Online lenders under spotlight

Complaints about short-term lenders with interest rates over 50 per cent surge

The Commerce Commission is looking into how high interest online lenders assess whether a person can afford to borrow money after a rise in complaints about the industry.

Figures from the Commerce Commission’s annual consumer issues report show that while finance companies remain the most complained about sector when it comes to consumer credit, their proportion of complaints fell in the last year from 43 per cent to 24 per cent of the 242 complaints. But complaints about short-term lenders with interest rates over 50 per cent annually — which includes pay day lenders — rose to 33 or 13.6 per cent.

The commission said it had historically received few complaints about these lenders but that had changed in the last year.

“In 2017 this changed, with a growing number of complaints about lenders offering these high-interest loans.”

The report said budget advisers had told the Commission the widespread availability of high cost short terms loans applied for online or via text message could make it particularly easy for people to borrow beyond their capacity to pay back the money. “They are concerned that it also reduces the likelihood that lenders make reasonable enquiries about the financial circumstances and needs of the borrower.

“The complaints we are now receiving reflect these concerns.”

In 2015 the government tightened up the Credit Contracts and Consumer Finance Act (CCCFA) and introduced a responsible lending code which put the emphasis on lenders to ensure consumers can afford to pay back a loan without getting into financial difficulty.

The commission’s report found concerns around responsible lending was the biggest area of complaints in the year to June 30, with 70 complaints.

Commissioner Anna Rawlings said irresponsible lending was a priority for the commission’s credit enforcement team.

“As part of this we are currently investigating responsible lending practices, in particular affordability assessments, of a number of online lenders providing high interest loans.”

Margaret Lafaiki, a team leader at the Papakura Budgeting Service, said clients were often reluctant to make complaints to the commission about lenders because they didn’t want to make further problems for themselves. That meant the number of complaints was likely to be underreported.

She said often the applications for short term high interest loans took less than 15 minutes to be approved online and the people hadn’t realised what the interest rate was or sometimes the contract details were not readily available.

Then they got caught in a cycle of paying high interest as they were encouraged to top up borrowings when they had paid down some of the debt. High interest lenders can often charge 1 per cent a day adding up to 365 per cent a year.

“Places like that are preying on people’s desperation for money.”

The Herald contacted three payday lenders yesterday.

Only one, Save My Bacon, responded with comment and said it “took responsible lending obligations very seriously and protecting borrowers’ welfare” was core to its lending practices.