The in­dus­try of bad loans

Marlborough Express - The Saturday Express, Marlborough - - WHAT’S ON -

ROB STOCK

MONEY MAT­TERS rob.stock@fair­fax­me­dia.co.nz

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.

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