Commerce Commission announces plan to put payday lenders under scrutiny
Friday, 19 February 2016
Payday lenders are in the Commerce Commission's sights as it works to determine whether they are operating within the law.
The Credit Contracts and Consumer Finance Act came into force last year, designed to crack down on irresponsible lending.
A responsible lending code guides lenders on how to comply.
Among the requirements are that lenders make clear the cost of credit. The code suggests this means they must show a per annum interest rate if they are going to advertise any rate.
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Some payday lenders – providers of short-term, high-interest loans – had previously advertised rates such as 1 per cent per day, not making clear that could add up to 365 per cent per year.
Other providers charge more: Save My Bacon charges 545.50 per cent. Cash Relief charges 595 per cent.
A Commerce Commission spokeswoman said it had recently started a project focusing on these lenders, similar to its mobile trader project.
Through 2014 and 2015 it identified more than 30 mobile traders, also known as truck shops, and found all but one was breaching its obligations in some way.
'We intend to identify and visit these lenders to determine whether they are meeting their obligations under the law – including compliance with the responsible lending principles.'
She said the commission would review lenders' documents and lending practices and would take enforcement action, including court action, where appropriate.
'We expect this work to give us a better picture on the levels of compliance in this sector and plan to complete it by the end of the year.
'The Commission has also been reviewing the websites of lenders around the country to ensure that they comply with recent consumer credit law changes – particularly the disclosure of terms and conditions online,' she said.
'To date, we have reviewed more than 100 websites. The majority of websites have contained the information required by law, but we have issued 15 compliance advice letters to lenders where we believe their websites may not comply.'
Raewyn Fox, of the Federation of Family Budgeting services, said the law changes seemed to be having an effect. 'We're not seeing major issues with people having credit extended to them that they shouldn't have. I'm not saying it couldn't happen but it feels better.'
She said there was a need for short-term lenders. 'They wouldn't have grown as rapidly and as widely as they have if there wasn't a market for them. None of them are going out of business.'
She said a small increase in affordable microfinance options was only 'scratching the surface' of what was needed.
Lyn McMorran, executive director of the FInanciAl Services Federation, which represents companies offering credit, finance, savings and investment products, said the difficulty for the Commerce Commission would be locating the lenders.
'They will have trouble determining how many and where they are. I don't think anyone has got a clue.'