The industry of bad loans
MONEY MATTERS firstname.lastname@example.org
People who had bought cars with loans from Western Bay Finance and National Finance 2000 had no cause for celebration when the lenders went bust in the mid2000s.
Loans don’t die with their lenders.
In both cases, some of the loans were sold to Budget Loans, a company that’s just been fined $720,000 for the way it them went about collecting on them.
These were not great loans. Western Bay Finance and National Finance 2000 specialised in lending to people who banks would probably have said ‘‘no’’ to.
Budget Loans bought the Western Bay Finance debts for five cents in the dollar, and the National Finance debts for 33 cents in the dollar.
The horrid truth of loan sales is that when you borrow money, you place yourself into a system that can, and will, trade your debt, if the price is right.
Your debt is a commodity that can be sold, including to people you may not like at all. Avoid personal debt Be aware your debts can be sold Assert your rights
Every loan contract contains a clause to the effect that the lender can sell your loan, though the wording may be obscure.
Here’s an example: ‘‘To the extent permitted by law, Westpac may at any time, and without notice to you, transfer or assign all or any of Westpac’s rights and obligations in respect of your accounts or Westpac’s banking relationship. You consent to any such transfer or assignment.’’ Yes, you consent. The only way to avoid giving that consent is by not borrowing.
Not many people know about the debt-sales industry.
A bank, for example, won’t advertise that it’s selling troublesome credit cards loans.
That would hurt its reputation.
Now, most debts that get sold don’t end up in the hands of a Budget Loans.
The terms of the debt do not change when they are sold, but there’s something unsavoury about the whole practice.
As Irish MPs pointed out recently as one of the country’s banks was poised to sell millions of dollars of overdue mortgages to a ‘‘vulture fund’’, such sales effectively allow lenders to wash their hands of borrowers who have run into trouble.
Perhaps they would be a deal more careful, and responsible, when making loans, if they could not so easily sell the bad ones off, and let someone else go about collecting them.
The existence of the debt sales industry highlights just what a serious thing borrowing money is.
Borrow money, and should something go wrong in your life (job loss, illness, etc), you are at the mercy of people who do not love you.
That’s why each of us should avoid personal debt like it’s a life-threatening disease.
It’s hard to live a life without debt, especially on the lower rungs of our lopsided economic ladder, but ( where humanly possible) people should avoid debt except to buy a decent education, a place to live, and to fund a business.
If you can avoid personal debt, it makes life cheaper, and better.
When the ANZ bank funded Financial Wellbeing report was published in April it revealed the two behaviours that did most to lift financial wellbeing were regularly saving and not borrowing to pay day-to-day expenses.
Avoid personal loans for ‘‘everyday expenses’’, and research says your life will be better.