MPs deluged with tales of irresponsible lending

Sunday, 27 July 2025

The Finance and Expenditure Select Committee hearings were held remotely, with financial mentors like Charlotte Whitaker videoing in.

Lending laws are changing yet again, as the Government aims to cut “red tape” while increasing borrower protections from abusive behaviour, but hearings into the changes suggest lending behaviour is pretty much solely where the problems lie.

Hearings into the changes contained in the Credit Contracts and Consumer Finance Amendment Bill have seen MPs regaled with abuses by lenders going unchecked by regulators, continued irresponsible lending, and the use of business models banned in Australia and UK.

Financial mentors, who try to help people being crushed by unmanageable debt, painted a portrait of New Zealand not as a country overburdened with loan red tape, but as one lacking regulation peer countries have to outlaw rogue lending and debt collection.

“We’re not seeing people unable to get loans, or too much red tape,” said Karen Hodgson from Community Law Centres of Aotearoa. “On the contrary, we are seeing people overburdened with debt, and arguably, it should never have been provided in the first place.

“Community Law Centres have consistently reported unaffordable lending in relation to car loans, and personal loans in particular, and we think this will need particular attention from the Financial Markets Authority,” she said.

“It really goes unchecked with huge consequences for the whanau we work with.”

The finance minister demands answers from Fonterra over skyrocketing butter prices, Luxon throws barbs at Labour, and a new poll shows the public growing restless.

So tired are mentors of inaction, they have asked MPs to create “super complaint” laws to force regulators to respond to complaints.

During hearings of the Finance and Expenditure Select Committee last week mentors and community lawyers outlined how far behind UK and Australia this country was on borrower protections.

Loan leads to mother asking others to raise her daughter

Elizabeth Allen, financial mentor from the Walkworth MoneySmart service, told MPs about a young woman who came to her after buying a car that later turned out to be an imported, flood-damaged vehicle, with a loan she should never have been given.

“She was in deficit before the loan was taken out,” Allen said. “I got the loan written off.”

As a result of the loan, the woman had been forced to borrow from Work and Income to pay her rent. She was so stressed, she had asked relatives to look after her young daughter for her. “This is an example of the harm irresponsible lending can do,” Allen said.

Unmanageable debt is blighting lives at the bottom of the income ladder, but the Government remains committed to reducing lending red tape.

Speaking to the Star-Times after the hearings, Allen said the car financier had not faced any action from regulators. Even after cancelling the loan, the car financier left a default on the woman’s credit record, hindering her ability to find a rental. She ended up spending 18 months in emergency housing, Allen said.

Charlotte Whitaker, a financial mentor of 21 years, said some lenders and debt collectors dragged their feet on handing over loan information, or simply flatly refused to do so.

She told MPs about a recent success getting a $7000 unaffordable loan cancelled. It took her 30 hours of work to manage it.

Allen said it was not only lower-tier lenders that sometimes made loans to borrowers who clearly cannot afford to repay. She told MPs about a bank, which she did not name, lending a woman $80,000 to buy a new vehicle. At the time, the woman was on a nine-month contract, but the loan was to be repaid over 60 months.

When she defaulted on her repayments, Allen said the bank encouraged her to borrow from a friend. Four months later, it repossessed the car.

After the woman sought help from Allen the bank wiped the loan and compensated her. It did not face action from regulators.

Spark and One.NZ criticised

Telecoms credit is not covered by lending affordability testing rules.

An expensive mobile device on a phone plan is typically the first debt a young person has, financial mentor and ex-banker David Verry told MPs.

But telecos are not covered by responsible lending laws requiring them to check whether loans are affordable.

Phone bills could be $120-a-month, of which the majority goes towards paying off the device, Verry said. He said one family of four came to him with a combined phone bill of $437 per month, covering four devices from One.nz.

“Had One.nz undertaken a more robust form of affordability assessment it is likely that some, if not all of the financing of devices would have been declined,” Verry told MPs.

Whitaker said: “I have a client who couldn’t afford Christmas presents so went to Spark, and got three phones, two tablets, and a VR set because there was no affordability assessment needed, no credit checks, nothing. Needless to say, she couldn’t afford the $120-a-week payment.”

Monthly reporting from credit reporting company Centrix shows telecoms debt has the highest level of arrears of any kind of consumer debt. While personal loan arrears are a little over 10%, they are over 11% for telecoms debt.

Failure to ban secret car yard ‘flex commissions’

Mentors want MPs to follow Australia and the UK in cleaning up “shady” car yard lending and insurance sales.

Car loans are often a source of financial struggle for families, and financial mentors want a crackdown by regulators.

Flex commissions is a term that covers the practice of some lenders giving car dealerships base rates for loans to promote to car buyers. But the dealers choose how much they add to the base rate. The more they add, the higher their income from a loan.

Say a dealer’s base rate is 15% for loans. A dealer might add 9% to that, or 2%, or 5%, depending on whether they think the car buyer will accept it.

Whitaker said she could not understand why “this shady behaviour is still in this motu.”

“There’s no cap on this commission, as we understand it. It’s banned in both Australia and the UK, and it should be banned here,” she said.

Car dealers did not even have to tell customers that they had the power to set their borrowing rates.

Ban car immobilisers

Some car loan companies install immobilisers in cars they finance, allowing them to remotely disable cars, if the borrower misses repayments.

“We have had examples of vehicles being immobilised in supermarket car parks, at intersections, and on state highways,” Nicole Devereux from social services provider Family Works, Presbyterian Support Otago, told MPs.

If a lender felt it needed to use immobilisers, then it was a sign of unaffordable lending, she said.

Whitaker told MPs: “To align with the consumer protections in the UK and Australia regarding car finance, the use of immobilisers in our motu should be banned now.”

‘Paint protection’ insurance, and other costly car finance add-ons

Car dealerships continue to be allowed to sell poor-value insurance despite years of protests, and even regulators reporting on their poor value for money.

These “add ons” included mechanical breakdown insurance with “more exclusions than inclusions”, and “paint protection” sold by car dealers to people taking out car loans through dealership-arranged finance.

Car dealers often fill our loan applications for car buyers. Sometimes the information they put in is false.

Devereux gave the example of one woman talked into paying a $700 “deposit” for paint protection insurance, which proved extremely hard to cancel.

Mentors called on MPs to tighten rules, including only allowing dealers and finance companies to sell such policies five days after loan deals were done.

Car yards “just lie“

One of the longest-standing concerns is the behaviour of car dealers, and the seeming impunity with which they doctor loan applications to finance companies.

Car dealers are often “agents” of car buyers, filling in loan applications for car buyers.

Deveraux gave the example of a new migrant with five children, newly separated from her partner, who borrowed to buy a car from a dealership.

“The ex-partner’s salary was included in the [affordability assessment] when it shouldn’t have been. They were assessed as a one-person household with no dependants, when they had five children.

“When assessed on their salary alone, they could never have afforded the repayments,” she said.

Kiwisaver hardship spike

MPs were told that the debt burdens people are able to take on have been getting larger, and more complex, in part because some types of lenders are not required to do affordability assessments, including telecoms companies, and buy now, pay later lenders.

Jake Lilley, senior policy advisor from Fincap, the umbrella organisation for financial mentors, said one in eight people seeking help from financial mentors were seeking to have their KiwiSaver money released early under hardship rules, devastating their retirement nest eggs.

Debt collectors need licencing

Despite several decades of calls to licence and properly regulate debt collection, including from some debt collectors, it remains a problem for struggling borrowers, mentors told MPs.

Some cash-strapped families have been using buy now, pay later loans to buy essentials.

Hodgson said community law centres continued to see debt collectors chasing debts even after they have been disputed, refusing to hand over loan documentation, and sometimes refusing to talk with the mentors representing debtors.

“It’s almost impossible to resolve difficulties with the debt collection agencies themselves,” she said.

“Australia has pretty good regulations around what debt collectors can, and can’t do,” said Whitaker. “It is a lot safer for consumers in Australia.”

Buy now, pay later loans for nappies

“We see people on the hamster wheel of debt buying essentials on buy now, pay later,” said Verry.

The reason they could do this, exacerbating their debt problems, was that buy now, pay later lenders did not have to do the same affordability testing as other lenders.

Nappies and meat from the Mad Butcher were examples MPs were told of.