Unlicensed Lender to Pay $111,0000 for Unlawful Credit Activity, Says AFCA

Complaint

This complaint relates to a loan Franchelen Pty Ltd (the lender) provided to Mrs C and Mr C (the complainants).

On 20 August 2009, the complainants signed an unconditional contract of sale to purchase an investment property in Queensland for $540,000 from a developer. The complainants paid a deposit of $54,000 to the vendor.

Through a broker, the complainants obtained a loan of $380,000 from another bank, secured by a mortgage over the property. The total amount, including upfront costs, required to complete the property purchase was approximately $572,000.

Around August 10th 2010, the lender offered the complainants a $130,000 loan with a 12-month term, with interest-only repayments during the loan term and the principal amount repayable as a lump sum at the end of the loan term. The complainants accepted the loan offer. The parties signed the loan contract on August 10th 2010. The settlement of the property purchase occurred on August 25th 2010.

The complainants made periodic interest repayments and a $35,000 lump sum repayment to the loan on August 26th 2011. They repaid the loan in full on February 28th 2012.

On February 12th 2019, the complainants sold the property for $385,000 and settlement occurred on March 14th 2019.

The complainants say:

• the lender provided credit without a credit licence
• the lender knew the property had an inflated sale price
• the lender failed to make enquiries regarding serviceability and affordability
• the lender knew or should have known they could not afford the loan
• the lender made no inquiries about how they would repay or refinance the loan at the end of the 12-month term
• they made the $35,000 lump sum repayment using other loan funds
• they made the $95,744 lump sum repayment using a gift from a relative, and;
• they did not receive independent legal advice about the loan because they trusted the advice of the broker who was “in cahoots‟ with the lender and the vendor.

AFCA’s Findings

ASIC found that the loan was an unjust transaction under section 76 of the NCC, primarily for the following reasons:

• the lender could have discovered through reasonable inquiries that the required loan repayments were unaffordable for the complainants
• the consequences of the complainants defaulting on their repayment obligations were likely to be severe, including default interest and the potential sale of the property
• the complainants were not properly informed about the credit contract because the lender did not meet its disclosure obligations under the NCCP Act, and
• the lender engaged in unlawful credit activity by providing consumer credit whilst unlicensed, depriving the complainants of statutory protections when they entered into the loan contract.

The factors that make the loan an unjust transaction also mean that the lender bears the investment risk for the funds provided under the loan.

Determination

The determination was in favour of the complainants with the lender being required to pay:

• $105,703 compensation for their net financial loss
• $1,853 compensation for their indirect financial loss, and
• $4,000 compensation for their non-financial loss.

Getting Legal Help for Bad Financial Advice

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