Review 11 September 2015 Misleading or deceptive conduct Failure to disclose of fees Delayed settlement Credit and Investments Ombudsman Limited ABN 59 104 961 882
REVIEW 1. This Review provides the parties with CIO s assessment of the claims made by the consumer. Summary 2. The consumer s complaint is about the brokerage services provided by Mr S, a broker who was employed by the financial services provider (FSP). 3. Based on the available information, we are unable to conclude that the FSP: provided misleading information about the loan product, and consequently delayed the settlement of the loan, and failed to disclose all of the fees and costs associated with the loan (including exit fees), before the consumer entered into the loan. 1 Background to complaint 2 4. On 11 February 2014, the consumer signed a contract to purchase a commercial property for $365,000. 5. The consumer had already paid a deposit of $35,500. To fund the remainder of the purchase price, the consumer approached Mr S on or around 14 February 2014. At this time, the consumer was also corresponding with her business coach (Mr G) about the purchase. 6. Between 14 February 2014 and 16 February 2014, the consumer and Mr S exchanged various emails about whether the proposed loan would have an offset account. The FSP told the consumer that the proposed loan did not have an offset account, but that a redraw facility was available. Mr S then explained the benefits of having a redraw facility. 7. On or around 20 February 2014, the consumer received and signed the FSP s credit guide. The credit guide noted that the FSP would help the consumer to obtain a commercial loan to purchase the commercial property. 8. On 25 February 2014, the consumer signed a loan application form which contained the following information: the consumer was self employed and wanting to borrow $255,000 to purchase the commercial property to operate her business from. Settlement of the commercial property was due to take place on 25 March 2014, the loan was to be made up of two facilities of $80,000 and $175,000 3, 1 CIO Rule 36.1 Ninth Edition. All references in this Review to the CIO Rules are a reference to the ninth edition. 2 Unless otherwise stated, the information contained in the Background to complaint section is contained within the material provided by the FSP in its letter received by the CIO on 30 September 2014. 3 The $80,000 loan split would have a fixed interest rate and the $175,000 loan split would have a variable interest rate. Page 1 of 9
(d) (e) the loan was to be for a term of 15 years, with the consumer paying monthly interest-only payments for the first five years, the consumer had enough funds to settle the balance of the purchase price, and the following fees were disclosed: (i) loan application fee: $1,000, (ii) other costs including legal fees and other professional charges: $1,400, (iii) valuation fee (if applicable), (iv) government stamp duty on the transfer of the property: $11,915, and (v) other fees and charges associated with the loan: $863. 9. On the same date, the consumer signed a declaration stating that the loan was to be predominantly for business and/or investment purposes. 10. The FSP submitted the consumer s loan application to the lender on the same date. 11. On 3 March 2014, the lender sent the FSP a fax confirming that the loan had been conditionally approved subject to a satisfactory valuation. The cost of the valuation was $1,080. 12. On 27 March 2014, the lender wrote to the consumer and informed them that the loan application had been formally approved. The commercial loan agreement stated that the total loan amount was $210,000, and it was split into the following facilities: (i) (ii) Loan 26748286 $130,000 with a variable interest rate, and Loan 26748253 $80,000 with a fixed interest rate. 13. This loan offer was not in line with the consumer s taxation requirements, and on 29 March 2014, another loan agreement was issued by the lender. It noted the following: total loan amount: $210,000, (d) (e) (f) fixed interest rate: 5.91% per annum, interest only for the first five years, the lender to hold a first registered mortgage over the commercial property, an outstanding fee of $250 to be paid by the consumer at settlement of the loan for having to change the original loan offer, an early repayment fee equal to one month s interest calculated on the total approved loan limit would be payable if the loan was paid in full within five years of the settlement date, break costs could be payable during the fixed rate period if the consumer: (i) made an additional payment of $20,000 or more in the first year of the loan, Page 2 of 9
(ii) (iii) paid out the fixed rate loan in full, and the lender agreed to change the loan type or fixed rate period applicable to the loan, and (g) a redraw facility was not available during the fixed rate period and the minimum redraw was $10,000. 14. On 5 June 2014, the consumer received a copy of the new loan offer directly from the lender. 4 15. On the same date, the consumer sent Mr S an email and confirmed that there were some mistakes in the loan documents she had received from the lender. 16. On 12 June 2014, Mr S emailed the consumer and asked whether she had reviewed the offer, and had any further questions. 17. On the same date, the consumer emailed Mr S and asked him to notify the bank of the error. She also asked that the $250 loan variation fee she had been charged be paid separately. 18. On 19 June 2014, Mr G provided Mr S with the final signed copy of the loan agreement. On the same day, Mr S hand-delivered a copy of the signed loan agreement to the lender s lawyers for settlement. 19. On 26 June 2014, settlement of the commercial property purchase and loan took place and the consumer received the loan funds. 20. On 4 July 2015, the consumer lodged a complaint with the Credit and Investments Ombudsman (CIO). Consumer s claims 21. The consumer claims that the FSP : misled her into believing that the loan product had an offset facility, incorrectly told her that she would not be required to pay any fees for the loan other than the brokerage fee, and misinformed her about the implications of the exit fees. 22. The consumer claims that the FSP s conduct caused her to have to make changes to the loan offer and correct the mistakes made by the FSP. This resulted in her having to pay a $250 fee and delayed the settlement of the commercial property. The consumer claims that this resulted in her incurring further fees. 23. In resolution of the complaint, the consumer wants the FSP to reimburse her $4,274.30 which she says, represents the fees she incurred as a result of the FSP s conduct. A breakdown of these fees is as follows: valuation and loan application fee of $1,580, the lender s legal fees of $1,053, 4 See FSP s email dated 6 July 2015. Page 3 of 9
other lender s fees $104.50, (d) mortgage duty of $781, (e) loan stamping fee of $22, (f) insurance for the loan application of $33, (g) lender s recontract fee of $250, and (h) the FSP s fee of $450. FSP s response 24. The FSP s responded with the following points: (d) (e) (f) (g) The consumer and her business coach, Mr G, met with the FSP to discuss obtaining a commercial loan to purchase a commercial property which she had already signed a contract for. At the meeting the consumer appeared highly educated. She was running her own business, and had previously been employed in the banking industry. The FSP denies that it informed the consumer that the only fee associated with the loan application would be the brokerage fee. The known fees were provided to the consumer at the time of the loan application and the FSP informed the consumer of the other fees when they arose. The consumer signed authorities for the fees before they were charged. The FSP denies that it provided misleading information about the loan product. The loan structure was discussed with the consumer before the loan application form was submitted. The FSP states that the consumer decided to change the facility only after discussing the matter with her accountant. The consumer s issue appeared to be centred around the taxation implications of the redraw facility- this was a matter for her accountant, not the FSP. The loan agreement was only changed in one key respect- the two loan facilities were switched into a single fixed interest rate facility. The consumer only did this after consulting with her accountant. The delay was caused by her accountant raising issues about the loan facility after the loan offer was made by the lender on 27 March 2014. In the lead up to the loan offer being made, the consumer had ample time to discuss the loan application with her accountant to ensure that the loan was appropriate for her individual taxation circumstances. The consumer chose to settle the commercial property with her own funds instead of waiting for the loan offer. (h) There is no evidence that the consumer suffered a loss. All the fees she incurred were either disclosed government fees or, fees charged by the lender and their lawyers. The only fee that remains outstanding is the unpaid brokerage fee of $450, which the consumer was also informed about. Considerations CIO has had regard to Page 4 of 9
25. In dealing with this complaint, CIO has observed procedural fairness and has had regard to: relevant legal requirements and rights provided by law, applicable codes of practice, good industry practice in the financial services industry, and (d) fairness in all the circumstances. 5 26. Both the consumer and the FSP have been given the opportunity to provide information in support of their respective positions. 27. We are satisfied that the information on which we have made this Review has been exchanged between the parties 6 and that both parties are aware of the issues raised in this complaint. Did the FSP provide mislead the consumer about the loan product? Consumer s claim 28. The consumer claims that she has suffered a loss because the FSP misled her about the loan product. 29. In particular, the consumer states that she told the FSP that she needed a loan with an offset account. The loan arranged by the FSP did not have an offset account, only a redraw facility. While the consumer does not dispute that the FSP told her about this, she claims that the FSP misled her into believing that a redraw facility was the same as an offset account. 30. After the consumer was provided with the loan offer on 27 March 2014, she was advised that, for tax purposes, an offset account was different to a redraw facility. 31. Consequently, on 29 March 2014, the consumer requested a variation to her loan and incurred additional fees. 7 Applicable law 32. Section 12DA of the Australian Securities and Investments Commission Act 2001 (ASIC Act) states that a person must not in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or likely to mislead or deceive. 33. At law, where a person is claiming that they relied on another party s misleading statement to their detriment, it must be shown that: the relevant false or misleading statement was made, it was reasonable for the person to rely on the misleading statement, and they suffered a loss as a result of relying on the misleading statement. 5 CIO Rule 12.1. 6 Information referred to in this letter is attached or has previously been provided to the parties. 7 It should be noted that we have not been provided with any information from the consumer which confirms that she had been approved for another loan product with another lender. Page 5 of 9
34. If any of the above aspects cannot be shown, we would not be able to consider this claim further. Our review Was a misleading statement or representation made? 35. The consumer s main concern is that the taxation treatment of an offset account is different to that of a redraw facility, and that the FSP failed to accurately highlight this difference. 36. As part of their response, the FSP provided us with a number of emails that it exchanged with the consumer about the loan product which the consumer had applied for. 37. The emails show that before the consumer signed the loan agreement, the FSP told her that the loan would not have an offset facility. In particular: in the FSP s email dated 14 February 2014, it explained that the commercial loan it could arrange did not have an offset account, but rather a redraw facility. It then went onto explain how the redraw facility worked, the FSP stated that the redraw facility was similar to an offset account in that the redraw facility would help the consumer reduce interest costs. However, a fee would be charged every time the consumer withdrew funds from the account, in the consumer s response to the FSP 8, it appears that she understood that the loan would not have an offset account and asked for more information on different types of loans in case I do not decide on offset account. The consumer asserts that she meant to say: in case I did not go for this offset account, 9 still believing that the loan product being offered by the FSP had an offset account. However, the FSP s response 10 further sets out the benefits of a redraw facility, and as such, it does not support the consumer s current position. 38. In all of its emails to the consumer, the FSP did not make any representations about the taxation treatment of an offset account as compared to a redraw facility. 39. In view of the above, we cannot conclude that the FSP misled the consumer into believing that the offset account and a redraw facility would have the same tax consequences. 11 Did the consumer reasonably rely on the alleged misrepresentation made by the FSP? 40. As we have noted above, while the consumer obtained the FSP s brokerage services of the FSP, this did not include the FSP giving her tax advice about the proposed loan. 8 The response is undated however based on the email trail appears to have been sent by the consumer between 14 and 16 February 2014. 9 See consumer s response dated 16 March 2015. 10 The FSP s response referred to is dated 16 February 2014 sent at 7:30am. 11 CIO Rule 36.1(d). Page 6 of 9
41. Furthermore, while we appreciate the consumer s claims that she did not specifically ask her accountant about the tax treatment of an offset account as compared to a redraw facility, we do not consider that it would have been reasonable for the consumer to rely on any alleged misrepresentation the FSP may have made to her about the taxation treatment of a redraw facility. We refer to the following emails between the consumer and the FSP: in an email dated 14 February 2014, Mr G, informed the consumer that: Whilst in a commercial situation it is not called an offset account, it has exactly the same effect. Please check once more with your accountant and let me know. on the same date, Mr G sent the consumer another email nothing that: It probably would be best to have your accountant give you an opinion first. (d) (e) on 16 February 2014, the consumer sent an email to the FSP and Mr G stating that she was advised by her accountant that offset accounts were not offered for commercial loans, on 18 February 2014, the consumer sent the FSP an email saying that she was waiting to pass information onto her accountant about the loan product to see if it applied to her situation, and on 25 February 2014, the consumer signed the loan application and it was submitted by the FSP to the lender for approval. 42. In view of the above, it appears that before the loan application was submitted: Mr G, who was also advising the consumer on the transaction, firstly informed her that the loan product was exactly the same as the offset account. Then, on more than one occasion, Mr G advised the consumer to obtain advice from her accountant on whether the loan structure was suitable for her, the consumer informed the FSP that she would be seeking advice from her accountant on whether the loan product was suitable to her circumstances, and the consumer signed the loan application and provided it to the FSP. 43. Based on the above information, and the consumer s further response of 16 March 2015, 12 it appears that she relied on her accountant s advice before signing the loan application. In particular, it appears that after receiving information from both Mr G and the FSP, the consumer approached her accountant and asked him whether a loan that is exactly the same as an offset account would be more beneficial to her than a standard loan offered by another lender. It appears that the accountant told the consumer that it was more beneficial for her to have a loan account with an offset facility. 12 See consumer s response dated 16 March 2015. The consumer says that before submitting the loan application, the only thing she asked her accountant about was whether a loan that is exactly the same as an offset account is more beneficial to her than a standard loan offered by another lender. The consumer claims that she relied on the FSP s representations that the redraw facility and the offset account were essentially the same thing. It was not until after the loan offer was made by the lender that the misinformation was detected by her accountant. As a result of the accountant s subsequent advice, the loan had to be restructured, and a new loan was offered to the consumer two days later. Page 7 of 9
44. The question that the consumer should have asked her accountant was whether a loan with a redraw facility was more beneficial to her from a taxation perspective than a standard loan. If she had asked this question her accountant would have told her that it was not suitable, and the loan application would have been altered at that stage to reflect her accountant s advice. 45. As such, the misunderstanding appears to have arisen from the consumer s actions, and any loss caused as a result of this cannot be attributed to the FSP. The consumer s claim has not been made out and we are unable to consider this aspect further. 13 Did the FSP s conduct delay the settlement of the loan and property purchase? 46. The consumer claims that the FSP s allegedly misleading conduct delayed both the settlement of the commercial property purchase and the loan. This caused the consumer to incur further costs. 47. As we have concluded above, the information does not enable us to find that the FSP misled the consumer. It therefore follows that we are then unable to find that the FSP caused any delay in the settlement of the loan. 14 Were the loan application fees disclosed to the consumer before she entered into the loan? 48. The consumer claims that the FSP: did not disclose to her the total costs and fees associated with the loan, informed her that there would no fees associated with the loan application other than the brokerage fee, and misinformed her about the exit fee. 49. The FSP has denied these claims. 50. The following documents show that the fees associated with the loan agreement were disclosed to the consumer. In particular: the credit guide quote which was signed by the consumer on 20 February 2014, noted among other things (copied verbatim): Maximum fee or charge payable by you. This is the maximum amount payable by you whether or not finance is provided. $450 including GST. The fee is payable once only. There are no other fees and charges payable by you to us however you may be liable to pay fees to the financier. In order to apply for finance we must obtain a valuation. The cost of the valuation (if applicable) is a fee or charge payable by you. A formal quote will be obtained and agreed with you prior to any valuation being instructed. There are no other fees and charges payable by you to us however you may be liable to pay fees to the financier. the loan application signed by the consumer on 25 February 2014, disclosed the following fees and charges: 13 CIO Rule 36.1 (d). 14 As above. Page 8 of 9
(i) application fee of $1,000, (ii) (iii) other costs including legal fees and other professional charges of $1,400, valuation fee (if applicable), (iv) government stamp duty on the transfer of the property of $11,915, (v) other fees and charges associated with the loan of $863, and (vi) provided a warning that if a fixed rate loan was being applied for, significant break costs may be payable if at any time before the fixed term expires, the loan is repaid or additional repayments are made. (d) the lender s fee authority which the consumer signed as part of the loan application noted that the application fee was $1,000, the loan agreement provided to the consumer on 27 March 2014, noted that: (i) (ii) (iii) an outstanding fee of $250 was to be paid by the consumer at settlement for changing the original loan offer, an early repayment fee equal to one month s interest calculated on the total approved loan limit would be payable if the loan was paid in full within five years of the settlement date, and break costs may be payable if the consumer had a fixed rate loan and before the expiry of the fixed rate period the consumer: (A) (B) (C) makes an additional payment of $20,000 or more in the first year of the loan, pays out the fixed rate loan in full, and ING agrees to change the loan type or fixed rate period applicable to the loan. 51. In view of the above, it appears that the fees, charges and break costs were disclosed to the consumer before she entered into the loan agreement. 52. Accordingly, we are not able to consider this aspect of the consumer s complaint any further. 15 15 As above. Page 9 of 9