In my over 25 years’ experience in dispute resolution in the financial services industry I have seen how beneficial alternative dispute resolution can be and the value that can be added to a business by effective complaints handling.
As Chief Executive Officer of Financial Services Complaints Ltd (FSCL), an approved dispute resolution scheme under the Financial Service Providers (Registration and Dispute Resolution) Act 2008, I am often reminded how in many cases prevention can in fact be better than the cure when it comes to financial disputes.
The past year has been unprecedented for many industries and the financial services sector is no different. We anticipate that financial services complaints will increase as government and lender support packages come to an end. We know from experience of previous hard economic times, for example the 2008 Global Financial Crisis, that when there are hard economic times, complaint numbers rise.
With lower interest rates available, it makes sense that more consumers may be looking at their options to meet their financial obligations, or in some cases deciding to make bigger purchases like buying a family home.
This may include speaking to family about borrowing money, or people may wonder if their circumstances meet the hardship requirement needed for accessing their KiwiSaver funds. In some cases, contacting second and third tier lenders might seem a better option than approaching a bank for a loan.
At a time where stress levels are high, where people may be experiencing unanticipated job losses or feeling pressure to jump on the property ladder with house prices rising, whatever avenue people look to explore, there are a few things they may want to consider.
Seek advice: For many New Zealanders, they may have never considered themselves to be financially vulnerable, but due to a sudden job loss are now feeling insecure. It is important to know that you are not alone. Do not be afraid to seek advice, from a financial mentor, a financial adviser or even a trusted family member, friend, or colleague.
Speak to your lender: If you are facing hardship and are worried about making your next loan payment, speak to your lender as soon as possible. Ask for hardship relief if there is any available and check if there is any government assistance available to you.
Borrowing from your family: If you are borrowing money from a family member, make sure you discuss the terms of the loan from the beginning. As a recent case note of ours shows, not having these discussions early on can negatively impact the relationship later. If you are being asked to lend money to, or act as a guarantor for, your son or daughter, make sure you understand the extent of your liability and read the guarantee document very carefully. Seek independent advice. Remember, if you’re acting as a guarantor, the lender can ask you to pay the loan if the debtor defaults and the lender isn’t required to exhaust recovery options against the principal debtor before chasing you for payment.
Using your KiwiSaver: While it is sometimes possible to access your KiwiSaver funds due to significant financial hardship, the criteria for doing this is stringent and generally the consumer will need to have explored every potential avenue before an application can be considered by a KiwiSaver supervisor. It is important to remember that there is a reason for this high threshold to meet when seeking an early release of KiwiSaver funds. The aim of the KiwiSaver regime is for funds to be ‘locked in’ until members reach the age of retirement (currently 65 years).
Make sure you read the small print: As is true when entering any loan agreement, whether it is with a bank, or a second or third tier lender, it is imperative that you check terms and conditions, including default fees and interest, as well as understanding the recovery action the lender can take if you miss a payment. Make sure you read the loan agreement and consider seeking independent advice before you commit.