$920 fridge purchase leads to $10,000 debt
Linh* needed a new fridge, and so went into a household goods shop to buy one. She found a fridge that cost $920, and the shop offered her a credit card to purchase it.
Linh* needed a new fridge, and so went into a household goods shop to buy one. She found a fridge that cost $920, and the shop offered her a credit card to purchase it.
Linh* needed a new fridge, and so went into a household goods shop to buy one. She found a fridge that cost $920, and the shop offered her a credit card to purchase it. The credit card had an available balance of $6,000.
When she got the credit card, Linh bought other things with it, and then found herself struggling to keep up with the repayments.
The credit card provider recommended she take out a personal loan to pay off the credit card, saying it would be more cost effective for her. Linh agreed to this and took out a loan with a balance of $6,378.75.
Linh had to resign from her job due to medical issues, which meant she continued to struggle financially, and she did not use the loan to pay off the credit card. She contacted a financial mentor for help, who made a complaint to the IFSO Scheme on her behalf.
The financial mentor said that the credit card had led Linh into a spiral of debt that she was struggling to deal with. They said Linh had only wanted a hire purchase agreement to buy the fridge and she "neither asked for, nor wanted, a credit card with a $6,000 limit." They said the addition of the personal loan meant Linh had a debt of over $10,000.
Under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), lenders are required by law to make sure a loan is suitable for the consumer's requirements and objectives and will not put them into a position where the borrowing could cause substantial hardship. Lenders need to make the appropriate inquiries of the consumer before offering the loan, and provide them with sufficient information so they can make an informed decision.
If a lender has failed to do this, they will be required to refund the consumer the interest and fees under the CCCFA.
Following discussions with the IFSO Scheme case manager, the credit provider offered to refund the interest and fees on the credit card and the personal loan. Linh was only required to pay off the principal on both accounts. Linh accepted this offer, and said she could afford to repay about $20 per week to each account, which the credit provider accepted.
Complaint settled
Lenders need to check that any lending they provide is suitable for consumers. This is an important obligation to protect consumers from products that are not appropriate or cause financial harm.
* Name has been changed