These and two further case studies are also presented in The FOS Approach to Joint Facilities and Family Violence.
Case study 1: Failure to recognise signs of potential financial abuse.
Ms G obtained a joint home loan of $150,000 with her then partner. The loan funds were used to refinance Ms G’s prior home loan with another financial services provider as well as other loans owed solely by her partner. It also provided additional funds to both borrowers. Ms G said the FSP should not have provided her with the loan because she received no benefit from it and was acting under duress from her partner at the time of lending.
FOS investigated and found that the FSP had not complied with good industry lending practices, and should not have accepted Ms G as co-borrower for the following reasons:
- the security for the loan was a property in Ms G’s sole name and part of the purpose of the loan was to repay debts that she did not owe
- the FSP should have taken steps to ensure Ms G was not subject to potential financial abuse
- specifically, the FSP should have discussed the loan with Ms G in private, without the co-borrower present.
Ms G said she presented at the FSP branch as subdued, unfocused, and unwilling to take part in discussion about the lending. She said it would have been evident that she was experiencing mental illness and was in an abusive relationship with the co-borrower.
Good industry practice in these circumstances required the FSP to recognise and act on the warning signs of potential undue influence, and to speak with her separately from the co-borrower to ensure that she understood what she was doing and was entering into the transaction of her own free will. It should also have made a note of that conversation and retained it with the lending file.
FOS found that Ms G was not liable for the portion of the loan that was used to refinance her former partner’s debts. The FSP could only hold the applicant liable for, and could only use her property as security for, an amount of approximately $80,000.
Case study 2: Unauthorised transactions on a joint home loan
Ms Y had a home loan in joint names with her former partner, Mr Y. Their jointly-owned property was security for the loan. The FSP had approved several top-up increases to the home loan, some of which were requested through online banking. Ms Y said that she had not authorised four of these increases.
FOS investigated the dispute and found that the FSP was required to obtain both Ms and Mr Y’s consent before it could increase their liabilities under the loan, and it failed to do so. Ms Y did not sign the contract for the first top up increase. The second and third increases were requested through online banking, and the FSP was unable to establish that Ms Y had authorised these transactions, or benefited from them. For the fourth increase, FOS found the FSP was on notice that Ms Y may have agreed to the increase under duress from Mr Y, and so the FSP should have recommended Ms Y obtain legal advice before advancing the top up funds.
FOS found that Ms Y was not liable for the losses arising from the disputed top ups. The loan balance was adjusted for the principal amounts of the top ups, as well as the interest, fees and costs on those amounts, and Ms Y and Mr Y were jointly and severally liable for the revised loan balance. The remaining balance owing under the loan (that is, the disputed top up amount) was still secured by Mr Y’s half share of the security property, and so could potentially be recovered by the FSP if the property was subsequently sold.