Unique solution to better protect vulnerable borrowers

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JULY 9, 2019

The Financial Services Federation offers its own unique solution to better protect vulnerable borrowers

The Financial Services Federation (FSF) is confident that its own unique suggestion to MBIE will do more to help vulnerable borrowers than the proposed interest and fee caps or simple interest rate caps.

The FSF, the industry body representing responsible finance and leasing companies operating in New Zealand, has introduced a Credit Agreement Law Amendment Bill (CCLAB), which aims to target irresponsible lending and reduce damage to vulnerable consumers.

The bill’s option to limit the accumulation of interest and charges on high-cost loans – an interest and charge cap on high-cost loans at 100% of the original loan principle – will be difficult. to apply, said FSF Executive Director Lyn McMorran.
Unless the provision is strictly enforced, lenders will be able to roll over loans into a new loan as soon as the 100% threshold is reached. Even though lenders are prevented from rolling over these loans, nothing in the bill prevents borrowers from transferring their debt from one lender to another as soon as the threshold is reached, and they are unable to repay the debt.

FSF members questioned whether they would support imposing a capped interest rate of 50% per annum (which is campaigning for FinCap – the national network of financial mentors). For various reasons, the FSF does not fully support this option either.

Therefore, McMorransays, the FSF offered a third option.

The 60 FSF members (which include BMW Financial Services, Turners, Avanti Finance and Latitude Financial Services) believe this alternative option will allow the Trade Commission to better target and enforce the places where damage is done.

“We have to remember that the majority of loans in New Zealand are made responsibly, the debt is paid off and the consumer leaves satisfied with their vehicle, washing machine, etc. there are some lenders who engage to predatory behavior that must be stopped for good.

“An interest rate cap on their entire industry, however, is a makeshift approach, and resources would be much better spent on target
enforcement in areas of harm, such as payday loans.

“Although our members are not in this market, it cannot be ignored that there is clearly a demand for high cost loan products, and it will not go away if people are desperate for short term financing to meet the needs. basic needs.
“Care should be taken to avoid driving compliant lenders completely out of business, potentially forcing vulnerable consumers to fill that need with non-compliant or even black market lenders and leaving consumers worse off than they are. currently.”

Alternative proposal of the FSF:

The FSF therefore proposed in its brief that the legislation clearly define “payday lenders” and “payday loans”. In addition to the suggested definitions, the FSF further describes this concept in its submission:

Payday lenders should then be clearly identified as such in the Registry of Financial Services Providers (FSPR), and law enforcement to ensure that they meet their responsible lender obligations should be specifically targeted. on them and on mobile traders.

• These definitions would then apply to how all registered “payday lenders” would be able to provide their products and they would not be allowed to provide contracts of credit outside of these definitions.

• Lenders who fall within these definitions would be required to subject their directors and senior managers to aptitude tests, a more manageable and productive task for the Trade Commission than asking the entire industry to do so, which is currently suggested.

The FSF remains firm in its position that passing any new legislation will not make a difference to the damage caused by irresponsible lenders unless it is properly enforced, and hopes its alternative suggestion could be a way. to guarantee this.

The FSF will appear before the select finance and expenditure committee in support of its submission on July 24. The FSF’s submission can be downloaded here.

Background:

The Financial Services Federation (FSF) represents responsible non-bank financial institutions. The FSF has a strict eligibility process and all of its members are subject to the FSF’s Code of Conduct, which upholds its reputation for setting industry standards for responsible lending. FSF members take their compliance obligations seriously and support quality regulation that balances the ability to do business with consumer protection. Learn more about the FSF Responsible Lending Code and view the full membership list at www.fsf.org.nz.

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