Lower-tier lenders eye KiwiSaver for repayments, budget agencies claim
Lenders to the poorest segments of society are eyeing borrowers' KiwiSaver as a way of getting their loans repaid, the Commerce Commission has been told.
The commission is tasked with policing the Credit Contracts and Consumer Finance Act, which lenders must follow. It is designed to make sure they lend responsibly only to people who can afford repayments.
Complaints to the commission that lenders had broken the law rose to 242 in the 12 months to the end of June, from 164 the previous year, the commission said in its Consumer Issues report, released today.
And among the accusations levelled at finance companies is that some believed they could raid borrowers' KiwiSaver super savings, if people fell on hard times and could not repay their loans.
"Budgeting advisors have told us that some lenders, including finance companies, may be considering borrowers' KiwiSaver balances as a repayment source for consumer debt," the commission said.
"It is noted that borrowers' KiwiSaver funds may be withdrawn if the individual can provide evidence that they are suffering significant financial hardship, including inability to meet minimum living expenses."
The commission has trained budget advisers around the country to be alert for lending abuses, including irresponsible lending, and to be ready to feed complaints through to its investigators.
Investigating lenders has formed a large part of its investigations in recent times, including a crackdown on "mobile traders" which go door to door in poorer areas of big cities like Auckland selling goods at inflated prices, with buyers repaying them in the following weeks.
Lending complaints increased by 22 per cent in the year to the end of June, compared to the same period the previous year, and its newly built surveillance network appeared to be responsible.
Commissioner Anna Rawlings said: "We believe this increase is in some part fuelled by our work with the budget advisory sector to help them to identify and report lending practices that may be unlawful.
"We are continuing to focus on compliance with consumer credit laws and will prioritise the investigation of irresponsible lending practices in the coming year because of the significant harm it can cause already vulnerable consumers.
"We are working with these stakeholders to encourage the submission of evidenced complaints through our Red Flags initiative."
Red flags refers to areas of such high concern that the commission has gone out to brief consumer advocates to be on alert for them.
The most complained about lending abuses included lenders not making reasonable enquiries to check a borrower could repay a loan before giving them the money.
There were also complaints about lenders failing to disclose the terms and conditions of their loans, as well as a smattering of complaints about repossession tactics.
Repossession happens when a lender sends out a repo agent to confiscate "security" items, such as cars and TVs, to sell to help repay a borrowers loan after they have gone into default.
There was such concern about repo tactics that the law was changed in 2015, including banning the "all present and after-acquired property" clauses in loan contracts, that purported to allow lenders ot take security over everything a borrower owned, or would ever own.
The law changes appeared to have slashed repossessions.
"Budgeting advisors in the three major centres have told us that they believe that repossession is decreasing, with lenders often preferring to recover debt in arrears through the courts," the commission said.
There were also complaints of consumers who had genuinely fallen on hard times, finding it difficult to apply to lenders under the hardship protection laws.