The Financial Ombudsman Service has admitted it made a poor judgement call when it told a bank to demand quicker payment from a widow in financial strife.
The FOS is a body set up to resolve disputes between consumers and financial services providers such as banks and insurance companies.
Speaking at the royal commission on Monday, FOS banking chief Philip Field admitted the ombudsman was wrong to push for an “irresponsible” loan of $240,000 to be repaid by Healesville woman Jennifer Low within a year, rather than the 17 years Ms Low had pleaded for.
“Do you think it was the right thing to have done to have conveyed to the parties that 12 to 18 months was reasonable and five years was the outer limit?” counsel assisting Rowena Orr QC asked Mr Field.
“In hindsight I don’t think that was the correct thing to do,” Mr Field said.
FOS had found that a loan given to Mrs Low and her late husband in 2014 was irresponsible because loans for a similar purpose – the construction of a warehouse on land they owned – had been given the previous year.
The death of Mrs Low’s husband had left her without enough money to make full repayments on the loan.
FOS found Suncorp should have known that and queried it before making the 2014 loan.
As a result of the FOS finding, the loan balance was reduced to $221,000 and no further interest was allowed to be paid on it. The bank and the Low family then negotiated over how long the loan should last.
The Lows said it should go for the full term on which it was granted and offered to continue payments of about $1100 a month which would see it paid off over 17 years. Suncorp executive David Carter gave evidence on Friday that that was well outside industry norms and the bank initially requested repayment over six to 12 months.
FOS’ advice influenced Suncorp which finally offered two options to the Lows, one ending the no-repayment period after two years and one after five years, providing Mrs Low sold an investment property on the Sunshine Coast.
Mrs Low rejected those offers and the issue is yet to be settled.
Mr Field said the Low case had been an unusual one because it involved five different loans, four of which were found to be fair and reasonable.
Suncorp’s view that the industry norm was that loans that no longer had interest payments attached as a result of a FOS determination was the case with residential loans rather than commercial loans as was the Lows’, Mr Field said.