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Issue 19 - November 2014

Key Determinations


In July 2014, we issued a determination regarding a financial difficulty dispute. The applicants had been in financial difficulty since 2011, after a downturn in the construction industry affected their business.

The FSP had previously provided the applicants with some assistance and had held off on enforcement action for eighteen months to allow them to refinance their debts. When the applicants couldn’t refinance, the FSP started proceedings to repossess the security property.

Their accounts included a home loan, business loan and credit card and they were all in significant arrears by the time they came to FOS. However, things had improved for the applicants recently when one of them returned to work. They provided FOS with a Statement of Financial Position that showed their average monthly income was $12,500 per month. Their expenses totalled $8,340, which left them an average of $4,138 per month in uncommitted income.

The account statements also showed that the applicants had been making the minimum repayments on their loans for a period of twelve months. The problem was that they were in arrears of approximately $55,000 from the years that they had been in financial difficulty.

One of the principal issues for the Ombudsman to consider was whether it was appropriate to vary the applicants’ home loan contract (which was a regulated contract under the Uniform Consumer Credit Code when it was drawn and was therefore now regulated under the National Credit Code) to allow them to continue with the home loan.

When deciding whether to exercise his power to vary the applicant’s home loan, the Ombudsman considered the applicants' whole situation and took into account the following factors:

  • The security property was the applicants’ home and had been for twenty years. They should therefore be given every reasonable opportunity to keep it.
  • The applicants’ financial situation had improved after the dispute was lodged with FOS. They had demonstrated their commitment to meeting their financial obligations by making payments on the facilities in a consistent way for a year.
  • As the security property was also the security for the business loan, it was necessary for the FSP to consider what arrangement was affordable to the applicants to repay the arrears on the business loan.

Taking these factors into account, the Ombudsman determined that the FSP should capitalise the arrears on the home loan and also provide a three month moratorium on the home loan to allow the applicants that period to direct their surplus income to the repayment of the arrears on the business loan. Once the arrears on the home loan were capitalised and the arrears on the business loan were cleared, the applicants would be able to continue making repayments and keep their home.

This determination was notable because it demonstrated that, despite FOS being satisfied that an FSP had met its obligation to work with an applicant in financial difficulty in the past, it is equally important that FSPs be willing to reconsider options when circumstances improve.  The determination also demonstrates that the Ombudsman will consider options for all accounts which the applicant holds. As the Ombudsman identified that assistance was needed for an unregulated facility, he ordered a variation to a regulated facility to support repayment of the unregulated debt.

You can read the whole determination here.