Case Studies

Maladministration in Granting Credit

Mr P applied for a credit card without stipulating a preferred credit limit. Mr P’s application was assessed using the bank's credit scoring system and he was offered a credit card with a limit of $8,000. The entire amount was spent by Mr P, who then had difficulties repaying the debt.

Mr P was 22 years of age and had only been in employment for six weeks with his current employer at the time of the application. The application showed that he had previously been employed for a three month period elsewhere. The pay slips provided by Mr P to the bank did not support that he was employed on a full-time basis, as the hours worked by Mr P varied substantially from week to week.

Further, although Mr P's current income (shown from the payslips provided) was sufficient to service the proposed limit of $8,000, the information on the application indicated that Mr P had no previous borrowing history and no savings were evident.

When assessing disputes about maladministration in the granting of credit, BFSO takes into account the following:

Assessing the ability to repay is to be made in accordance with the Uniform Consumer Credit Code (‘the UCCC’) and according to what is good banking practice. One consideration in the UCCC is whether, at the time of entering into the contract, the credit provider knew or could have ascertained by reasonable inquiry of the debtor that the debtor could not pay the debt in accordance with the terms of the contract or without substantial hardship; and

A diligent and prudent bank should rely on all of the information known to the bank and seek up to date information from its customer before forming an opinion about the capacity to repay.

Investigation and Resolution

The case manager formed the view that she could not be satisfied that the bank’s credit scoring process as applied in this case was sufficient to satisfy the bank’s obligation under the UCCC or to satisfy the reasonable banker test. The case manager also concluded that although it was arguable that Mr P should not have been granted the credit at all, against that, he clearly had use of the funds.

The bank agreed to make the following offer to Mr P:

	to reduce the outstanding debt to $4,000;
	to waive all future fees and interest charges;
	repayment to be made in increments of $85 per month for 47 months, with a residual of $5 payable at the 48th month, to finalise the debt; and
	Mr P could choose to repay the debt earlier if preferred.

The offer was put to Mr P by this office, who then responded with a counter-offer to repay $2,000 over a period of 30 months with minimum monthly repayments of $66, as a final resolution to the dispute. This was accepted by the bank and the matter
was resolved.


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