Bank acted reasonably over trust’s default on loans

Categories:

Vulnerable customers and hardship decisions, Bank decisions, Lending,

Summary:

In December 2022, Lauren and her partner Tom became trustees of a family trust with home loans from the bank. The trust property also secured a loan to Tom’s business, which the trustees had guaranteed. The trust fell behind on loan repayments. Lauren complained that the bank did not communicate effectively with her before taking legal action to recover the debt. She also complained that the bank refused to reimburse legal and marketing costs or pay compensation for emotional distress and financial strain.

Published:

July 2026

Our investigation

In reviewing the period before the bank issued formal demands in February 2024, we found the bank’s records showed the trust and the business had made no loan repayments since March 2023, and that the trust was aware it was in arrears. We also found consumer credit law did not apply because the borrower was a trust, not a person. As such, the bank did not have to keep proposing options before taking enforcement action.

The formal notices issued by the bank said all the money secured by the mortgage would become due if the trust did not clear the arrears, and in that case the bank could exercise its right to sell the property. We found the bank did not have to consider the repayment proposals put forward by Lauren after the deadlines in the notices had passed – even though it did, in fact, consider the proposals. It also delayed a mortgagee sale and gave Lauren time to sell the property herself.

We found the loan terms allowed the bank to recover enforcement costs when the trust defaulted on the loan, and the bank gave Lauren’s lawyer updates about these costs. The records showed the bank did not pass on any of the marketing costs to Lauren and Tom. We found the legal costs were reasonable and had been communicated clearly.