Loretta saw her dream car for sale, online, through a car yard in another city. She knew she had to have it and would need to arrange a loan. The car yard put her in touch with a lender.
Loretta is a self-employed nail technician who works from home. She was unable to provide audited accounts but reassured the lender that she had a monthly income of $5,000 and lived with her partner who only charged $400 a month in board. The finance company looked at Loretta’s bank statements and could see income of $5,000 and irregular payments of differing amounts going to her partner’s account. There was nothing else of concern to the lender in the bank statements, so the lender approved the loan. Loretta signed the loan agreement, agreeing to pay $175 a week.
Almost as soon as the car arrived, Loretta had minor problems with it. She contacted the car yard, who told her to take it to a repairer and it would consider covering the repair costs. Loretta did not get around to having the car repaired.
About six months later Loretta had an unexplained hiccough with her business. Loretta started working in another nail studio, but her income was sporadic. Loretta could not afford the loan repayments, and after a couple of payments were dishonoured, the lender issued a pre-possession notice.
Loretta and the lender started talking about how she could make up the missed payments. The lender offered to consider a hardship application if Loretta would provide some information about her financial circumstances, but Loretta did not do so.
At about the same time, the car broke down. Loretta said she would not pay the loan arrears until the car was fixed. The lender repossessed the car and took it to the garage to have it fixed. Once the car was fixed, Loretta started to repay the loan, and the lender returned the car.
However, Loretta’s financial situation had not improved. The finance company repossessed the car again and at this point Loretta contacted us.
The lender said that when it approved the finance Loretta could easily afford the loan repayments. The lender said that it consistently tried to work with Loretta, offering to consider a hardship application and arranging to have the car repaired. It found Loretta difficult to contact, and considered the only option was to sell the car.
Loretta said that she really wanted the car back. She wanted to negotiate a debt reduction and a repayment plan, but central to any resolution was the return of her dream car.
We found that the lender’s loan assessment process was inadequate. Although Loretta’s statements showed income of around $5,000 most months, the board payments were not regular. Sometimes large amounts were transferred, and sometimes nothing at all. It was difficult to establish the details of Loretta’s financial agreement with her partner. We considered $400 board was low and under-estimated her contribution to living expenses. The lender had not checked with Loretta’s partner on the terms of the board agreement between them. We were also concerned that there appeared to be no record of business expenses, which Loretta would surely incur.
We would have liked to see audited accounts supporting Loretta’s business income and more detail around her expenses.
Loretta also seemed to spend a large portion of her income on food and clothes. With such a large income and low expenses we would usually expect to see a healthy bank balance, not an account that was constantly at the overdraft limit. Loretta did not appear to manage her money well.
However, we could see that until Loretta had employment problems, she could afford the loan repayments. We also noted that the lender had offered to consider a hardship application from Loretta but that she had not taken up the offer.
We asked the lender whether it was prepared to make Loretta a settlement offer. The lender offered to reduce Loretta’s debt that was now $21,000 to $9,000, charge no interest or fees and accept a modest repayment amount. The lender was not prepared to return the car.
We told Loretta that we thought this was a reasonable settlement offer. We explained that we had real concerns about the loan affordability and could not ask the lender to return the car if we thought that the lending would be irresponsible.
Unfortunately, we received only a one-line email from Loretta saying that if the lender was not prepared to return her car, she was not interested in a settlement offer. We discontinued our investigation on this basis.
Insights for complainants
Loretta had fallen in love with a lemon that she just could not afford. We considered the lender should have looked much more closely at Loretta’s loan application, but we could also see that Loretta had contributed to the problem by not having the car repaired promptly and not applying for a hardship application. We could not direct the lender to return the car when we could see that Loretta’s financial situation appeared bleak.