High Cost lender Ferratum admits responsible lending breaches
Published30 Jun 2020
High-cost lender Ferratum New Zealand Limited has admitted breaching responsible lending provisions of the Credit Contracts and Consumer Finance Act 2003 (CCCF Act).
In a settlement with the Commerce Commission, Ferratum has also repaid the cost of borrowing for 46 named borrowers, totalling $88,173.00.
Ferratum trades as “Ferratum”, “Just Cash” and “Simple Cash” and is wholly owned by Ferratum Oyj, a company registered in Finland. In the period covered by the settlement it loaned amounts between $100 and $1,000, charging interest of between 52% and 803% per annum. Ferratum offered loan terms of between 7 and 45 days.
“The lender responsibility principles require all lenders to exercise the care, diligence and skill of a responsible lender in their dealings with borrowers and guarantors, and to comply with the specific responsibilities set out in the CCCF Act. Ferratum has admitted it did not live up to its responsibilities,” said Commission Chair Anna Rawlings.
Ferratum admitted that between June 2015 and October 2018 it breached the CCCF Act in respect of the 46 named borrowers by:
failing to make reasonable enquiries as to those borrowers' requirements and objectives
failing to exercise reasonable care in advertising loans
failing to assist those borrowers to reach informed decisions as to whether or not to enter into loans.
“Though Ferratum has told us that it is not currently issuing new lending here, it has also signed Court-enforceable undertakings regarding aspects of its lending and advertising practices. Should it start lending here again, it has undertaken not to advertise high cost loans without including a prominent statement that such loans should not be used for long term or regular borrowing, and are only suitable for short term cash needs,” said Ms Rawlings.
It has also undertaken not to send messages directly to borrowers (without regard to their financial position, requirements, or objectives) encouraging them to take out another high cost loan with Ferratum where the borrowers have:
an existing loan with Ferratum
repaid a loan to Ferratum within the previous 45 days
in the previous six months failed to make repayments.
“Lenders should carefully consider who they are sending direct advertising to. They should not send direct advertising (for example, via text) to borrowers who are overdue on existing payments, inviting them to apply for new or larger loans. We note that recent changes to the CCCF Act make it unlawful to lend to a borrower who already has, or has recently had, high-cost loans with other lenders,” said Ms Rawlings.
While Ferratum has admitted breaching responsible lending requirements of the CCCF Act, the Commission is also seeking High Court declarations that it did so.
Changes to the CCCF Act
Rules affecting High Cost lenders came into force on 1 May and 1 June 2020. The Commission has provided guidance to high cost lenders on the recent changes.
Cost of borrowing
The cost of borrowing includes all applicable credit fees, default fees and all interest charges, including annual rates of interest, and default interest charges.
Lender Responsibility Principles
Lenders entering into consumer credit contracts after 6 June 2015 are required to comply with the lender responsibility principles, as set out in the CCCF Act. These include that lenders must make reasonable inquiries, before entering the agreement, to be satisfied it is likely the borrower will make repayments without suffering substantial hardship.