Former High-cost Lender Warned Over Failure To Adhere To Responsible Lending Requirements
The Commerce Commission has issued a warning to Superloans Napier Limited and Superloans Porirua Limited that they are likely to have failed to comply with the lender responsibility principles set out in the Credit Contracts and Consumer Finance Act 2003 (CCCF Act).
An investigation into the Superloans Group, including Superloans Napier and Superloans Porirua, was opened following a number of complaints, including complaints from financial mentors, which raised concerns about the Superloans Group’s compliance with the responsible lending provisions of the CCCF Act.
Commission Chair, Anna Rawlings said, “Our investigation identified several borrowers who were provided with high-cost Express loans on a regular and ongoing basis. In one case a borrower had 19 loans in a 12-month period.”
The CCCF Act requires lenders, before entering into an agreement, to make reasonable inquiries with a borrower so as to be satisfied that the agreement meets the borrower’s requirements and objectives, and to exercise the care, diligence and skill of a responsible lender.
“Our investigation found Superloans promoted and allowed its loans to be used on a regular and long-term basis and encouraged longer term and regular borrowing through the use of text and email messaging to borrowers. These text messages did not contain a risk warning.”
“There was also limited evidence to indicate a borrowers’ previous borrowing or stated purpose for the loan was discussed or taken into account when assessing the suitability of the loan, and Superloans Groups’ guidelines did not contain any guidance on how staff should comply with their responsibilities in this area.”
“Responsible lending is an area of focus for the Commission. We urge lenders to make sure that they understand their responsible lending obligations and they have internal processes in place to ensure they meet those obligations,” said Ms Rawlings.
Lenders entering into consumer credit contracts after 6 June 2015 are required to comply with the lender responsibility principles, as set out in the CCCF Act.
Lenders must make reasonable inquiries, before entering the agreement, to be satisfied it is likely the borrower will make repayments without suffering substantial hardship, and to exercise the care, skill and diligence of a responsible lender.
From June 1 high-cost lending to consumers is now subject to specific restrictions that do not apply to other forms of lending.
restrictions on high-cost lending are:
• interest and fees charged on a high-cost loan are capped at 100% of the amount first advanced
• the rate of charge (excluding default fees) on a high-cost loan is capped at 0.8% per day
• lenders are restricted from making high-cost loans to some repeat borrowers
• lenders have extra disclosure obligations.
The Commission has developed guidance which explains these key restrictions. The specific rules are set out in the CCCF Act and the Credit Contracts and Consumer Finance Regulations 2004. These rules are complex, and lenders are encouraged to take legal advice to ensure that they operate within the restrictions.
Responsible Lending Code
The Code provides guidance as to how lenders can comply with the Principles. It includes the type of inquiries a lender should make into a borrower’s income and expenses, and it specifies that more extensive inquiries should be made if the loan is high-cost.
The Code is not legally binding, but if lenders comply with it that will be treated as evidence they complied with the principles.
A warning explains the Commerce Commission’s opinion that the conduct at issue is likely to have breached the law. Only the Courts can decide whether a breach of the law has in fact occurred.
A warning letter is to inform the recipient of the Commission’s view that there has been a likely breach of the law, to suggest a change in the recipient’s behaviour, and to encourage future compliance with the law.