Cage diving with loan sharks
The consumer’s ‘cage’ is faulty, writes Susan Edmunds.
Budgeters working with struggling New Zealanders say laws designed to protect borrowers are not working.
The Credit Contracts and Consumer Finance Act (CCCFA) was reformed in 2015, introducing lender responsibility principles.
Lenders were required to ensure the loans they were offering were right for the borrower’s needs and could be repaid, that the borrower was making an informed decision and the loan was being made ethically.
But new Commerce and Consumer Affairs Minister Kris Faafoi has called for another review, as those at the frontline say the changes have done nothing for the country’s most vulnerable.
‘‘While many lenders have improved disclosure and the information provided on their websites, consumer advocates are expressing strong concerns about the high cost of credit, and inadequate assessments of the affordability of loans,’’ Faafoi said.
‘‘People are being provided loans they are not going to be able to pay back, and are drawn into situations where the cost of the resulting debts is many times the original due to interest rates and penalty charges.
‘‘Clearly the reforms of the CCCFA in 2015 didn’t go far enough and we need to act to protect people from the appalling burden these debts can create.’’
Tim Barnett, chief executive of the National Building Financial Capability Trust, said there were still significant problems.
A survey of the trust’s member budgeting services around the country showed no sign of improvement since the last review. ‘‘There’s every sign it will get worse over the next few years,’’ he said.
Adrienne Gallie, a financial coach at the Pakuranga and Howick Budget Service, said finance companies were now more likely to write off large sums when questioned about their lending, because they knew any investigation would show ‘‘huge holes’’.
But that only happened for those who were willing to seek help.
‘‘People are struggling, and not only those on low incomes – people on wages that should be enough, but they have five or six finance loans,’’ Gallie said.
‘‘The lending industry has become like a runaway horse left unbridled. It’s creating havoc in the community.’’
She said it was not uncommon to deal with people who had $50,000 or $60,000 in finance company debt.
Financial advice Shula Newland agreed it was frustrating. She dealt with people who were clearly suffering financial hardship but still being issued payday loans.
‘‘The lenders don’t need to validate the information the borrowers give them. You’ve got borrowers desperate for that loan. They may knowingly not give all the information but a lot of times the clients just don’t know [the details of their weekly budget].’’
She said there needed to be more repercussions for dodgy lenders.
At the moment, there are no penalties available under the CCCFA for breaches of the responsible lending provisions.
A spokeswoman for the Commerce Commission said more resources would allow it to do more.
‘‘The commission has the ability to seek injunctions, declarations and compensation in relation to breaches of the lender responsibility principles,’’ she said.
‘‘We have discussed with the Ministry of Business, Innovation and Employment (MBIE) where the ability to seek penalties and to directly issue infringement penalties may be useful in a lending context.
‘‘We will work closely with MBIE on any further amendments to the CCCFA to address harmful lending.’’
Some finance companies are members of the Financial Services Federation. Its chief executive, Lyn McMorran, said the responsible lending code introduced in 2015 had helped
some understand what was expected of them.
‘‘A lot of lenders who were trying to be compliant didn’t know what they needed to comply with, so they find the guidance in the code helpful. No matter how much regulation there is, there will always be ones who voluntarily don’t comply.’’
She said things mooted for consideration, such as a cap on interest rates, or a limit on the number of loans a person could take out in a year, were good in principle but could be hard to enforce.
‘‘The non-compliant ones will find a way around it or ignore it. The key lies in enforcement.’’
A discussion paper on the issues will be released in the middle of the year.
‘‘We need to act to protect people from the appalling burden these debts can create.’’ Commerce and Consumer Affairs Minister Kris Faafoi