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New Zealand’s responsible lending code not worth the paper

Westforce Credit Union

MEDIA RELEASE

21 July 2014

For immediate release:

New Zealand’s responsible lending code not worth the paper

While the UK last week became a slightly safer place for vulnerable consumers with a cap on payday lending, the New Zealand Government took steps to “ask" the loan sharks to participate in writing their own Responsible Lending Code.

The move this week by the UK’s Financial Conduct Authority to limit payday loan interest rates (to not more than a daily interest rate of 0.08 per cent of the amount borrowed) has real teeth, Operations Manager at Westforce Credit Union, Victor Martick, said today.

“By stark contrast, New Zealand’s Commerce and Consumer Affairs Minister Craig Foss’s announced they were receiving submissions for the ‘let’s all play nice’ Responsible Lending Code.

“This industry led and influenced Responsible Lending Code gives free rein to unscrupulous loan sharks who want to continue to prey on the less privileged with crippling interest rates – if people can’t lend fairly now, how is the Government asking them to ‘play nice’ going to change anything?”

“The Responsible Lending Code is like a verbal contract, not worth the paper it is written on,” Mr Martick said.

He pointed out that Government has likened the Responsible Lending Code to following both Britain and Australia’s lead, but fails to mention that those countries also cap interest rates, or have signalled their intention to do so.

“Mr Foss makes much of the assertion that adopting a Responsible Lending Code will increase protection for borrowers ‘without imposing unnecessary compliance costs on lenders who already have good systems in place’ – but what about all the ones who don’t?

“It would appear that the priority of Government is towards keeping compliance costs down, but shouldn’t their first obligation be to the most vulnerable in society? Rather than those who are making huge profits and are perfectly capable of taking care of themselves?

“Here at Westforce Credit Union we encounter people who are living in misery as a result of the activities of loan sharks and we can only conclude that Mr Foss is living in Lala Land if he thinks a loan shark is going to sit down with a ‘mark’ to ensure they can make the repayments without suffering hardship,” Mr Martick said.

The Responsible Lending Code provides only general guidance and there is a huge amount of leeway for how it may be applied in practise.

Mr Martick said the Credit Contracts and Consumer Finance Bill requires people, including those in the lower socio economic rungs of society (people who have poor education, no financial literacy and no money), to go to a disputes tribunal, and then only if they can prove the agreement is oppressive. Unfair doesn't even qualify.

“Interest caps will not hurt the profits of responsible lenders – of which Westforce Credit Union is one – and nor will they impose any burden on compliance. Interest caps are the only way we are going to be able to protect the vulnerable in society from loan sharks,” Mr Martick said.


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