My car, my castle

Nixon bought a car on finance in 2015. Subsequently, Nixon had a car accident and became unwell. He lost his income source and encountered a relationship breakdown due to which he ended up living in his car. Nixon was unable to meet his car loan repayments, and the lender repossessed his car.

Nixon complained to FSCL about the repossession process and the treatment from the lender. Nixon also said us that he could not afford to repay this loan and did not want the car.  

 

Dispute

The lender argued that Nixon had a weekly income of $500 and could comfortably afford the loan. As Nixon had defaulted on the loan, the lender was entitled to repossess the car.  

 

Review

We reviewed Nixon’s complaint and could not find anything wrong with the lender’s repossession action. However, we found that Nixon had difficulty meeting his repayments right from the start of his loan. We looked at Nixon’s bank statements from 2015 and found that the only living expense the lender had taken into account was $80 for rent. There was no record of any other expenses such as food, general living, utility or transport costs. In our view, it was unreasonable for the lender to accept that rent was Nixon’s only expense. It was clear that Nixon could not afford the loan from the very start.  

We said that it was ultimately the lender’s responsibility to ensure that it had properly assessed Nixon’s income and expenses to ensure that he could afford the loan without suffering substantial hardship.

 

Resolution

We asked the lender to unwind the interest and fee charges on Nixon’s loan, as the loan should have not been approved. We suggested to the lender that it sell the car immediately to cover the shortfall and release Nixon from the loan. 

Nixon and the lender agreed with this course of action, and signed a settlement agreement.

 

Insights

It is the lender’s responsibility to make proper enquires into a borrower’s income and expenses before deciding whether to lend. A lender will need to demonstrate that proper checks have been conducted of the borrower’s bank statements, borrowing history and other debts and expenses.

Failure to do could result in the lender having to “unwind” the loan. This means that the lender will have to reverse any fees and interest that it has charged the borrower for the loan. However, as the borrower has had the benefit of the credit, they will still need to repay the principal amount.

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