Ombudsman's U-turn on Suncorp widow case

Suncorp should let a widow pay off her husband's business loan over 17 years, the banking ombudsman says after reversing his support for a much shorter timeframe.

The Financial Ombudsman Service found the money should not have been lent but had believed giving the Melbourne woman 12-18 months or five years at most to repay $220,000 was reasonable.

Its lead banking ombudsman Philip Field has now conceded he was wrong.

"In hindsight I don't think that was the correct thing to do," Mr Field told the banking royal commission on Monday.

The family only discovered Suncorp made five loans totalling $1 million to Peter Low and his wife Jennifer, who was not involved in the finances, after the 63-year-old blasting contractor died in a 2015 workplace accident.

FOS found the final business loan was made irresponsibly and no interest should be paid on it.

Mrs Low offered to repay the $220,000 over the loan's existing term, but Mr Field told the parties 17 years was not a reasonable timeframe.

He said his concern was that a 62-year-old would be making payments until they were 80.

Mr Field agreed only giving Mrs Low six months to pay off $220,000 - as Suncorp wanted at one stage - was not reasonable.

The royal commission heard the ombudsman told the parties 12-18 months to repay the loan would be reasonable, with a five-year outer limit.

Mr Field said he now accepted that was wrong.

The Low family has not yet accepted Suncorp's final offer of a five-year period.

Mr Field said he would expect Suncorp to change its position and let Mrs Low make regular principal-only repayments over the life of the loan.

The family home was sold to pay off the first four loans.