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The Complainant had been conducting her loan satisfactorily until she lost her job. Not being able to maintain her loan repayments, she contacted the Lender, a COSL member, to let them know of her financial difficulty and sought to discuss possible payment arrangements while she was without a job. The Lender advised the Complainant to allow her repayments to go into arrears, and then apply to APRA for the early release of her superannuation benefits to pay the arrears on her loan. (APRA only permits the early release of benefits on very limited grounds, including severe financial hardship.) Acting on the Lenders advice, the Complainant applied for the release of her superannuation benefits, but for reasons outside her control, the release of the benefit payment was delayed. During this time, the Complainant had to deal with three different staff members of the Lender, with the third one refusing to allow the Complainant more time to receive her superannuation benefit. The arrears on her loan had by this time increased to the extent that, when the superannuation benefit was eventually received, it was insufficient to repay the outstanding arrears. The Complainant had found a job by this time, and offered to make additional fortnightly repayments in order to reduce the arrears. This proposal was rejected by the Lender on the basis that it would extend the term of her loan and increase the loan to value ratio (LVR) beyond that which was acceptable to the lenders mortgage insurer. The Lender commenced legal proceedings to possess the property. The Complainant approached COSL for assistance. The Lender agreed to suspend legal proceedings until COSL had completed its investigation and conciliation process. As the loan was subject to the Consumer Credit Code, COSL advised the Lender that it had not considered the Complainants financial circumstances for the purposes of section 66 of the Code, but had instead taken into account matters other than those expressly set out in that section (such as the high LVR). COSL was able to facilitate an outcome that was acceptable to both the Complainant and the Lender. The parties agreed to change the terms of the loan so that additional fortnightly payments were made to reduce the arrears, on top of the usual normal monthly repayment. As a gesture of good will, the Lender also waived the interest on the arrears, the monthly default fees and dishonour charges, and agreed to cease any legal action.
Their existing loan was in arrears and they were about to lose their home. The Complainants were both unemployed and on Centrelink payments, with four children and another on the way. The Broker was aware of this. Nonetheless, the Broker arranged two new loans for them one for $110,000 at 8.95% (plus 3% on default) and the other for $72,317 at 23.60%. The loan was repayable in twelve months and was substantially more than the amount the Complainants initially sought. As it turned out, most of the increase was attributable to inflated broker commissions and legal costs. The Complainants signed the loan agreement on the Brokers assurance that they would be able to refinance the loan at the end of the term with a loan that had lower repayments, fees and charges. The Broker sought and received a statement from the Complainants to the effect that Affordability wont be problem. We also confirm that it is still only a 12 month loan. All fees and charges have been disclosed to (us). This was dictated to them. On settlement of the loans, the Member helped himself to $13,225 in brokerage fees and $1,200 in consultants fees. The Complainants defaulted on their very first repayment, as the new repayments were twice the amount of their previous repayments. The Lender predictably sought possession. Despite every effort by COSL to conciliate, attempts at resolution failed due to the Brokers intransigence. The Broker was adamant that he was not at fault. The matter was eventually referred to the Credit Ombudsman for a Determination. The Credit Ombudsman considered that the Business Purpose Declaration was ineffective under the Credit Code, given that the Broker knew or had reason to believe that the purpose of the loan was not for business, but to refinance a home loan. Furthermore, the lack of a Finance Brokers Agreement entitled the Complainants to recover the commission they paid to the Broker. The Credit Ombudsman found against the Broker (the Lender was not a COSL member) under several heads of law and awarded the Complainants compensation in an amount equivalent to the Brokers commission, the Lenders legal fees (so far that it exceeded what was reasonable) and other disbursements associated with setting up the loan. The Ombudsman also found that the Member had acted unconscionably as he would have been aware that the Complainants (a) were not sophisticated in financial affairs; (b) had defaulted on their previous loan; (c) were anxious, if not desperate, to avoid losing their home; and (d) were unemployed and in receipt of Centrelink payments. The Ombudsman determined that the Broker took unconscientious advantage of his position as their agent by arranging a loan for the Complainants that (a) required repayments of more than double those of their existing loan; (b) that was significantly larger than their previous loan, primarily because of the excessive broker commissions and lender fees charged; (c) that significantly reduced the equity in the value of their home from 32% to 15%; and (d) that was secured over their only asset, their home.
The Complainants put their home up for sale and exchanged contracts soon after. The Broker submitted their loan application to the Lender. As a result of extensive delays in the loan approval process, the loan was not approved until October. The Complainants alleged that the loan amount was incorrect; the proposed loan structure differed from the one they requested; and that the lenders mortgage insurance (LMI) would cost them $17,000, which was higher than the amount estimated by the Broker. The Broker suggested that the Complainants might wish to delay settlement of the purchase of the Gordon property in order to lower the cost of the LMI. He pointed out that if settlement was delayed and the loan amount sought reduced by a specific amount, any penalties incurred as a result of the late settlement would be significantly offset by a reduction of LMI, to the tune of $9,800.(COSL found that the Brokers assertion was correct.) Having relied on the Brokers suggestion, the Complainants incurred, as anticipated, some default fees for the late settlement and interest on the late payment of stamp duty. The Complainants nonetheless sought to be compensated by the Broker for these. Furthermore, because the Complainants were required to travel to Sydney to sign the amended loan agreement, they sought to recover from the Broker the cost of doing so. This included the cost of petrol, the proportional cost of private school fees as a result of keeping their children away from school on the day, their loss of income for the day and phone expenses. A complaint was submitted to COSL. The Brokers membership of COSL, however, had not been renewed at this time and COSL was therefore not able to consider the complaint initially. The Broker, mindful that he was required to maintain his COSL membership to remain a member of the industry association, renewed his membership and also permitted COSL to backdate his membership. This had the effect of ensuring that there was no gap in his membership and COSL was able to consider the issues raised by the Complainants. COSL considered that its Rules did not permit the Complainants to recover losses they alleged were incurred in having to travel to Sydney, such as the cost of petrol, proportional private school fees, and loss in income and phone expenses. COSL also found that the delays in the loan approval process were almost wholly attributable to the Lender and not the Broker. The Complainants had in fact received compensation from the Lender for the delays. COSL also found that the Complainants had not made out their case against the Broker in relation to the allegedly incorrect amount of the loan and its structure and the Brokers estimate of the LMI. The complaint was therefore closed.
They sought the services of a Broker, who was not a member of COSL. The Broker advised them to sign a blank loan application form which the Broker assured them he would later complete. The relevant parts of the loan application about the Complainants income and their ability to repay the loan were not completed by the Broker. At the request of the Broker, the Complainants also signed a Borrower Self Certification Income and Affordability statement and a Business Purpose Declaration. By signing the Business Purpose Declaration, the Complainants were taken to confirm that the loan was predominantly for business or investment purposes. The Complainant claimed that she and her husband only sought to borrow $20,000. This would be in addition to their exiting loan of $63,600. The Broker, it was alleged, increased this amount to $143,000. The loan was approved by the Lender on the security of the Complainants sole asset their home. Three months later, the Complainants husband died. The Complainant claimed she became depressed and, over a two month period, drew down $52,500 of the loan and gambled it away. The Complainant asked COSL to investigate her complaint against the Lender, who was a member of COSL. She alleged that she had incurred losses of $97,500, which included fees, stamp duty, gambling losses and interest paid. She claimed that the Lender had acted unconscionably and that she should be compensated for all losses flowing from the loan, given their financial circumstances at the time they applied for the loan. In reviewing the complaint, COSL considered that the loan was regulated by the Consumer Credit Code despite the Complainants having signed the Business Purpose Declaration. There was ample evidence that the Broker knew or had reason to believe that the loan was only for personal, domestic or household purposes. COSL also considered that the loan was unjust under section 70(2) of the Credit Code because, among other things, neither the Broker nor the Lender made reasonable enquiries as to whether the Complainants could afford to repay the loan. Furthermore, COSL considered that the Code of Practice of the Mortgage and Finance Association of Australia had been breached. The Code requires, among other things, its members to always make such enquiries as are necessary to determine an applicants capacity to repay the proposed loan. However, in considering what might be an appropriate amount to compensate the Complainant, COSL was of the view that it was inappropriate, given recent judicial pronouncements, to suggest that the Lender had a duty to prevent the Complainant from using the loan proceeds for gambling. COSL also considered that the Complainant had the benefit of the funds that she had drawn down and that she should have mitigated her loss by limiting the amount drawn down to the cost of the renovations only. Nonetheless, COSL recommended that the Lender compensate the Complainant for other losses so as to, as far as possible, return her to the position she was in prior to obtaining the loan. The Lender made an appropriate offer to settle the dispute and this was accepted by the Complainant, who had been well represented by a Consumer Credit Legal Centre.
COSL received a complaint from a couple seeking compensation for losses that they alleged were suffered in the course of their dealings with a franchise. The franchise acted as a sub-originator for a COSL Member who was an originator and mortgage manager offering white label products. The complainants originally approached the franchise with a view to refinancing their existing home loan and other debts. A number of scenarios were also discussed, including retaining their existing home and purchasing an investment property; selling their existing home and purchasing a new home for owner-occupation; and retaining their existing home for the time being and purchasing a new home for eventual owner-occupation. A loan of $384,000 was advanced, of which an amount of $184,000 was used to consolidate the complainants existing debts, leaving them with a surplus of $200,000 which was not drawn down (and no interest was therefore payable). A few weeks later, the complainants applied for a second loan which, when added to the undrawn surplus, enabled them to purchase a second property. After settlement, the complainants occupied the new property as their principal place of residence. When the complainants realised that they could not afford both loans on their joint incomes, they put their previous home up for sale. The complainants resorted to borrowing from family members and seeking the early release of their super to tide them through their financial difficulty. Unfortunately for them, their previous home remained unsold in a falling market as they were unwilling to accept a lower price, at least initially, and did not wish to rent out the property. Their previous home was eventually sold some 18 months later, but at a substantially reduced price. The complainants alleged that that they signed a blank loan application form and that the franchise had made the second loan available to them without verifying their ability to make repayments under that loan. The Ombudsman found that the franchise was not liable to the complainants for the loss they claimed they suffered. A number of reasons supported this view:
The Complainants decided to retire and they eventually found their dream home by the sea. The value of the Complainants existing home had increased considerably in recent years. They intended to borrow against the equity in their home to purchase the new property. A family friend who was a mortgage broker (the broker) suggested that, while the Complainants had adequate security for the new loan, they lacked the capacity to repay the loan if they chose to retain their existing home for investment purposes. The broker suggested that the Complainants needed to sell their home in order to service the loan for the new property. To maximise the sale price of the Complainants home, the broker suggested that it be painted and renovated. To pay for these renovations, the broker arranged for the Mortgage Manager to increase in the Complainants LOC. On completion of the renovations, the Complainants listed their home for sale and received an offer that matched their asking price. However, without having first exchanged contracts on the sale of their home, they imprudently exchanged contracts on the new property. Unfortunately for them, the sale of their existing home fell through, and the Complainants faced the risk of not being able to complete the purchase of the new property. The Complainants again approached the broker for assistance, who arranged for a bridging loan via the Mortgage Manger. The Complainants advised the broker that on the sale of their existing home, they wanted their bridging loan to be converted to a LOC. However, the broker neglected to advise either the lender or the Mortgage Manger of the Complainants instructions. Consequently, the Mortgage Manager discharged the existing LOC and converted the bridging loan to a standard principle and interest loan (P & I Loan). On the basis that their bridging loan had not been converted to a LOC as they had requested, the Complainants refinanced their new P & I loan with another lender. This resulted in the Complainants incurring a large break fee. The Complainants were referred to COSL by the Mortgage Manger. The Mortgage Manager considered that that the broker had not exercised the requisite care and skill in not conveying the Complainants instructions to the Mortgage Manger, as required by the Code of Practice of the Mortgage and Finance Association of Australia. Due to the Complainants friendship with the broker, the Complainants were not prepared to complain about the conduct of the broker. Instead, they sought to have the break fee waived by the Mortgage Manager on the basis that, prior to refinancing, the Complainants were advised in writing by the Mortgage Manager that they would not incur any fees and charges upon refinancing. While COSL considered that the Complainants were not financially disadvantaged as a result of their bridging loan being converted to a P&I loan instead of a LOC, it was of the view that the representation made by the Mortgage Manager was misleading and deceptive. The Mortgage Manager asserted that the representation was not intended to be misleading the break fee was imposed by the lender, not the Mortgage Manager. According to the Mortgage Manager, the representation that the Complainants would not incur any fees and charges related only to fees and charges that were payable to the Mortgage Manager, not the lender. However, as a gesture of conciliation, the Mortgage Manager refunded to the Complainants the break fee. The Complainants indicated that they were satisfied with this outcome. The Mortgage Manager subsequently reviewed its procedures for handling complaints and for discharging loans, and now contacts borrowers to confirm all details are correct prior to discharge.
The loan approval process was ridden with delays from the time of application to the time of approval. As a result of the delays, the Complainant did not receive the loan until more than ten weeks had elapsed. Furthermore, the Complainants receipt of the debit card took six weeks longer than was indicated in the lenders advertising. The Complainants also claimed that the lenders website was misleading because it stated that an application fee would not be payable. The Complainants argued that the legal documentation fee of $310 charged on the loan was effectively an application fee. The lender attempted to resolve the complaint to the satisfaction of the Complainants through its own internal dispute resolution process. By way of resolution, the lender offered to compensate the Complainant for the cost of calls made by the Complainants and provide the Complainants with certain other benefits that were not otherwise available under the Complainants loan facility. A case of wine was also delivered to the Complainant as a token of good faith. However, the Complainants sought monetary compensation for the delay in settlement, late receipt of the debit card, their inability to access the loan proceeds until receipt of the debit card, and also sought reimbursement of the legal documentation fee they incurred. When the complaint was referred to COSL, it was found that no loss had in fact been suffered by the Complainants and that the delay in settlement was not wholly attributable to the conduct of the lender. The aspect of poor customer service was one that would have been more appropriately dealt with by the Disciplinary Tribunal of the Mortgage and Finance Association of Australia. On investigation, COSL found that, whilst the lender was responsible for some of the delays, the delays were predominantly the result of the Complainants having made changes to the loan application during the approval process and having been tardy in returning documentation to the lender. COSL also found that the delay in the Complainants receipt of the debit card was neither the fault of the lender nor the Complainants. The cards had been lost in the post, but in any event, the Complainant had in fact been able to access the loan funds through internet banking. Lastly, COSL found that the legal documentation fee was clearly distinguishable from the application fee on the lenders website. As a result, the complaint was closed.
Based on this information, the Complainant instructed the broker to arrange for her loan to be re-fixed for a further period of three years on the expiry of the existing fixed rate loan. The Complainant erroneously assumed that the interest rate would be fixed at the rate quoted by the broker. Before the expiry of the existing fixed rate period, the Complainant phoned the broker to ask for written confirmation of the new arrangement. The broker informed the Complainant that she would only receive written confirmation when her existing fixed loan had expired. The Complainants loan was eventually re-fixed at an interest rate 20 basis points above the three-year fixed rate previously quoted by the broker. The Complainant protested that, had she known that the fixed rate would be higher than that quoted by the broker, she would have allowed the loan to revert to a variable rate loan. The broker was of the view that he could only provide the Complainant with an indicative fixed rate which was subject to change at any time before settlement. The broker also said that the Complainant could have entered into a rate-lock agreement which, at a cost, would have locked in the rate quoted to the Complainant. However, the broker had not mentioned this to the Complainant. The Complainant referred her complaint to COSL. COSL considered that the broker should have: (a) identified the risks and benefits of entering into a fixed rate loan; (b) explained that significant break costs may be incurred if the fixed rate loan is discharged early; (c) made it clear that the fixed rates on offer could increase during the period from the loan application to the settlement of the loan, and that the fixed rate applicable to the loan would be the one applying at the time the loan was settled; (d) explained that a rate lock was available, the cost of the facility and its purpose. This was even more important where significant exit fees would apply on the early discharge of the loan or where there was a significant gap between the date on which the Complainant first enquired about fixed rates and the date on which the existing fixed rate term expired. Based on the information received from both parties, COSL accepted that the Complainant would not have instructed the broker to re-fix her loan had she known that the fixed rate could increase by the time her existing fixed rate term expired. The broker accepted COSL's view and voluntarily reimbursed the Complainant for the extra interest costs she would incur as a result of the fixed rate being 20 basis points above the fixed rate quoted by the broker.
They discussed the features of a number of low-doc loans offered by TME, a mortgage manager. The Complainant advised the broker that he was interested in Loan A because it offered an automatic reduction of 1% off the interest rate on the second anniversary of the term of the loan. The broker provided the Complainant with declarations of affordability relating to two different loan products, Loan A and Loan B. When the Complainant queried this, the broker assured him that the features of both loans were exactly the same. They were not in fact the same. A feature of Loan B was that a borrower was not required to pay the fee for lenders mortgage insurance (LMI) unless the loan was discharged within the first 3 years of its term. Further, unlike Loan A, Loan B did not offer the interest rate reduction of 1% on the second anniversary of the loan term, as the Complainant had sought. The Complainant completed and signed the loan application for Loan B, also offered by TME. The loan was approved and operated for two years without incident. On the second anniversary of the term of the loan, the broker contacted the Complainant and suggested that he apply to TME for the interest rate reduction. When the Complainant did this, he was informed that Loan B did not offer an interest rate reduction. Despite this and as a gesture of goodwill, TME reduced Loan Bs interest rate by 0.3%. TME also informed the Complainant that, if he stayed with them for another six months, they would refinance the loan internally and waive their entitlement to recover the LMI fee. After six months, TME arranged for a valuation of the Complainants property for the purpose of internally refinancing the existing loan. However, TME decided not to proceed with the refinance based on the results of the valuation. As soon as the Complainant was informed of this, he immediately refinanced his loan with another lender and lodged a complaint with COSL. The Complainant sought compensation from TME for the extra interest he paid as a result of not having had the benefit of the full 1% interest rate reduction; for the Deferred Establishment Fee paid to TME when he refinanced, and for the cost of the valuation. As is COSL's usual practice, we sought and received a copy of the loan agreement, the original loan offer and other relevant documents. The loan agreement did not describe or name the type of loan being offered. Nor did it mention the 1% interest rate reduction. The original loan offer did however describe the loan as Loan B, but as the broker had represented to the Complainant that Loan A and Loan B were the same, there was nothing to suggest that the Complainant knew otherwise. Nonetheless, COSL concluded that the Complainant was not entitled to the 1% interest rate reduction under Loan A because TME was not aware of, or bound by, the brokers representation to the Complainant. The broker was an agent of the Complainant, not TME. Furthermore, COSL considered that TMEs decision not to proceed with the internal refinance was a commercial decision that it was entitled to make in the circumstances. Under COSL's Rules, a Members commercial judgment about lending or security for a loan is generally outside of COSL's jurisdiction. COSL was also of the view that the Complainants decision to refinance his loan with another lender was entirely his decision and could not be attributable to TMEs conduct. Consequently, COSL concluded that there were no grounds for the Complainants complaint against TME. COSL however considered that the broker had been clearly negligent: she was not familiar with the products she was recommending; did not explain at the outset the different features of the loans; and did not check that the Complainant got the loan that offered him the features he specified. Unfortunately, in this particular case, the broker was not a COSL member and COSL was unable to consider the complaint against her.
The Complainant advised the broker that she recently received a monetary settlement on her divorce. She intended to keep a small portion of this for school fees and clothes for her children. The larger portion would be directed towards the purchase the property. The Complainant completed and signed a finance brokering contract authorising the broker to act on her behalf to arrange a loan for 95% of the purchase price. The Complainant and the broker discussed loans that were on offer from several lenders. However, because of the Complainants poor credit history, her choice of loan and lender was limited. The broker canvassed the Complainants requirements with several lenders specialising in loans for people with a poor credit history before finally selecting one from Lender A. The loan was for 95% of the purchase price, less settlement costs and fees. Shortly before the loan was due to settle, the Complainant, without the knowledge of the broker, paid the deposit on the security property without having had the benefit of an enforceable subject to finance clause. A week after Lender A unconditionally approved the loan and two days before settlement was due to occur, the Complainant advised the broker that she did not have sufficient funds to settle on the purchase. She had apparently miscalculated the amount of fees and charges that would be deducted from the loan at settlement. Curiously, the Complainant indicated to the broker that she thought the loan was for 100% of the purchase price, rather than 95%. In an attempt to assist the Complainant, the broker asked Lender A if it would be prepared to approve a loan for 100% of the purchase price. Although Lender A declined to do so, it agreed to capitalise some of their fees and charges to free up extra funds for settlement. Despite this, the Complainant never returned the signed loan documents and the loan consequently did not settle. Some months later, COSL received a complaint from a consumer advocate representing the Complainant. The Complainant alleged that the broker:
As is COSL's usual practice, we requested and received a large amount of information from the broker, including extensive file notes. After reviewing the information provided by all parties, COSL formed the view that the broker had not breached any relevant law or the Code of Practice of the Mortgage and Finance Association of Australia; that their conduct was consistent with good practice in the credit industry; and that they acted fairly towards the Complainant. COSL noted that the broker had retained a copy of a cheque drawn in favour of the Complainant from her divorce settlement. The broker had therefore verified the Complainants claim that she had her own funds to put towards the purchase. Further, despite her assertions, the brokers file notes showed no record of the Complainant advising the broker that she had paid a deposit on the property. Nor did it indicate that she had contacted him about the subject to finance clause. COSL noted from the brokers file notes that the Complainant was represented by a lawyer to whom the broker forwarded details of the loan disbursements and a request to ensure that the Complainant had sufficient funds to settle. COSL also noted from the file notes that the broker had advised the Complainant to speak to her lawyer and discuss the loan documents with them to ensure that that the proposed loan was appropriate for her needs. According to the file notes, the Complainant advised the broker only after the loan had been approved that she did not want to contribute more than a small portion of her divorce settlement towards the purchase of the property.. When the loan documents were not returned by the Complainant, the broker made numerous calls to both the Complainant and her lawyer to ascertain the Complainants intentions. The Complainant directed the broker to speak to her lawyer instead. The lawyer however refused to take the brokers calls. The broker was able to produce a record of every call that he made. As the broker retained extensive file notes and kept copies of documents provided by the Complainant, the broker was able to respond in great detail to the issues raised in the Complainants complaint and substantiate his assertions. COSL did not consider that the Complainants loss was in any way attributable to the conduct of the broker, as was alleged. In fact, COSL was of the view that the broker had gone beyond the call of duty in attempting to assist the Complainant. Tips for broker
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