Krystal and Gabe are a young farming couple with small children. They were trying to get ahead in life and purchased a specialist grain harvester to enable them to take on bigger, more lucrative contracts during harvest season. Having carefully researched a particular harvester, they went to a specialist lender for finance. The lender approved the loan and Krystal and Gabe were ready for their first season.
Unfortunately, an extreme weather event prevented a successful harvest. Krystal and Gabe were unable to afford the loan payments. The loan fell into default. The lender issued a letter of demand. Krystal and Gabe were unable to pay the amount demanded. A repossession agent came and took the harvester. The harvester was sold for much less than Krystal and Gabe paid for it, leaving them with a $160,000 debt.
The lender agreed to reduce Krystal and Gabe’s payments to $200 a month and stopped charging interest and fees.
Krystal and Gabe complained to FSCL.
Krystal and Gabe accepted the lender was entitled to repossess and sell the harvester; they had defaulted on the loan and had no ability to make the repayments. However, they said the lender had not followed a reasonable sales process, selling the harvester out of season. Krystal and Gabe said that if the lender had waited until the following year, it would have achieved a better price. Krystal and Gabe were also not convinced the auctioneer appreciated the true value of the harvester.
The lender said it was not obliged to wait until the following season and said the auctioneer was a specialist in farm machinery.
We explained to Krystal and Gabe that we would be unlikely to uphold the complaint. This was commercial lending. They had defaulted on the loan and the lender was entitled to repossess and sell the harvester. We were satisfied that the lender had followed a reasonable sales process and got the best price reasonably obtainable at the time of sale.
When we asked Krystal and Gabe what they would like to see happen, they said they would like to refinance the debt with their existing bank. Krystal and Gabe had equity in their home and the bank said it would consider refinancing this debt. Although the lender had been reasonable by reducing the payments and removing interest, Krystal and Gabe felt as though this was a debt hanging over their heads. They were afraid that the lender would change its mind and demand an increased repayment.
Krystal and Gabe’s bank agreed to lend them $90,000, provided the lender accepted this amount in full payment of the debt.
We asked the lender whether it would accept $90,000 in full payment of the debt, and the lender agreed. Krystal and Gabe were very relieved.
Insights for consumers and participants
We were pleased we were able to help Krystal and Gabe through this very stressful time, and negotiate an outcome both parties could live with. This type of complaint will be covered by the Farm Debt Mediation Act in 2020.