FSCL case teaches valuable lesson about properly educating borrowers

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FSCL case teaches valuable lesson about properly educating borrowers

A case investigated by the Financial Services Complaints Limited (FSCL) in 2021 highlights that aside from getting professional help, borrowers must understand the terms of repayment waivers when taking out a loan.

The complaint taken by the FSCL revolved around a consumer left with a mountain of unexpected debt after losing their job, believing that the repayment waiver chosen when they took out a loan for a car would cover their loan repayments.

The consumer, Sione, and his partner took out two loans to purchase a car – one to consolidate the debt, and the other to buy the car. For both loans, the couple purchased an optional repayment waiver.

When Sione faced difficulties with his job, he had to apply for hardship assistance and wanted to claim under the repayment waivers. Problem solved, right? Well, not really, because he found out that the waivers only covered one borrower: his partner. Moreover, the waiver can only be used in certain circumstances, for example, if Sione’s partner cannot work due to illness.

The situation worsened when Sione resigned from his job and the vehicle was written off, pushing him to complain to his lender that repayment waivers had not been applied to his job loss and it had used the insurance payment to repay the loan secured by the written-off vehicle.

After not reaching a resolution with the lender, Sione complained to the FSCL, insisting that the repayment waivers should have applied to his job loss, and they should have covered him because he earned more than his partner. He also argued that the waivers were unsuitable, and the lender did not explain them properly.

The consumer also claimed that the lender refused hardship assistance and was not entitled to the insurance pay-out when his car was written off.

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According to the FSCL, the lender agreed to discuss a payment plan for the debt, but needed to look at Sione’s bank statements. It also explained that if it could put together an affordable repayment plan, it will reverse the default interest charged on the loan.

After investigating the case and considering both arguments, the FSCL found the lender was not at fault and suggested Sione agree to a repayment arrangement.

“Unfortunately, in this case, even if the waivers had covered Sione, they would not have been applicable to his job loss anyway, as the waivers did not cover job resignations,” said FSCL CEO Susan Taylor.

Taylor commented that the case highlights the significance of consumers understanding the terms and conditions of any agreements, including insurance cover, when making a large purchase.

“Consumers need to ask themselves if the add-ons they are looking to purchase are fit for purpose and need to make sure that they understand what the product covers. A consumer is well within their right to seek advice. They can speak to friends, family, or a financial adviser to make sure that they understand what they are agreeing to,” Taylor added.