Bank’s reason for refusing to consider hardship application erroneous

Categories:

Vulnerable customers and hardship decisions, Lending,

Summary:

In April 2025, the bank agreed to lend Clinton $30,230 to buy a vehicle. The following month, Clinton’s business venture collapsed, and the month after that he asked for hardship assistance with loan repayments. The bank rejected his request, saying he had had the loan for only three months, although it added that he could reapply after six months. Clinton complained that the bank was wrong to refuse him hardship assistance. He also complained that the bank constantly harassed him and tried to repossess the vehicle, causing him considerable stress. Finally, he complained that the bank had added numerous charges to the loan despite his attempts to negotiate in good faith.

Published:

July 2026

Our investigation

We considered the bank’s basis for rejecting Clinton’s hardship application – that he had taken out the loan only three months earlier – was without any foundation. It was certainly not a reason for rejecting hardship assistance under the Credit Contracts and Consumer Finance Act 2003. On the contrary, we always recommend customers contact their bank sooner rather than later if they get into financial trouble.

However, the bank subsequently changed its justification for rejecting his application, saying it had done so under section 57(1)(c) of the Act. This section says banks can refuse to consider hardship applications if customers could reasonably foresee at the time of taking out the loan that the borrower would be unlikely to be able to meet their obligations under the loan contract for reasons such as loss of employment. The bank said Clinton had intended to start a business at the time, but it had approved the loan on the basis that he was in full-time employment. However, we maintained that the bank’s initial reason for rejecting his application was erroneous, and that its staff had given him incorrect information about his hardship eligibility at the time.

We considered the bank did not respond fairly and reasonably to Clinton’s request, but at the same time we considered Clinton’s continued refusal to repay the loan also contributed to the situation he was in, which included the accumulation of significant arrears on his loan. We therefore suggested a compromise, and the bank offered to reduce the loan arrears by $1,500, capitalise the remaining arrears and refinance the balance over five years, thereby making monthly repayments affordable for Clinton.