Do not delay making lenders more responsible

Borrowing money and juggling debt is entrenched in our Kiwi lifestyle but too many people are unwittingly falling into traps with outrageous costs – both financial and social. In 2020, the Commerce Commission cracked down on high-interest lender from Australia, Pretty Penny, warning all creditors to follow New Zealand’s rules set up to protect our most vulnerable.

As we progress into 2021 the on-going economic impact of Covid will inevitability result in people desperately borrowing subjectively small amounts of cash and disregarding fees, interest rates or late payment penalties. A lack of financial know-how and the need for a quick financial fix means too many New Zealanders jump online or call into the local loan shop to sign up for high interest loans – oblivious of the total cost.

In 2020, numerous credit laws and guidelines were accelerated to protect our community from making costly mistakes, but some were delayed until 2021. Vulnerable borrowers don’t know the guidelines, rules, principles or laws and when lenders do not follow them – struggling Kiwi are unaware until it pops in the media and they realise they’ve been stung.

People with personal debt could have several high-interest loans, they might be charged more than 100 per cent of the original loan and they could borrow more money than they can afford to repay. All these scenarios breach the Credit Contracts and Consumer Finance Act but unless a borrower or a financial mentor makes a complaint to the commerce Commission the practice can continue.

Of course, borrowers should be aware of unethical lenders but when they live hand to mouth and something happens, like their car breaks down – they do whatever it takes to borrow the money.

The Ministry of Innovation Business and Employment says the next round of proposed law changes needed to make lenders more responsible was pushed out from April to October 1, 2021. Submissions for the draft new prescriptive requirements when lenders assess the affordability and suitability of loans opened in December and closed on Friday January 15. This was unfortunate timing during the holiday season, but debt specialists and budgeting organisations worked with FinCap to make a submission.

The proposed changes will give borrowers greater protection, prevent them from being confused and give the Commerce Commission greater power to keep high interest lenders in line.

Ideally, many of these changes should be introduced right now, especially those that require lenders to use the same language for loan contracts and advertising to be in the same language. When a loan is advertised in one language and the credit contract is in a different language – often borrowers don’t know what they have signed up for. People who do not speak English as their first language are financially vulnerable in this situation.

Accelerating the introduction law changes requiring high-cost credit contract lenders to better understand the financial position of credit applicants and keep better records is essential. It is not ok for directors and managers to plead ignorance of their clients’ vulnerable financial situation; in the same way it is not ok for borrowers to feign naivety about repayment obligations. It is difficult for borrowers to know which high-cost credit contract lenders are ethical and often they are too financially desperate to make informed decisions.

The change requiring the directors and senior managers of high-interest lenders and mobile traders to be certified by the Commerce Commission is long overdue. Debtfix would love to see the government implement these changes sooner rather than later, to protect New Zealanders at the greatest risk of becoming trapped in a perpetual cycle of debt.

Stop the situation before it happens, rather than leaving it to financial mentors, debt solution specialists, repossession agents, debt collectors and courts to sort out the mess.