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The
New Zealand Association of Citizens Advice Bureaux has welcomed the
Consumer Credit Bill in its submission presented today to the Commerce
Committee, saying it will provide consumers with better information
and greater protection from unscrupulous loan sharks.
The Association's
CEO, Nick Toonen, says the country's 87 bureaux receive an average
of 36,300 enquiries relating to personal finances and budgeting
each year - that's about 700 each week.
"Many of the
enquiries relating to loans offer cause for concern: excessively
high interest rates, unreasonable fees, inflexible terms, security
which is unreasonable compared with the size of the loan, contracts
which are completely incomprehensible, and unscrupulous lenders.
"The Consumer
Credit Bill seeks to clean up many of these issues by ensuring that
potential borrowers are provided with adequate, useful and accessible
information in order to help them make good decisions about borrowing.
It also seeks to ensure effective enforcement when things go wrong.
"However the
Association remains concerned that some areas of the Bill need to
be further amended in order to give full effect to the intentions
of the Bill.
"The sections
relating to the terms and conditions (disclosure) of loan deals
need to be strengthened to make sure they are effective. We would
like to see the terms and conditions made in a mandatory and standardised
format, with a one-page summary containing the most important information.
"This key
information should also be given to guarantors, so their rights
and obligations are clearly and fully explained. In our experience
guarantors often face the same issues as borrowers in that they
are not given enough useful and clear information, and they are
not fully aware of their obligations.
"We would
also like to see lenders providing the terms and conditions written
in the same language in which the credit was advertised. At present
lenders can advertise in the borrower's first language then provide
a contract in very complex English, which in many cases can't even
be understood by native English-speakers.
"The Association
believes the Bill would be further strengthened if it allowed borrowers
to change loan contracts on grounds of hardship, and if it adopted
an 'amount of security' clause which would prevent lenders obtaining
security which far outweighs the value of the credit, such as a
house as security for a $6,000 loan.
"Citizens
Advice Bureaux experience is that people who go to 'lenders of last
resort' often become financially stretched with credit payments
and high interest rates. It is vital that lenders are legally obligated
to better inform consumers about the full cost of credit and that
they can't hide crucial details in the fine print."
Note to
editors:
In making our comments we draw on the knowledge and experience from
bureaux' client contact and the fact that annually, on average,
bureaux deal with 36,300 budgeting and financial-related enquiries
- that's about 700 enquiries every week. Those enquiries include:
-
10,554
enquiries and complaints about general financial matters, including
hire purchases, credit charges and loans
-
8,926
clients facing financial difficulties including bankruptcy,
debt and repossession, and
-
16,820
requests for budgeting assistance.
Case studies:
A bureau client,
recently migrated to New Zealand, was effectively charged interest
of 96% on a 12 year old car.
A bureau client
purchased a vehicle a year earlier with finance of $11,000. She
had paid over $3,500 on the loan and wished to pay it off earlier.
She discovered she still owed over $9,000.
A bureau client
purchased a vehicle on a weekend. She did not take the car then
because there were some repairs to be done. On the Monday (in less
than 3 days after the contract) she decided she could not afford
the car and sought to cancel the contract. The dealer refused.
A bureau client
enquired about a loan online. After obtaining information about
interest charges and fees, she decided that she didn't want the
loan. She was then billed for fees of $495.
A bureau client,
on the unemployment benefit, traded his car in order to get another
car. He still owed money on the first car to the same dealer (who
also provided the credit). He bought the second car for $5,000 -
he immediately then owed $8,500 because of the money still owed
on the first car. His credit contract had him paying weekly instalments
of $60 over nearly 5 years. At the end of his contract he would
have paid a total of over $17,000.
A bureau client
borrowed $150 from a finance company. He could not understand why
it was costing him so much each month - it was going to take him
12 months paying at $42 per month (a total of $504). The bureau
read through his contract and found the interest was 72%, and that
contract had a huge range of fees.
A bureau client
had purchased a car on a hire purchase 18 months earlier. Recently
her husband suffered a work-related accident, putting him off work
long term; she left work to care for him. They fell behind in their
payments, and were trying to catch up with extra instalments. The
finance company was beginning the repossession process. The client
wanted to know what they could do.
A bureau client
took a $4,000 cash loan from a loan shark. Her home was used as
security. She lost her job and fell behind in the payments. She
now owes $6,000 and risks losing her home.
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