Loan shark regulators must be visible

Loan shark regulators should open shops in at-risk areas to deter dodgy lending and give borrowers easier access to official help, says a banking leader.

Dispute resolution services set up under tightened lending rules do not cover many loans that are still being paid off, leaving those that want to challenge them reliant on the court system.

In an opinion piece Bankers' Association chief executive Kirk Hope said opening a shopfront would help regulators enforce the rules against predatory lenders in areas where they were concentrated.

"By sheer volume of loan sharks, this would be South Auckland. Knowing that the policeman was around the corner might help prevent some of the worst forms of sharking," he said.

"Once consumers knew where to find the regulator... it would help improve the knowledge, information and protection of the most vulnerable."

Instant Finance chief executive Richard de Lautour said many people who borrowed from his company used multiple lenders of varying quality and needed better help.

"People that need help need to be able to go into somewhere within their local area where they can sit down, talk to somebody and take in copies of their loan documents and letters," he said.

However the "mishmash" of regulators made it difficult to figure out who might do it.

A free phone number operated by the Ministry of Consumer Affairs, 0800 Loan Stress, does not provide advice but refers borrowers to a dispute resolution service chosen by their lender.

Since 2010 lenders have had to sign up to one of four approved services, which include the Banking Ombudsman and the Insurance and Savings Ombudsman.

Since February more than 800 people have called the line.

But the disputes resolution schemes only provide help with events that happened after a certain date - April 1, 2010 in the case of one scheme, and whenever the lender was registered as a financial services provider (after April 1, 2010) in the case of another.

One of the main companies dealing with finance company disputes, Financial Services Complaints Limited, said that had been frustrating for some callers.

"We received a lot of calls referred to us from the loan stress line, as did the other dispute resolution services, and unfortunately a lot of the matters were relating to fairly historical issues," said chief executive Susan Taylor. If the borrower wanted to challenge a contract term signed before April 1, they could probably not help, she said, although actions taken by lenders after that could qualify.

De Lautour said when an Instant Finance staff member helped a distressed customer to call the Ministry's 0800 number over a dispute about repossession of their belongings by another lender they were referred to the lender's dispute resolution service, which told them it could not help because the loan pre-dated their authority.

"They were basically just sort of shoved off," he said.

The next option was for a borrower to go to the disputes tribunal, the Ministry said.

De Lautour said many of his customers did not have the written skills to make a formal complaint.

At the moment free help is largely provided by volunteers through organisations such as the Citizens Advice Bureau and the New Zealand Federation of Family Budgeting Services.

De Lautour said some budget advisers operating outside the network charged for their services and did not always give the correct advice.

Another issue has been the somewhat patchwork nature of regulatory coverage.

Former Consumer Affairs Minister Simon Power had signalled he would like the Financial Markets Authority to take responsibility for third-tier lenders but the latest advice was it would remain with the Commerce Commission, said an FMA spokesman.

The FMA is responsible for making sure lenders are on the register of financial services providers and can de-register those that don't meet requirements.

Meanwhile the Commerce Commission can review dodgy loan contracts and act on them if they affect a number of people. However its role as an enforcer means it cannot deal with individual disputes or give individual advice.

That leaves the Ministry of Consumer Affairs, which runs the 0800 number. Other measures targeting loan sharks are open for public submissions until May 11.

BusinessDay.co.nz