Consumer organisations help Commission catch crooks
Nga Tangata Microfinance (NTM) welcomes the collaboration between the Commerce Commission and consumer organisations, including budgeting services, which is triggering investigations and prosecutions of third tier lenders.
One media release of this collaboration, published in March 2017 on the Commerce Commission’s website, reveals unreasonable fees being charged by one internet-based loan provider, including "unreasonable establishment, monthly administration or default fees on more than 6000 loans". Under a settlement agreement with the Commission, this lender has agreed to compensate borrowers approximately $1.4 million.
Another media release, published in May 2017, reports that a loan company has been banned indefinitely from operating as a lender. This loan company was sentenced in the Napier District Court on eight charges under the Credit Contracts and Consumer Finance Act 2003 (CCCFA) relating to loans it provided between 2012 and 2015. The lender’s contracts did not give any details of a repayment waiver fee charged at up to 15% of the loan amount; default interest of 35% was charged when the loan agreement stated that no interest would be charged on the event of default; and borrowers were charged a fee of up to $60 for registering security items on the Personal Property Security Register although the lender did not register any security items.
Since the Commission’s action, more than $25,000 has been credited to this company’s clients. The Commission reports that their action was prompted by a report from a budgeting advisor.
"While it may appear a tiny repayment for the lender, it will help those individual clients who have suffered unreasonable and excessive costs for credit,"says Dr Claire Dale, a director of NTM.
These two prosecutions of third tier lenders follow a series of Commerce Commission actions against mobile traders charging unreasonable fees, making false and misleading representations, and in one case, taking people’s money but never delivering the purchased goods.
"The prosecutions show that the introduction of the Responsible Lending Code is not sufficient to deter unscrupulous mobile traders and other fringe lenders. They also show that a ‘total cost of credit’ cap is urgently needed to protect those who are unable to access mainstream credit. The reality is that only the tip of the iceberg is being addressed by the Commission’s actions," says Dr Dale.
Robert Choy, NTM’s Executive Officer, says: "At Nga Tangata, we are working every day with people who are enduring ever-increasing debt burdens that are often illegally imposed - as shown by these prosecutions. Few of our clients have the knowledge or the resources to challenge the charges consistently added to their debt. Nor do they have the option of borrowing from mainstream lenders because of our stringent credit reporting environment. When a person is overwhelmed by the power and apparent authority of the lender, the urgency of their need, and the increasing enormity of the debt, mounting a challenge on their own is unlikely."
"It is great to see the Commerce Commission taking action against these unscrupulous lenders who prey on people on low incomes who are in crisis. And it is encouraging to see the recent response of the Finance and Expenditure Committee to the Thames Coromandel Women's Loan Fund petition for introduction of an interest rate cap."
The Committee states that the Ministry of Business, Innovation and Employment will conduct an evaluation of the 2014 reforms to the CCCFA Act by the end of 2017.
"We look forward to that evaluation," says Mr Choy.
"We are hoping they will appreciate how our low income communities are under siege from predatory lenders, are trapped by inadequate incomes to sufficiently meet the needs of their families, and how necessary it is to have access to the safe and fair credit that ethical lenders such as Nga Tangata provide."
Nga Tangata Microfinance (NTM) was established in 2010 with a vision of building a more just and equitable society for people on low incomes. The three establishing organisations are the Child Poverty Action Group, the New Zealand Council of Christian Social Services and the New Zealand Federation of Family Budgeting Services (NZFFBS). NTM offers two loan products with zero interest or fees: NILS assists with family asset building and well-being or essential items or services; DRLS is for relief from high interest debt, including debt consolidation. Qualifying conditions for all loan applicants include a Community Services card or a low income and the willingness and capacity to repay the loan within 2 years. NTM values the relationship that clients have with a budgeting adviser, and encourages financial education and literacy occurring alongside our loans. Loan capital is provided by Kiwibank. Good Shepherd Microfinance (GSM), operating in Australia since 1982, has provided advice, support and information. In 2013, Nga Tangata Microfinance Trust and Kiwibank were supreme winners of the NZI Sustainable Business Awards.
Dr Dale’s blog, ‘Wild West in the suburbs’, on the Commerce Commission’s recent prosecutions of mobile traders can be viewed at: http://www.cpag.org.nz/wild-west-in-the-suburbs/.
Report of the Finance and Expenditure Committee on Petition 2014/0087 of Gwenyth Wright on behalf of the Thames Coromandel Women's Loan Fund (Wahine Pūtea) can be viewed at: https://www.parliament.nz/en/pb/sc/reports/document/SCR_74024/petition-20140087-of-gwenyth-wright-on-behalf-of-the-thames.