Suncorp has claimed that it was not bound to allow a Victorian woman an interest-free loan indefinitely, despite the banking watchdog finding otherwise.
The Financial Ombudsman Service found that the woman was not liable to pay interest or repay principal because the loan was “irresponsibly” made, the financial services royal commission has heard.
The woman, Jennifer Low, was left with debts of $440,000 when her husband died suddenly in November 2015. As her husband – killed by an explosion while running his blasting business – had managed the family finances, she had not understood their commitments.
However the commission heard that in 2014 the couple had borrowed $240,000, ostensibly to build a warehouse to rent out on land they owned in Healesville, in Victoria, despite borrowing $200,000 for the same purpose a year earlier.
The commission heard that Mrs Low had signed loan forms with her husband but had not understood what she was signing.
After his death she was thrown into a financial crisis because of the debts, with outgoings of $2800 a month more than she earned.
Despite the same loan purpose being applied for twice when the case was taken to the FOS by Mrs Low and her family, it found that the loan had been made “irresponsibly” because the bank had failed to identify that they had borrowed money a year before to build the same warehouse.
FOS made a determination wiping the interest and costs from the loan which stood at $221,945 after Suncorp made repayments FOS ordered. The Lows then made an offer to Suncorp to pay the loan off at around $1000 a month, which the bank rejected.
Suncorp executive David Carter told the commission that the loan would take 17 years to pay out at that rate.
“I think that length of time is unacceptable,” he said.
The Lows sold Mrs Low’s Healesville home, and the bank used the proceeds to pay off her other debts. Suncorp and the Lows made more offers to each other and Mrs Low’s son, Rien Low, told the commission he had felt harassed by a Suncorp staffer.
Following the sale of the house, Mrs Low received a letter signed by David Carter which apparently offered repayments of $792.53 for the life of the loan. However, Mr Carter said that was a pro-forma letter sent automatically to update their account balance after the sale, and not an offer.
Things apparently became heated when Rien Low asked the letter be honoured. An internal email shown as evidence had one staffer asking another: “WTF is this Son up to.”
The bank tried to negotiate an outcome with the Lows that would see them start to pay interest on the loan again after six months which Mr Carter described as an “acceptable interest and payment-free period”.
Finally the bank 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.
This became a point of argument between Mr Carter and counsel assisting Rowena Orr QC.
“The way we do things as an industry … is at some point the interest-free period comes to an end,” Mr Carter said.
Ms Orr asked: “FOS had told you that you are not permitted to charge interest because this loan had been irresponsibly lent. Why would an applicant ever agree to pay interest again when FOS has told them that you didn’t have an entitlement to charge interest?”