Lender cancels loan after friend of young borrower dies in horror accident

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ANALYSIS: A car crash left a young man with the death of a friend, trauma, depression and a loan of $ 9,300.

He had let his friend drive his car and was following him in another vehicle when the accident happened.

But personal tragedy turned into financial calamity when the 19-year-old’s insurer denied his claim because his friend was not a named driver on his insurance.

This left the young borrower with debt, no car, and a deep personal trauma that saw him fall behind on his repayments.

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The facts of the tragedy are set out in a decision by Financial Services Complaints Limited (FSCL), one of the four free complaints bodies people who believe they have been wronged by a financial services company can come forward to complain.

Its findings provide important lessons for borrowers and their families.

LESSON ONE: LENDERS HAVE DISCRETION

The traumatized young man struggled to repay the $ 9,300 after the accident, suffering from anxiety and panic attacks.

Bank, Insurer, Lender, Broker or Advisor Wrong You? File with one of the four official financial services complaints services.

Initially, the lender voluntarily reduced the amount owed to $ 8,000, but after his uncle fought for his nephew, including filing a complaint with FSCL, the lender ultimately decided to write off the entire debt.

As with the banking mediator, FSCL does not name the companies it investigates.

Susan Taylor, Managing Director of FSCL, applauded the lender’s act of compassion.

“Lenders often get a bad rap, perhaps especially in the media, but some of them show a certain compassion when it calls for it,” she said.

Lenders are more often than not companies with duties to their shareholders, and it is only “very, very occasionally” that she has seen lenders write off entire loans after people have suffered tragedies in their lives. .

Lesson 2: Using the Difficulty Rules

Supported by his family, the young borrower asked his lender for relief from the difficulties.

Loan laws require lenders to consider hardship relief requests from distressed borrowers, Taylor explains.

Susan Taylor, Managing Director of Financial Services Complaints Limited, says lenders can, and sometimes do, show compassion and write off debts from troubled borrowers.

Jin Cowan / Stuff

Susan Taylor, Managing Director of Financial Services Complaints Limited, says lenders can, and sometimes do, show compassion and write off debts from troubled borrowers.

They don’t have to agree to make changes, but Taylor says, “Most lenders will give some hardship relief.”

In particular, lenders can reduce debt and agree to temporarily reduce repayments.

“As soon as there is a sign that you might get into trouble, for example, if you have just lost your job, and know that in a fortnight you will lose your paycheck, it is important to contact your lender”, she says. .

Lenders will also most likely put a borrower in touch with a financial mentor (the term budgeter is now used).

They can help people manage their finances better, but can also sometimes help borrowers make better repayment agreements with their lenders.

They can act as a neutral party who can help lenders make sure there is a case of real hardship.

Lesson 3: Unaffordable Loans Exist

Taylor said the young man’s uncle wondered if the loan was, in fact, affordable to begin with.

Taylor says that when people go through life changes and can’t repay, sometimes they believe that to mean the original loan was “unaffordable.”

Under responsible lending laws, before granting a loan, pawn shops must educate themselves to ensure that a borrower can afford the repayments without falling into hardship. But that’s when the loan was applied.

“A lot of the complaints that come to us when the borrower alleges an irresponsible loan is when something happened later, a relationship breakdown and illness, or a borrower losing their job,” says Taylor.

The young man could afford repayments when he took out the loan, Taylor said.

She had seen cases of irresponsible lending, and it was a “red flag” when a borrower missed payments soon after taking out a loan when their circumstances had not changed.

The loan was big, and the man was young, but he was an adult, who could vote, marry, drive, drink, be convicted like an adult, if he committed a crime.

And Taylor couldn’t find any evidence that he was unaffordable at the time he released it.

Third lesson: borrower’s responsibility

The young man made a mistake letting his friend drive his car.

The terms of the loan stipulated that the young man had to take out full car insurance, which he did.

His uncle argued that it was not really comprehensive as it only covered named drivers and the lender should have known.

Taylor said the young man has a responsibility to find out what his policy covers.

“This case serves as a reminder to consumers to make sure that the insurance they have is good for them,” she says.

“It is important to remember that it is the insured’s responsibility to read the insurance policy. The lender may ask for proof that the vehicle is insured, but they are unlikely to review policy details. It is important that the borrower read the certificate of insurance and the wording of the policy.

“If someone else is driving your car and is not named on your insurance policy, be sure to update your policy to include it, otherwise you may not be covered in the event of an accident. . “

Lesson 4: Loans are risky, family support is priceless

Debt can turn tragedy into financial calamity.

Debt carries risk because even after borrowers’ life circumstances have changed, the debt still needs to be repaid.

Young people in particular may find it difficult to understand the risks, which is why it may be important for older and more experienced family members to provide support.

Without the help of the young man’s uncle, it is easy to imagine that the outcome could have been different.

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