Inland Revenue Department accepts misleading advice caused detriment to holder of student loan
Inland Revenue Department (IRD) provided misleading advice to student about status of his student loan account— he undertook on-going financial commitments in reliance on that advice— IRD was found to have erred by not providing regular statements of the student loan and accepted that this had caused detriment to the student—there had also been unreasonable delay in responding to the student’s wife’s inquiries about the loan debt and whether it had been cleared—in resolution, IRD agreed with the Ombudsman’s recommendation to put the student back into the position he would have been without relying on misleading advice and to pay an ex gratia payment of $2,400 which was credited to the loan account
From 1993 until April 1996, the complainant had made regular payments in reduction of his student loan. He had paid his total 1995 liability by December 1995 and the credit in his account of some $200.00 was transferred to cover his 1996 liability. In April 1996, an officer from the Department spoke to the complainant’s wife concerning the complainant’s outstanding income tax liability for the 1994/95 year. The officer suggested to both the complainant and his wife that he stop making his regular payments to his student loan account and transfer those payments to meet his income tax arrears. Both the complainant and his wife understood the officer to say that the complainant’s student loan account was now ‘clear’. Both said they questioned the officer as to whether she meant that the total debt had been cleared, because neither believed that it had, but the officer confirmed that it had. At their request, the officer sent a handwritten note advising that the order for $10 a week to the student loan should be stopped ‘as this is now clear’. On the understanding that the student debt had now been cleared, in July 1996 the complainant and his wife reviewed their financial position and decided to extend the mortgage on their house by $10,000.00.
The complainant and his wife had filed their 1995/96 income tax returns in April 1996. The complainant was due a rebate and his wife had an outstanding tax liability, but they planned to use one to offset the other. During the year, the complainant’s wife made inquiries of the Department about her tax liability for the 1995/96 year. However, neither she nor her husband had received advice from the Department about their tax position for the 1995/96 year before the complainant received his 1996/97 tax pack. Included in the pack was a student loan form, but he did not complete it because he believed his debt had been cleared and he had received no advice to the contrary from the Department. He filed his 1996/97 income tax return and sought assistance from his local MP to clarify the situation with respect to the student loan.
In June 1997 the Department advised the MP that there had clearly been a misunderstanding caused by the handwritten note. The letter contained an apology for any inconvenience caused by the misunderstanding and advised that full details of the student loan account would be issued shortly. When no further information was received from the Department, the MP made further representations. It was not until November 1997 that arrangements were made for the complainant to meet with a departmental officer who provided him with a statement of his loan account at that meeting. This statement showed that, contrary to the advice given to the complainant and his wife in April 1996, the complainant’s student loan account was not in fact ‘clear’. Indeed, as at November 1997 he owed over $8,000.00.
Having referred his concerns to the Department without success the complainant raised the following issues for investigation:
He had been given incorrect information by a departmental officer and in reliance upon the validity of this information he had been substantially disadvantaged in that: (a) he had taken out a mortgage and was now required to service the mortgage and repay his student loan on limited means; (b) had he not been given the incorrect advice, he would have continued paying off his student loan and the outstanding debt would have been of the order of $3,000.00 - $4,000.00, not over $8,000.00 and the interest repayments would have been significantly less; and (c) he had not received tax rebates for two years as, unbeknown to him, they had been automatically set off against the student loan.
The Department had failed to send him a 1996 notice of assessment or up-to-date student loan statements as a result of which he had no way of knowing that he had been given incorrect information.
The Department failed to respond in a timely or helpful way to the inquiries made to clarify his position.
In reporting on the complaints, the Department advised that the departmental officer’s handwritten note had been intended to refer to the complainant’s student loan liability for 1995, not his entire loan liability. However, the complainant and his wife were quite clear in their own minds that they had been told the total debt had been cleared and they had consistently presented the same version of their discussions with the officer concerned. The Department had had several opportunities to dispute their account of events, but had not done so until the investigation of the complaint had reached an advanced stage.
The Department acknowledged that, due to an error, the complainant did not receive regular statements of his student loan account after June 1995. He therefore had no means of knowing the position with respect to his loan. However, it noted that had he had the required repayment deductions made from his wages during the 1996 tax year the problem over his loan debt would not have arisen. This comment appeared to take no account of the complainant’s record of making regular payments to reduce his student loan debt and that in early 1996 he had made payments in excess of those required of him. It was only on the advice from the departmental officer that he ceased making the regular payments to the loan account and it was reasonable to assume that, had he not received that advice, he would have continued to make regular payments in reduction of his loan debt. The total absence of statements from the Department in respect of his student loan clearly further disadvantaged the complainant. It both lent support to his understanding that he need make no further repayments to his student loan account, and it deprived him of the opportunity to continue to manage his tax liability in an orderly manner.
The Department advised that it had no record of the inquiries made by the complainant’s wife during 1996. However, it did acknowledge that there had been an unreasonable delay in responding substantively to the representations made in 1997 by the complainant’s MP.
In light of all the available evidence, the view was formed that the complaints could be sustained. The complainant had received incorrect advice from the Department on which he had relied to his financial detriment. Consideration was then given to what might be an appropriate remedy. While there was an argument for saying that the Department should waive the debt, it was a fact that the complainant had borrowed and had the use of a significant sum of money from the Crown and it seemed only fair that he should repay that sum. In the circumstances, it was concluded that a more appropriate remedy would be to put the complainant as far as possible in the position he would have been in had he not received the incorrect advice. It was therefore recommended that the Department offer the complainant the opportunity to have his current debt capitalised. This would result in the student loan amount payable for the period prior to 1 April 1998 being added back into the loan balance and any penalties charged for previous periods being reversed. It was also recommended that the Department make an ex gratia payment of $2,400.00 which would be credited to the loan account. The Department accepted the recommendations.
This case note is published under the authority of the Ombudsmen Rules 1989. It sets out an Ombudsman’s view on the facts of a particular case. It should not be taken as establishing any legal precedent that would bind an Ombudsman in future.