Financial dispute resolution service FSCL says lenders are largely meeting their obligations to borrowers, but a few bad eggs are causing real harm for consumers.
In FSCL’s annual report released today, lenders and finance companies attracted the most complaints and enquiries of the record 4,365 received to the year ending 30 June 2017 and made up 25% of the 213 cases FSCL formally investigated.
Chief Executive Officer Susan Taylor says FSCL’s lender members range from large finance companies and credit unions to small pay-day lenders and mobile traders.
“While it appears most lenders are meeting their obligations under the revised credit laws that came into effect in mid-2015, we have seen a few complaints where a lender has failed to comply with its responsible lending obligations.
“Typically, this has involved a lender not making reasonable enquiries into whether a borrower will be able to make loan repayments without suffering substantial hardship.”
The report details a case where a lender failed to meet its responsible lending obligations when entering into a loan top-up agreement with a borrower who had guaranteed her son’s car loan.
Wendy, as she is referred to in the case study, was already in arrears with her own loan when a finance company accepted her guarantee of her son’s loan. Less than a month later her son defaulted and she was called upon to meet his repayments. The finance company then transferred her son’s loan balance to Wendy’s loan account as a ‘top-up’, taking her balance from around $5,500 to close to $14,000.
With the help of a budget adviser, Wendy brought her case to FSCL which negotiated a settlement with the lender to put her back in the position she would have been in had the finance company not accepted the guarantee.
“We found two key issues: the finance company’s acceptance of Wendy as a guarantor for her son’s new loan, and the top-up transferring Luke’s loan balance to Wendy’s loan account,” says Ms Taylor.
“The case is also a reminder to anyone considering guaranteeing a loan – whether for a friend, family member, or business colleague – to think very carefully about what it means. It is best to seek independent legal advice and to consider how your financial position would be affected if you were called upon to make the loan repayments."
FSCL’s Annual Report 2016/17 is available on its website at www.fscl.org.nz/publications