Commerce Commission review finds 803% interest charge

Thursday, 31 May 2018

Commerce Commission commissioner Anna Rawlings: 'While most lenders have shown a willingness to make changes, we will be checking back later in the year and will consider further action if they have failed to comply'

New Zealanders are being charged rates as high as 803 per cent a year to borrow money, the Commerce Commission has found.

It reviewed 215 non-bank lenders' websites, looking at the fees and interest rates they charged and the information that was given to customers.

Interest rates varied from no interest at all through to 803 per cent a year. Five lenders charged more than 500 per cent.

Commissioner Anna Rawlings said lenders were also using more than 500 different names for their fees, which ranged from $5 to $5000.

Establishment fees were anything from $14 to $5000, with a median $275. Three were more than $1000. The Commerce Commission said they were in the niche mortgage market offering lending such as short-term backing for property investors and high-interest lending to people who were bankrupt.

Credit check fees varied between $5 and $40. Application fees were anything from $45 to $350.

Lenders are required by the Credit Contracts and Consumer Finance Act to display the cost of borrowing clearly and prominently on their websites, as well as contract details and information about a borrower's right to cancel.

The commission found that 46, or 21 per cent, of the lenders were not meeting one or more of their obligations.

'Failure to disclose this information breaches the Act and deprives consumers of information that would assist them to make informed credit choices. We contacted all of the lenders covered by the review to remind them of their responsibilities. While most lenders have shown a willingness to make changes, we will be checking back later in the year and will consider further action if they have failed to comply,' Rawlings said.

'Overall, this review provides a good insight into the information being provided to consumers and some of the difficulties consumers may face in trying to access and understand the true costs of borrowing, comparing lenders, and making informed borrowing decisions.'

A spokeswoman for the National Building Financial Capability Trust was not surprised by the interest rates uncovered.

'The highest I have heard from a mentor is 900 per cent. These loans are meant to be short term but people struggle to pay them back with default fees and interest piling up.'

The lenders covered by the review were compiled from a range of sources, including complaints data and lenders registered on the Financial Services Providers Register as providing consumer credit contracts.

The commission said the data would support its work in the credit sector.