It doesn't sound like they were dishonest, just naive.

The only really "dishonest" part involves people "lying to themselves" or refusing to cut the losses when all evidence points to it. All of the anecdotes are basically the same: "business in dire straits, we just need short-term financing to weather the short-term crisis". The people are "lying to themselves" by not making a more honest assessment of the situation. It's easy to read a situation and make a rational judgment when you aren't a participant, but a lot more difficult when it's your business

In what way were the Duncan's dishonest?

They weren't honest with themselves. High interest is difficult to pay. Only luck would have allowed them to pay

They were up to date on their payments. There was no hint they were ever going to default. It's pure supposition - of the blame the victim kind - to imply they were running some kind of inverse scam, even subconsciously, or that they would have stiffed the lender.

The article indicates they had never missed a payment.

Ok, that is a little bit of a stretch for honesty... by that definition, every single shortcoming is actually about not being honest....

'naivety' would probably be better. 'over optimistic'.