‘Phoenix’ lenders prey on vulnerable
Budgeting advisers are hoping the new government will back a law change to make it harder for unscrupulous lenders to prey on vulnerable borrowers.
The Credit Contracts and Consumer Finance Act(CCCFA) came into force in 2015 and brought with it responsible lending obligations, with a responsible lending code to guide them.
But financial coach Shula Newland said she still saw too many cases where lenders had acted inappropriately and loaned money to people who could not afford to pay it back.
People who were already struggling with debt were issued more loans, she said. There were not enough consequences for companies that lent irresponsibly.
The Commerce Commission has been investigating truck shops and delivering hefty fines to those found to have breached their obligations to customers. It has levied about $1 million in fines so far.
But some of the companies that have been sanctioned are simply closing and opening again in a different guise.
A spokeswoman said promoting responsible lending was a priority for the commission.
‘‘We are aware of phoenix companies – those businesses which emerge after the collapse of a previous one – emerging after we have investigated or taken prosecution action,’’ she said.
‘‘Where appropriate, the commission seeks banning orders against individuals to try to stop directors engaging in systemic noncompliance. This includes two indefinite lending bans for payday lending directors in the last two years.’’
Tim Barnett, chief executive of the Financial Capability Trust, said the situation highlighted the inadequacy of the current laws.
The commission’s work was like ‘‘whack-a-mole’’, he said. As soon as they knocked out one dodgy operator, another popped up.
He said the amount of money the lenders could make was enough incentive for them to continue to operate in an unscrupulous fashion.
‘‘The Commerce Commission is looking at a systemic problem and that takes time to build uip a case.’’
The law should be changed to require lenders to prove they would operate in a compliant way, before they even started up in business, he said.
Under the current law, there was always a lag between when a company started up and began to earn a profit from people who were struggling, and when action was taken against them.
A review of the CCCFA scheduled for next year, and the new government’s intention of tackling the area, should combine to create an environment where some change was possible, he said.
‘‘It’s the perfect time to get that reviewed.’’
The CCCFA’s responsible lending code is not legally binding and Barnett said there needed to be absolute clarity for the sector, rather than semi-legal instruments.
Lyn McMorran is chief executive of the Financial Services Federation, which represents lenders. Home Direct is the only mobile shop or payday lender in her membership.
She said there were industry concerns about directors closing businesses when they struck trouble, only to open another. ‘‘It’s a concern. It makes it very hard for the Commerce Commission to do its job.’’
She said such directors were wilfully non-compliant and should not be expected to voluntarily meet industry standards.
‘‘They’re never going to be compliant. They make money out of vulnerable people. They’re not nice people. It gives the rest of the industry a really bad name. There’s an assumption that everyone behaves like that.’’
She said the Commerce Commission had the power to impose significant fines and should continue to do so.
‘‘If they keep penalising people to that extent, at some point it would have to stop being profitable.’’