FOS admits its decision on widow’s loan repayments was ‘wrong’

The Low family was not aware of the five loans (totalling $1 million) that Suncorp provided to the late husband and his widow until after a workplace accident claimed his life in 2015.

When Ms Low contacted the FOS to intervene in the matter, the service found that the bank should not have approved the loan in the first place, and subsequently ruled that no interest should be paid on it.

However, when the widow proposed to pay off the outstanding amount of $226,000 over the loan’s 17-year term, with monthly payments of $1,111, which was higher than the established repayments, the FOS declined her proposal.

It found that it would be reasonable for Ms Low to repay the loan without interest within 12 to 18 months or a maximum of five years.

On the stand during the third round of royal commission hearings, Philip Field, FOS’ lead ombudsman for banking and finance, was forced to explain the reasoning behind his ruling, saying that he didn’t want Ms Low to still be paying off her debts in her 80s.

“What I had in mind was that situation where you had somebody who was in their 60s paying it until they’re 80. And certainly, from my perspective, if a bank were to lend to somebody in that scenario, I would regard that as not reasonable,” Mr Field told the royal commission.

The lead ombudsman admitted his regret for the decision he made when Ms Low’s case fell on his desk, saying that he should have accepted her offer.

“In hindsight, I don’t think that was the correct thing to do. I think I should have accepted that the [Consumer Action Law Centre] position was correct and then got on the phone to the bank then and there to try and resolve the matter,” Mr Field said in the witness box.

“I should have said that… once the arrears were cleared on — and at the time of that call it was, but provided the arrears — any arrears on the interest-free loan were also cleared, then if she could make those payments, she was entitled to do so and it would be interest-free until it was paid off.”

The Low family has not yet accepted Suncorp’s offer to extend the repayment period to five years instead of 12 to 18 months. However, Mr Field said that he expects the bank to change its position and allow Ms Low to make monthly principal-only repayments over the duration of the loan, as per her original proposal.

The third round of hearings began on Monday (21 May) and focuses on loans to small and medium-sized enterprises, with responsible lending and unfair contract terms coming under the spotlight.

The hearings will consider the conduct of several of the leading banks in respect of their dealings with SMEs, particularly in providing credit to businesses.

[Related: Bank admits to business lending failures]