FSP inappropriately consents to superannuation release.
An applicant had been experiencing difficulty meeting repayments on his home loans. He initially obtained two superannuation releases, with the support of the FSP. At this stage, it was not clear that the applicant’s difficulties were long term.
The FSP subsequently consented to three further superannuation releases. The applicant had by then become bankrupt, and the contact notes showed the FSP had concluded he could not afford the loans. The FSP declined to offer any repayment arrangements for this reason.
FOS found that it was inappropriate for the FSP to support the last three releases because:
- Superannuation releases had been tried in the past and had not succeeded in improving the applicant’s position.
- The FSP did not perform proper hardship assessments, and failed to consider whether superannuation releases would help the applicant overcome his financial difficulty.
- Even though the FSP concluded that the applicant could not afford the loans, it agreed to support the superannuation releases. This was likely to lead to the applicant losing his superannuation as well as his home.
When the applicant became bankrupt, his interest in his home formed part of his bankrupt estate and vested in his trustee in bankruptcy. Any surplus funds on the eventual sale of the property will flow to the trustee for distribution to the creditors. This means that the applicant’s creditors, and not the applicant, will ultimately obtain the benefit of the superannuation releases.
Under normal circumstances, superannuation is protected from creditors in bankruptcy. While it could be argued that the superannuation releases will benefit the applicant because they will reduce his liability to his creditors, this is not comparable to the benefit he would have obtained from keeping the funds in his superannuation account, where they would accrue earnings and be protected from his creditors. As a result, the FSP’s conduct in this case caused the applicant to suffer a financial loss.
FOS decided that the FSP should restore the applicant to the position he would have been in had the bank not breached its financial difficulty obligations and inappropriately consented to the releases.
FOS directed the FSP to reverse the final three superannuation releases by transferring the money it received back to the applicant’s superannuation account. FOS also awarded the applicant $3,000 as compensation for non-financial loss.
Case study: FSP declined to support release
An applicant had been experiencing hardship as a result of a workplace accident that left her with a spinal injury. She was also suffering from chronic pain and severe and prolonged depression.
Although she had received a compensation payout relating to the accident, that money had depleted over a two-year period and she was unable to meet her home loan repayments with the FSP.
The applicant requested that the FSP support her request for an early release of superannuation, in the hope of saving her home. The FSP declined the request because it appeared the applicant’s difficulties were long term. It said that supporting the release would only be delaying the inevitable sale of her home.
The FSP instead offered to allow the applicant four months to sell her home without taking further action, and a further period for any contract to settle. The FSP noted that the applicant had a reasonable amount of equity in her property, and if she were to sell, she would likely be able to afford to buy a smaller home.
In this case, we found that the FSP had met its financial difficulty oblgiations and that its decision to decline to support the release was appropriate. This is because:
- The FSP took steps to understand the applicant’s financial position and how it may change
- The information and material the applicant provided to the FSP showed that she could not afford the loan and her circumstances were unlikely to improve. If the release was approved, it would not prevent the applicant from eventually losing her home, and she would also have lost part of her superannuation
- There were no other reasonable options for assisting. For example, extending the term of the loan would not have reduced repayments to an amount that the applicant could afford. In these circumstances, the FSP’s offer to allow the applicant time to sell the property herself was an appropriate response to her request for assistance.
Case study: FSP should support the release
The applicants asked the FSP to support their request for an early release of their superannuation. The FSP performed a hardship assessment, and declined the request because the available information showed that the applicants could not afford the loan. The FSP had concerns that supporting the release would just delay inevitable default.
The applicants lodged a dispute with FOS requesting that we direct the FSP to consent to the release. The applicants were a young and well qualified couple who, although unemployed, reasonably expected to return to work.
In this case, we directed the FSP to consent to the release. This is because:
- the applicants would have many years to rebuild their superannuation
- the amount required was a modest portion of their superannuation
- although they needed time to find work, they were very employable
- they understood the risks
- they reasonably believed that they would be able to resume their normal repayments in three months
- because there was uncertainty about their future financial position, the release would allow the applicants breathing space and increase the likelihood that they would be able to meet their long-term obligations
- the FSP had previously provided extensive assistance, and we considered it appropriate for the FSP to support a release to give the applicants a final chance.
Although we formed a different view to what the FSP had initially decided and directed the FSP to support the release, we still considered that the FSP had met its financial difficulty obligations. This is because the FSP followed an appropriate hardship process, and made a reasonable decision based on the information it had available at the time.