Effective new law to curb worst lending practices – budget advisers

Budget advisers say a controversial new lending law is helping to crack down on predatory practices in the financial sector.

Some of the most unfair auto loans and excessive set-up fees can now be challenged by financial mentors, according to an expert.
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Amendments to the Credit Agreements and Consumer Credit Act (CCCFA) came into force in December with the aim of protecting consumers from loan sharks and ensuring they do not incur debts that ‘they can’t afford.

However, the responsible lending code in the new rules was recently [https://www.rnz.co.nz/news/business/459813/incredibly-prescriptive-lending-code-ruining-lives-mortgage-broker

labelled “incredibly prescriptive” by a mortgage broker]which led to complaints that some banks and other traditional lenders were overly conservative when assessing credit applications.

The backlash prompted Consumer Affairs Minister David Clark to investigate whether lenders were applying the rules correctly.

Budget advice service FinCap – formerly the National Building Financial Capability Charitable Trust – said it supported the new scheme because it had given its financial mentors, who work with people in difficulty, clearer ways to complain in cases of abusive and associated loans. practices.

His policy adviser Jake Lilley said under the new law some of the most unfair car loans and excessive set-up fees could be easily challenged by financial mentors.

“We can already see signs that some generally unfair lending… won’t be here soon.”

Under recent changes, lenders must meet minimum standards for advertising the affordability of their loans.

In one case, one of FinCap’s financial mentors filed eight complaints in one day about misleading advertisements, Lilley said.

He said it was important for the government investigation to determine why credit applications were denied.

“Are lenders discovering something they didn’t know before? Is this a worrying sign in general for where we stand?”

Lilley said it was “super, super” important that the law continue to require lenders to conduct affordability assessments and empower borrowers to challenge lenders if they put them in difficulty.

If changes are made to the CCCFA, Lilley said he would like to see buy now, pay later schemes placed within the legal framework.

“We’ve seen a lot of trouble with people buying now, paying later on loans that don’t fall under the law and don’t have the same protections as other loans.”

Lilley said he would also like to see mobile phone contract loans covered by the legislation, as well as specific protections put in place to guide the behavior of debt collectors.

Last year, Victoria University and FinCap released a report outlining the country’s debt collection practices from the perspective of financial mentors.

He revealed that people with unpaid debts were often bombarded with incessant calls, texts and emails from collectors, even after it was clear they had no way to pay.

At the time, Lilley called for changes to the Fair Trading Act to define what constitutes reasonable contact with someone in debt to protect their mental health.

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