An EFTPOS card being swiped at a terminal. Photo: 123RF
A case in which a woman ended up with $10,000 debt after buying a $920 fridge has sparked a warning from the Insurance and Financial Services Ombudsman Scheme (IFSO) - and a refund to the borrower.
The case was recently investigated by the scheme, which does not identify the people who complain nor the providers they complain about.
The woman had needed a new fridge, and found one that cost $920. The shop offered her a credit card to purchase it, with an available credit balance of $6000.
She then used the card to buy other things and ended up struggling with the repayments, so the card provider recommended she take a personal loan to pay it off.
But the woman then had to give up her job because of medical issues, which put her into more financial trouble, and she did not use the loan, with a balance of $6378.75, to pay off the card.
She contacted a mentor who complained to IFSO on her behalf.
The mentor said the credit card had put the woman into a "spiral of debt". She had only wanted a hire-purchase agreement for the fridge, and had not wanted a card with a $500 limit. The card and the personal loan combined had given her debt of more than $10,000.
Ombudsman Karen Stevens said it was a common issue and people were sometimes encouraged to arrange credit that was not suitable for them.
"If someone walks into a shop wanting a hire purchase agreement for a particular item, like a fridge, they shouldn't be offered a credit card with a higher credit limit," she said.
"Under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), lenders are required by law to make sure a loan is suitable for the consumer's requirements and objectives, and will not put them into a position where the borrowing could cause substantial hardship. Lenders need to make the appropriate inquiries of the consumer before offering the loan and provide them with sufficient information so they can make an informed decision.
"If a lender has failed to do this, they will be required to refund the consumer the interest and fees under the CCCFA."
In this case, the credit provider offered to refund the interest and fees on both the card and loan. The borrower was only required to pay off the principal, which she said she could do at $20 a week to each account.
Stevens said people who thought they had been given an unsuitable loan should complain to the lender in the first instance.