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Credit service in focus

The Consumer Council Of Fiji
Saturday, February 09, 2013

FINANCIAL Services have been under the council's radar for more than three years now. For 2013 World Consumer Rights Day (WCRD), the council will once again focus on this sector to highlight the gaps in consumer protection based on real experiences of consumers.

This year's WCRD will be marked with the theme, 'Consumer Justice Now' with special emphasis on credit services.

Keeping up with one's home loan repayment is a tough call as this is usually the biggest financial debt one has in life. We expect home loan providers to charge reasonable interest which both parties agreed on and this being legalised through a signed document that has to be adhered to.

Home loan owners often struggle to keep up with their monthly repayment. What if your home loan provider cheats you by charging you a much higher interest rate than what you are supposed to pay? Wouldn't this make things more difficult for you apart from breach of trust including non compliance with the Consumer Credit Act?

Below is one such scenario that highlights consumer injustice.

Case study: interest rate blunder

Mrs Singh approached a prominent home loan service provider in June 2005. Impressed with the initial interest rate of 6.99 per cent, she signed the contract for 13 years.

The agreement clearly stated a fixed rate of 6.99 per cent for the first five years and thereafter a variable interest rate of 8.5per cent per annum.

Everything went fine for the first two years of repayment and Mrs Singh expected the same for the rest of the loan period.

After two years, the home loan provider without the knowledge of Mrs Singh suddenly increased the interest rate from 6.99 per cent to 12 per cent instead of maintaining the interest rate of 6.99 per cent for the next three years.

The interest rate was further pushed to 14.25 per cent in 2008. Mrs Singh did not expect any change to her interest rate until after June 2010.

Sudden increases in interest rates without Mrs Singh's knowledge led to several difficulties in paying her monthly payments. Mrs Singh was pushed beyond the limits.

* She could not keep up with her payments and began defaulting.

* She was frequently pressured by the home loan provider to meet the overstated monthly repayments.

* Her request for leniency over her payments was blatantly refused by the service provider on numerous occasions even though she highlighted the change in her financial position due to the increase in her monthly payments.

* She was put through embarrassment when her property was publicly advertised twice for mortgagee sale.

* Mrs Singh's debt mounted as a result of wrong interest rate applied in the first five years which was expected to remain at 6.99 per cent. She had to bear all the cost associated with mortgagee sale in addition to the high default interest rate applied to the default amount. The charges were related to demand notice, advertising, legal fees etc.

It was only at the beginning of 2012 when Mrs Singh suspected that something was wrong with her account. She checked her home loan statements against her home loan contract and discovered the anomaly.

She lodged her complaint with the council and the service provider. The home loan provider admitted the error and was willing to give a rebate of $16,607.37. The home loan provider refused to reimburse other costs associated with mortgagee sale, although mortgagee sale was triggered by the increase in the interest rate.

The council requested release of certain documentation to recalculate the rebate.

The home loan provider denied releasing certain information on the grounds of confidentiality. The council wanted to confirm that the rebate offered by the home loan provider was correct since the loan provider had not revealed how it calculated this amount.

This matter was referred to the Reserve Bank of Fiji to confirm if the rebate was a true reflection of what was owed to the consumer. It is over four months and the consumer is still waiting for RBF's response.

A wrong has been done. The question now is how will the consumer be compensated for the emotional trauma she suffered and the public humiliation she was put through by advertising her property for mortgagee sale?

Most importantly, the bigger question is how will the financial institution be penalised for mismanaging a consumer's account? Will RBF take action against the home loan provider? If yes, what will it be?

Conclusion

Such injustices done to consumers in financial services have been ignored for far too long. We have never heard a financial institution being fined for wrongdoing. Consumers need protection from deliberate anti-competitive behaviour, misconduct, information asymmetry etc in the first place rather than knocking on the doors of RBF.

We need an effective and speedy redress system in place that looks at the plight of consumers. Consumer Complaints Tribunal (CCT) as proposed by the council can be seen as a solution where compensation is also awarded for claims of more than $5000.

* This is a weekly series of articles by the Consumer Council of Fiji in the build-up to World Consumer Rights Day 2013. Email: mediaofficer@consumersfiji.org.


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