Consumers are not responsible for the cost of administrative errors

Key learnings

• All borrowers are responsible for ensuring that they review and understand their loan instructions for repayment and follow them.
• If consumers have complaints about their loans, refusing to make a payment is never a good way to fix the problem.
• Financial consumers should be able to rely on the loan balances clearly and repeatedly communicated to them by their financial service providers.

In September 2004, Mr. D returned to school with the intention to complete his studies by April 2005. Like many post-secondary students, Mr. D needed help to pay for his education, and in 2004, he took on both federal and provincial student loans through the Ontario Student Assistance Program (OSAP). Based on his enrollment, Mr. D’s loan repayments were scheduled to start in November 2005, six-months after his graduation.

Administrative errors

Shortly after beginning his studies, Mr. D experienced personal issues that caused him to leave his school program. The bank that held Mr. D’s loans was notified of this change to his enrollment status by the provincial government.

Under the terms of Mr. D’s loans, the change to his enrollment status should have caused his loan repayments to begin. However, the bank did not update its records and Mr. D’s loan repayment would remain scheduled to start in November 2005.

Problems with repaying loans lead to account changes

Mr. D paid his loans between 2005 and 2016, but in September 2016, he encountered financial difficulty and applied for the Repayment Assistance Program (RAP). As part of the application process, the bank recognized the error that had occurred in 2004 and made several changes to Mr. D’s file, including updating his end-of-study date, closing his original loans, and creating new accounts for both of his loans.

Further administrative errors

When the bank adjusted the loans in 2016, they incorrectly changed Mr. D’s end-of-study date to April 2005, which added over $1,000 in interest to his outstanding loan amounts. Due to Mr. D’s financial difficulty, the loans were now in collections. When Mr. D contacted the bank to find out the amount owing on his loans, he was surprised to learn of the additional interest charges. The change in Mr. D’s account numbers and the bank’s decision to use a new collection agency created further confusion. The new collection agency began contacting Mr. D to request repayment on the loan accounts that had been closed. It was difficult for everyone involved to understand what was owed and to whom. These issues caused Mr. D considerable distress and he refused to make payments until they were resolved.

The bank’s position

When Mr. D formally complained, the bank acknowledged their administrative errors, apologized for Mr. D’s inconvenience and offered a goodwill gesture of $1,000. Mr. D felt that this amount did not adequately compensate him for the negative impact that the bank’s errors had on his life. He brought his complaint to OBSI.

What did OBSI do?

During our investigation, we confirmed the bank’s administrative errors. We also determined that it was unfair for the bank to retroactively add $1,008 in additional interest charges to Mr. D’s loan after repeatedly telling him over the years that the amount he owed was the amount calculated based on an end-of-study date of November 2005.

We found that the bank had made errors while attempting to correct the end-of-study date and did not communicate the new account numbers to Mr. D clearly and directly. Mr. D’s attempts to understand and resolve the issue with the bank and its agents for over a year had unnecessarily caused him undue stress and frustration.

Our recommendation

Mr. D’s new loan accounts remained outstanding and he was responsible for the repayments on these loans. We recommended that the bank increase its compensation offer from $1,000 to $2,008 to compensate Mr. D for the extra interest he was charged on his loans as well as his stress and inconvenience.