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.
