When Alice borrowed $10,000 she purchased a repayment waiver costing $1,000, which meant that if she was injured, ill, or died the lender would make the loan repayments for her either completely, in the case of death, or until she was recovered from her injury or illness, up to a period of 12 months.
In April, about six months after borrowing the money, Alice injured her head and back in a skiing accident. Alice said she was on serious painkillers and was not thinking clearly after the accident. Alice’s employer continued to pay her for a time, using sick leave and annual leave. Alice tried to return to work but when it became clear this would not be possible, ACC stepped in and started to pay Alice.
A few months later, in November, Alice remembered the repayment waiver. She contacted the lender, explained what she had been going through during the last few months, and said she wished to claim against the repayment waiver.
The lender said Alice was no longer eligible to claim against the repayment waiver because she needed to lodge the claim within one month of the accident. The lender was prepared to consider a hardship application, but was unable to help further.
Alice said this was unfair, she had been very unwell following the accident and had only recently been in a position to contact the lender. Alice referred her complaint to FSCL.
The lender responded that it requires certainty around its lending. The repayment waiver clearly states that an application must be submitted within one month. The longer a borrower waits to submit the application, the worse their position becomes and the more the lender is liable to pay.
Alice accepted that the contract required her to tell the lender within one month, but maintained that the contract was fundamentally unfair.
We considered whether a court might consider the term unfair under the 2015 amendment to the Fair Trading Amendment Act 1986 (the Act). We were satisfied that the contract was a standard form contract. Under section 46L of the Act a court would need to be satisfied that all of the following terms are met:
- the term would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- the term is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term; and
- the term would would cause detriment, whether financial or otherwise, to a party if the term were applied.
We felt that, on the face of it, the term did cause a significant imbalance between Alice and the lender. Immediately after the accident Alice was very unwell, taking pain medication, and not in a position to assess her eligibility to claim under the policy. As a consequence of this delay, Alice had completely lost her ability to take advantage of the protection for which she paid over $1,000. There was also no doubt that Alice would experience hardship if the term was applied. However, we did wonder whether the term was necessary to protect the lender’s interests.
While the lender was satisfied that the term was not unfair, it offered to cover Alice’s payments for six months, a total of $2,600. We discussed this offer with Alice, and she agreed to accept it. Alice acknowledged that the accident happened in April, but she did not tell the lender about it for over six months. While Alice was still not working when she accepted the offer, she expected that she would be able to return to work soon.
Insights for consumers
Repayment waivers may not always be as good as they seem. Make sure you fully understand what your obligations are before you buy one. However, it did seem to us that a one-month timeframe for notifying the lender of the accident, illness or death is very short and may be an unfair contract term.