Young family charged $10,000 interest on $29,000 car loan

A young couple in South Auckland have been charged $10,000 in interest on a $29,000 car loan, despite having no way to repay the money, an advocacy group claims.

Car finance lenders were forced to write off interest charges after they discovered they had failed to properly carry out an affordability assessment on the couple, who have three children.

And in another recent case in South Auckland, a person earning less than living wage ($22.75/hour) was charged $20,000 in interest on a $32,000 car loan. Again, the loan shark was forced to clear the charges.

“Every day we continue to be called by people who are drowning in debt when they should never have gotten loans,” said Michael Ward, senior policy adviser at Christians Against Poverty. “That is, when lenders have not made proper affordability assessments.”

Christians Against Poverty highlighted the cases as part of a call for the government not to water down the lending laws that came into force in December.

It was one of 11 budget and community organizations that wrote a joint letter to all consumer spokespersons of parliamentary parties calling on them to support the Credit Agreements and Consumer Credit Act (CCCFA).

The 2021 reforms were designed to prevent predatory lending by requiring organizations to verify that a borrower could afford to repay a loan. Previously, they could take a borrower at their word.

The banks claimed that the changes to the loans had unintended consequences and prevented them from lending to first-time home buyers or people looking for a mortgage supplement.

Christians Against Poverty’s senior policy adviser, Michael Ward, said his organization was called in every day by people who were “sinking in debt”. Photo / Provided

Ward agreed that any unintended impact on mortgages or business loans should be reduced as much as possible.

“However, we believe it is important to ensure that any changes to the law do not come at the expense of vulnerable borrowers who fall prey to loan sharks engaging in unethical behavior – the reason the CCCFA reform was introduced first,” he said.

FinCap chief executive Ruth Smithers said the loan changes have created a fairer balance between lenders and borrowers. Whānau had a clear mechanism to challenge a lender when the rules had not been followed, she said.

FinCap chief executive Ruth Smithers said the loan changes have created a fairer balance between lenders and borrowers. Photo / Provided

“A spiral of debt where a whānau is even more in deficit and in debt every day is entirely avoidable. This is particularly the case when lenders are clearly required to honestly verify that they are selling a loan which will not immediately see a dilemma between paying the loan or buying food.

Under the amendments, budgeters have the legal right to ask lenders to produce proof that a borrower can afford a loan. If they weren’t convinced, they could complain to the Commerce Commission.

Fincap previously said that some financial mentors use the mechanism several times a day.

The government’s review of the loan changes just months after they came into effect has rattled organizations and charities, who had fought for reform for decades.

Trade Minister David Clark said a major rewrite of the law was unlikely after the review, and minor changes were more likely.

He said the government wanted to make sure the loans did not cause continued hardship.

Trade Minister David Clark said any changes to the loan reforms were likely to be minor modifications. The banks protested that they were too restrictive. Photo / Dean Purcell

“At the end of the day, we know that every customer can become a vulnerable customer if they take on the wrong debt, if they take on debt they can’t afford, and that’s what this legislation is trying to address. to prevent.”

The joint letter to parliamentary parties was signed by ActionStation, Christians Against Poverty (CAP), Citizens Advice Bureau (CAB), Debtfix, FinCap, Good Shepherd NZ, Muaūpoko Tribal Authority, New Zealand Council of Trade Unions – Te Kauae Kaimahi (NZCTU ) , Ngā Tāngata Microfinance and the Salvation Army.