Lender allowed borrower to take more loans to repay debt

Wednesday, 10 October 2018

The Commerce Commission said the lender did not conduct sufficient inquiries to prove the borrower could manage the payments.

A lender has been censured after it allowed a woman to borrow more money to keep up with repayments on her existing loans.

The Commerce Commission has issued a warning to Rapid Loans NZ.

The commission received a complaint from a budget adviser that a borrower had suffered substantial hardship as a result of making payments on a Rapid Loans agreement.

The commission's investigation showed that the borrower had borrowed to meet repayment obligations on existing loans from Rapid Loans.

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Commerce Commission commissioner Anna Rawlings:'We consider that Rapid Loans failed to make inquiries about the borrower's circumstances and it incorrectly assessed her income and expenses.'

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Rapid Loans advanced her $1850. She defaulted on that and Rapid Loans advanced her a further $2500 in September 2016. On both occasions the borrower was also at her overdraft limit. She defaulted on the second loan within a few weeks.

The commission warned Rapid Loans that it is likely to have failed to comply with the lender responsibility principles set out in the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

It said Rapid Loans failed to make reasonable inquiries into the borrower's income and expenses and could not be reasonably satisfied that the borrower could afford the payments on the loan without suffering substantial hardship.

'The CCCFA is clear that lenders must comply with the lender responsibility principles. In this case, we think Rapid Loans failed to do so and that this was not responsible lending,' said commissioner Anna Rawlings.

'We consider that Rapid Loans failed to make inquiries about the borrower's circumstances and it incorrectly assessed her income and expenses. For example it made no allowance for the borrower's rent or power, and it treated cash withdrawals as discretionary spending, when there was no reasonable basis on which to do so.'

'In our view the borrower was likely to be vulnerable because of her existing levels of debt and that, because of this, Rapid Loans should have made more extensive inquiries to be reasonably satisfied that she could afford the loan.'

Rapid Loans advised the commission it had revised its processes for affordability assessments and made significant investment into its own software, allowing it to capture more data.

It comes after the Government announced a crackdown on lenders.

Those who contravene responsible lending principles will face new penalties of up to $600,000.