Code despite the Complainants having signed the Business Purpose Declaration. There was ample evidence that the Broker knew or had reason to believe that the loan was only for personal, domestic or household purposes.

We also considered that the loan was unjust under section 70(2) of the Credit Code because, among other things, neither the Broker nor the Lender made reasonable enquiries as to whether the Complainants could afford to repay the loan. Furthermore, we considered that the Code of Practice of the Mortgage and Finance Association of Australia had been breached. The Code requires, among other things, its members to always make such enquiries as are necessary to determine an applicant’s capacity to repay the proposed loan.

In considering what might be an appropriate amount to compensate the Complainant, we were of the view that it was inappropriate, given recent judicial pronouncements, to suggest that the Lender had a duty to prevent the Complainant from using the loan proceeds for gambling. We also considered that the Complainant had the benefit of the funds that she had drawn down and that she should have mitigated her loss by limiting the amount drawn down to the cost of the renovations only.

The Resolution
We recommended that the Lender compensate the Complainant for other losses so as to, as far as possible, return her to the position she was in prior to obtaining the loan.

The Lender made an appropriate offer to settle the dispute and this was accepted by the Complainant, who had been well represented by a Consumer Credit Legal Centre.

Facts
The borrower approached a broker to arrange finance for the purchase of an investment property.

The parties discussed the features of two particular loans offered by a lender, Loan A and Loan B. The borrower advised the broker that he was interested in Loan A as it offered an automatic reduction of 1% off the interest rate on the second anniversary of the loan.

The broker, however, provided the borrower with documentation relating to both Loan A and Loan B. When the borrower questioned this, the broker assured him that the features of both loans were the same.

They were not in fact the same. Under Loan B, lenders’ mortgage insurance (‘LMI’) was paid for by the lender, but recoverable from the borrower if the loan was discharged within the first 3 years. Also, Loan B did not, unlike Loan A, offer the interest rate reduction that the borrower had sought.

The borrower completed and signed the application for Loan B which was approved shortly thereafter. It operated for two years without incident.

On the second anniversary of the loan, the broker contacted the borrower and suggested that he apply to the lender for the interest rate reduction of 1%. When the borrower did this, he was informed that Loan B did not offer an interest rate reduction.

Despite this and as a gesture of goodwill, the lender reduced Loan B’s interest rate by 0.3%. The lender also informed the borrower that, if he stayed with them for another six months, they would see if they could refinance the loan ‘internally’ and not seek to recover the LMI from him.

Six months later the lender arranged for a valuation of the property. However, the property was valued at less than what would have been necessary to maintain the LVR, and as such the lender declined the loan.

As soon as the borrower was informed of this, he immediately refinanced his loan with another lender and lodged a complaint with COSL.

The borrower sought compensation from the lender for the extra interest he paid as a result of not having had the benefit of the full 1% interest rate reduction, for the deferred establishment fee paid to the lender when he discharged the loan, and for the cost of the valuation.

We sought and received a copy of the loan agreement, the original loan offer and other relevant documents.

COSL’s finding
The loan agreement did not describe or name the type of loan being offered. The original loan offer did describe the loan as Loan B, but as the borrower had been assured that Loan A and Loan B were the same, there was nothing to suggest that the borrower knew otherwise. Nonetheless, COSL concluded that the borrower was not entitled to the 1% interest rate reduction offered by Loan A.

COSL also considered that the lender’s decision not to proceed with the ‘internal refinance’ was a commercial decision that it was entitled to make in the circumstances. Under COSL’s Rules, a Member’s commercial judgment about lending or security for a loan is generally outside of its jurisdiction.

COSL was also of the view that the borrower’s decision to refinance his loan with another lender was entirely his decision and could not be attributable to the lender’s conduct.

Consequently, COSL concluded that there were no grounds for the borrower’s complaint against the lender.

COSL, however, considered that the broker had clearly been negligent:

• she was not familiar with the products she was recommending;
• did not explain at the outset the different features of the loans; and
• did not check that the borrower got the loan that offered him the features he specified.

Outcome

• In this particular case, however, the broker was neither a MFAA nor a COSL member, and COSL was unfortunately not able to consider the borrower’s complaint against her.

Facts
A retiring couple decided to purchase a new home as the value of their existing home had increased considerably in recent years, giving them enough equity to apply for another property, keeping their existing property for investment purposes.

The broker suggested that they needed to sell their home first in order to service a loan for a new property. To maximise the sale price of their home, the broker suggested that it be painted and renovated. To pay for these renovations, the broker arranged for the Mortgage Manager to increase the couples’ existing Line of Credit (LOC) held with a bank.

On completion of the renovations, the couple listed their home on the market and received an offer that matched their asking price. However, without having first exchanged contracts on the sale of their home, they exchanged contracts on the new property. Unfortunately for them, the sale of their existing home fell through and the couple were faced with the possibility of not being able to complete the purchase of the new property.

The couple again approached the broker for assistance, who arranged for a bridging loan through the Mortgage Manager.

The couple advised the broker that on the sale of their existing home, they wanted their bridging loan to be converted to a LOC. However, the broker neglected to advise the lender or the Mortgage Manger of this. Consequently, the Mortgage Manager discharged the existing LOC and converted the bridging loan to a standard principle and interest loan (‘P & I Loan’).

On the basis that their bridging loan had not been converted to a LOC as they had requested, the couple refinanced their new P & I loan with another lender. This resulted in the couple incurring a large “break fee”.

Complainant Position
The couple were referred to COSL by the Mortgage Manager. The Mortgage Manager considered that that the broker had not exercised the requisite care and skill in not conveying the couple’ instructions to it, as required by the MFAA Code of Practice.
Due to the couples’ friendship with the broker, the couple were not prepared to complain about the conduct of the broker. Instead, they sought to have the break fee waived by the Mortgage Manager on the basis that, prior to refinancing, the couple were advised in writing by the Mortgage Manager that they would not incur any “fees and charges” upon refinancing.

Member’s response
The Mortgage Manager asserted that the representation was not intended to be misleading – the break fee was imposed by the lender, not the Mortgage Manager. According to the Mortgage Manager, the representation that the couple would not incur any fees and charges related only to fees and charges that were payable to the Mortgage Manager, not the lender.

Our view
While we considered that the couple were not financially disadvantaged as a result of their bridging loan being converted to a P&I loan instead of a LOC, it was of the view that the representation made by the Mortgage Manager was misleading and deceptive.

The Resolution
As a gesture of conciliation, however, the Mortgage Manager refunded to the couple the break fee. The couple indicated that they were satisfied with this outcome.

The Mortgage Manager subsequently reviewed its procedures for handling complaints and for discharging loans, and now contacts couple to confirm all details are correct prior to discharge.

Facts
A borrower had incurred substantial losses while trading on the US stock market, and had also accumulated a number of personal loans and credit cards on top of his existing home loan. As a result, he was finding it hard to meet his financial obligations.
Some three months earlier he had fixed the interest rate on his loan for a period of two years – in case interest rates went up – however, with the subsequent reductions in the RBA’s official cash rate, the lender’s variable interest rate went down.

Complainants Position
The borrower believed that he could better manage his debts if his loan was switched back to a variable interest rate, which was now considerably lower than his fixed interest rate.

The borrower contacted his lender to enquire as to the amount of the break cost fees that would be payable to switch his loan to a variable interest rate. It was a hefty $19,500.

As the borrower was already experiencing financial difficulties, a further cost of $19,500 wasn’t the best option. Therefore he advised his lender not to proceed with switching his loan to a variable rate.

Without mentioning his financial difficulties to his lender, the lender surmised that, based on certain tell-tale signs, he was having financial difficulties. The lender asked for a Statement of Financial Position to be completed and for the borrower to provide supporting documentation for the lender to assess his financial position.

The lender then offered to reduce the break cost fee to $7,588, waiving almost $12,000 in fees that it was entitled to recover under the loan contract. Although the borrower was appreciative of what was clearly a generous offer, he simply did not have the funds to pay any break cost fee. He asked the lender if they would add the fee to his total loan amount. The lender declined to do so.

Members Position
The lender advised us that it had carefully considered the borrower’s application for financial hardship assistance, but that it was not prepared to add the break cost fee to the outstanding loan amount. The lender’s assessment found the borrower’s financial hardship was not of a temporary nature.

However, the lender was willing to uphold the previous offer to reduce the fee from $19,500 to $7,588 and reduce the interest rate on the loan once it was converted to a variable rate. Alternatively, the lender was willing to accept reduced payments for a period of time if the borrower chose to remain on a fixed rate.

Our Position
At the time, we were unable to substitute our decision for that of the lender’s. However, in some cases, we ask the lender to reconsider its decision where, for example, the borrower has put forward a reasonable repayment proposal or where the lender hasn’t taken into account all factors.

We reviewed the borrower’s complaint along with a copy of the borrower’s Statement of Financial Position. The information indicated that the borrower had personal loans in the amount of $35,000, credit card debts of $90,000 and that his monthly expenditure (including loan and credit card repayments) was $5,000 more than his monthly income.

The Resolution
We reviewed the lender’s proposal and found that it had taken the appropriate action when needed. In addition, when assessing the borrower’s financial situation, it had taken into account all relevant factors required by the Consumer Credit Code and the MFAA Code of Practice.

Facts
The borrower worked as a contractor for a building company. She was paid a commission based on the number of sales she closed.

Unfortunately the building company was affected by the global financial crisis. Sales were down, as were her commissions.

Complainants Position
She approached her lender on several occasions, asking for financial hardship assistance because her home loan repayments had fallen behind. However, the lender did not offer any assistance until some nine months later. They sent her a financial hardship application to complete, but by this time she had found another job and her financial situation had since improved.

When she returned the financial hardship application, the lender agreed to accept reduced repayments for three months. However, by this stage $40,000 in default fees and interest had already accrued. This comprised 60% of her loan arrears. The borrower believed that, had she not been charged default fees and interest, she would have been able to meet her normal loan repayments.

Our Position
We looked into whether the lender should have assessed her financial circumstances sooner. We found that the borrower had in fact sought financial hardship relief from the lender when she first found herself in financial difficulties.

There was no evidence that the lender considered, at that time, whether a repayment variation was appropriate on grounds of financial hardship. A failure to consider this was a breach of the code of practice to which the lender subscribed.

The Resolution
On reviewing the basis of the complaint, we considered that if the lender had agreed to a payment variation for a period of 6 months when they first learned of her financial hardship, the default fees and interest would have been far less, and would have allowed her to maintain her loan obligations. When we discussed this with the lender, they agreed to reverse the equivalent of 6 month’s worth of default fees and interest, totaling $30,000.