No responsible lending = no profit for the lender

Jasmine borrowed $200 from a payday lender. She agreed to repay the loan in seven weekly payments of $60. The payday lender immediately approved the loan and did not check that Jasmine could afford the repayments.

Jasmine made five payments, but the payments were not consecutive and dishonour fees and default interest was added to the loan. Within a couple of weeks Jasmine’s debt was over $1,000 and she went to a financial mentor for help. The financial mentor reviewed Jasmine’s financial position and determined that she could not afford to repay the loan.

The financial mentor complained to FSCL about the lending decision, and we referred the complaint to the lender’s internal complaints process. The lender agreed to reduce the debt to the original sum borrowed, plus the interest and fees Jasmine would have paid if she had repaid the loan on time.

Jasmine and the financial mentor did not accept the offer and referred the complaint to FSCL.

 

Review

We contacted the lender and asked it for information to support its decision to lend to Jasmine. The lender responded offering to accept the original amount of the loan, but not charging any interest and fees. As Jasmine had borrowed $200 and paid $250 the lender offered to refund $50 to Jasmine to resolve her complaint.

We put the offer to Jasmine and her financial mentor, explaining the offer is in line with the recent amendments to the Credit Contracts and Consumer Finance Act.

 

Resolution

Jasmine accepted the offer and the complaint was resolved.

 

Insights for consumers and participants

Lenders must be able to demonstrate they have complied with their responsible lending obligations. If they cannot, we will assume they have not loaned money responsibly. The consumer has had the benefit of the loan, and should repay the loan principal sum borrowed, while the lender must forgo the profit they would have made on the transaction, meaning the lender cannot demand payment of interest and fees.

Search case studies