Consumer advocates empowered to report irresponsible lending

A guidance tool called Red Flags which makes it easier for consumer advocates to report unlawful lending to the Commission continues to gain traction and has been downloaded over 1,000 times. 

A guidance tool called Red Flags which makes it easier for consumer advocates to report unlawful lending to the Commission continues to gain traction and has been downloaded over 1,000 times.

The Red Flags initiative was launched by the Commission in 2017 to ensure it heard about issues that caused harm to consumers when they borrowed money. It recognised that unlawful behaviour is often unreported because not all borrowers know their rights or which authorities to go to. The consumer advisory sector also told the Commission they wanted to make complaints on behalf of their clients but found it difficult to understand what to report on and how to do that.

The seven Red Flags reflect the Commission’s enforcement priorities in the credit area and focus on irresponsible lending, payday lenders and credit fees. The Commission has seen an increase in third party complaint referrals since the Red Flags were launched.

Andrew Mitchell, a Financial Mentor for The Salvation Army said the Red Flags guidance is a very handy reference tool for Financial Mentors because they are clear and easy to understand.

“It highlights seven of the most common credit-related issues faced by our clients and provides a succinct summary of the relevant law for each of these issues. It also provides tips on how to give useful feedback to the Commerce Commission,” he said.

Pele Lamsam, Financial Literacy Programme Manager from Vaka Tautua, a social service provider that serves the Pacific Island community, also praised the Red Flags tool.

“Red Flags are very useful and they highlight the things the Commerce Commission needs to hear about. They provide short statements about what the law says, it’s very clear about what to look out for and what to do about it. It’s very empowering, because it’s so simple and clear.”

“A lot of people didn’t know that lenders or repossession agents couldn’t take security or repossess beds or fridges or washing machines they already owned. They were relieved to learn that those things were safe if they borrowed money through a secured loan,” she said.

The next phase in the Red Flags initiative will see the Commission working more closely with Financial Mentors (previously known as budget advisors) on how best to use the Red Flags system in their day to day interactions with clients.

Some of the Commission’s significant prosecutions have been result of complaints made by consumer advocates, like budget advisors and community lawyers, including Rapid Loans where the company refunded over $1 million in unreasonable fees and Budget Loans and Evolution Finance who were found guilty on 106 Fair Trading Act charges.

You can read more about the Red Flags initiative here.