2 April 2012

Changes to Consumer Credit legislation welcomed

The Families Commission welcomes the draft Consumer Credit legislation released today by Consumer Affairs Minister, Chris Tremain.

“The key changes announced today are in line with the Commission’s extensive research into family debt. Our research has shown that areas of high deprivation have the greatest exposure to being exploited, that some families do not understand fully the terms and conditions of credit contracts and that once families are in financial hardship and debt it can be very hard for them to get out of it,” says Paul Curry, Chief Executive of the Families Commission.

“The availability of expensive forms of credit has shown to be a clear contributor to the debt situation of many families. In addition some credit agencies appear to be targeting families who can least afford it and who have little understanding of their obligations to repay the debt.”

“You can find a lot of fringe lenders in low income areas, providing loans or hire purchase contracts to people who are at high risk of not being able to meet the payments. Any additional call on their finances, such as an unexpected illness, car or appliance breakdown, is likely to mean that they will default on the loan. When a family is in problem debt it can take a practical and emotional toll and can result in difficulties in meeting food, transportation and health needs. Our research has shown that many families will leave it a long time before they seek help, often not until they are in serious arrears.”

“We have said that greater scrutiny is needed into easy access to credit and finance that is currently available in some communities. High interest rates, loans to beneficiaries, multiple loans and high loan fees are specific problems that need to be addressed. It is crucial that borrowers have information that is easy to understand and shows the full cost of a loan. This is especially relevant to people for whom English is a second language.”

The Commission believes the legislative initiatives proposed by Chris Tremain are positive as they offer greater protection and clarity for borrowers. The Families Commission assisted the Financial Services Federation to develop a Code of Responsible Lending which could be used as a model under the proposed legislation. If all finance providers adhered to such a code, this would limit the activities of unscrupulous lenders. Mr Curry says the Commission will be making a submission on the draft Bill and encourages others to do the same.

He says, “Beyond changing the legislation, we need to assist families to be more financially literate, so that they are able to make good financial decisions.”

The Commission has a suite of research reports into family debt and financial hardship. Visit www.nzfamilies.org.nz for more information.

ENDS

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