Watchdog issues wage-docking warning
Budget agencies are concerned about high-interest payday lenders requiring borrowers to sign ‘‘wage deduction authorities’’ they can use to tap into the salaries of borrowers who miss repayments without having to go to court.
Payday lenders like Save My Bacon and Payday Advance market their loans as short-term stop-gaps for workers experiencing a cash crunch, but their interest can work out at well over 500 per cent a year.
To get the loans, borrowers have to sign wage deduction authorities, and in some cases lenders claim they are ‘‘irrevocable’’, or that borrowers certify not to dispute the deductions.
And that has drawn a warning from the Commerce Commission, which said: ‘‘A wage deduction authority should not be described as ‘irrevocable’. Describing it as such is prohibited by section 5 of the Wages Protection Act 1983.’’
Budgeting agencies would like to see only court-ordered wage deductions allowed.
Darryl Evans from the Mangere Budgeting Service said lenders were garnishing 20-40 per cent of debtors’ wages, but under New Zealand law ’’they can take whatever they want’’.
‘‘There needs to be a maximum amount set. In Australia, they set it at 20 per cent of the gross (pre-tax) amount of wages. If I had my way in New Zealand, it would be 10 per cent.’’
The commission said: ‘‘We are receiving a growing number of complaints about high-cost short-term lenders.‘‘
Its focus was on stopping irresponsible lending, but it said: ‘‘We strongly advise consumers to make sure they read and understand what they are signing up to, especially if they are giving consent to having their wages deducted if they default on their repayments.’’
The Wages Protection Act says a worker may vary or withdraw consent for a wage deduction to take place, but some payday lenders’ contracts require borrowers to say they will not dispute any deductions.
The Payday Advance contract says borrowers must ‘‘agree without dispute’’ for a wage deduction authority to be served on their employer, but that it would not do so without notifying them, and that it would not take more than 20 per cent from any pay period.
Save My Bacon, which said it had made nearly 150,000 loans since it launched in 2010, has borrowers agree to an ‘‘irrevocable’’ assignment of wages.
Payday lender Moola requires a similar authority, but tells borrowers about their rights under the Wage Protection Act.
‘‘We take our responsible lending obligations very seriously and protecting borrowers’ welfare is core to our lending practices,’’ said Save My Bacon chief executive Kent Gillman.
‘‘If budget advisors are citing cases where a borrower is suffering financial hardship because a lender is utilising a wage deduction authority as a mechanism for repayment, then these lenders need to be scrutinised.’’
He said a wage deduction authority should only be used as a last resort when a borrower fails to engage with the lender.
Gillman defended its use of the term irrevocable. ‘‘A Wage Deduction Authority is irrevocable as between Save My Bacon and the borrower. The authority is not irrevocable in favour of the employer, which is prohibited under the Wages Protection Act.’’
Joseph Liava’a, the chair of the Viola Pacific Island Budgeting Service, said there was a legal process through the courts which lenders can use to get attachment orders to get their money repaid directly from defaulted borrowers’ wages.
‘‘They should be the only time that something is deducted from wages,’’ he said.