High-cost lenders cutting interest rates or exiting the market, ComCom review shows
Published17 Jul 2023
The Commerce Commission has completed a review into high-cost lenders following the introduction of specific high-cost lending rules in 2020 under the Credit Contracts and Consumer Finance Act (CCCFA).
With high-cost lenders charging at least 50% in interest per year, Commission General Manager Credit Louise Unger says the new lending rules were vital, resulting in added protections for borrowers.
“Since the rules were introduced the high-cost lenders that we reviewed have either exited the lending market or reduced their interest to below 50%.
“These changes have been encouraging to see, particularly as some lenders traditionally charged up to 800% in interest. The reduction of interest rates has led to a cheaper cost of finance for borrowers and prevents potential harm and financial detriment.”
As part of the review, the Commission did identify several lenders whose conduct raised concern under the high cost rules resulting in enforcement by the Commission including formal warnings and civil proceedings filed in the High Court.
“We have also successfully secured more than $70,000 in remediation to affected borrowers from lenders who were investigated.”
Specific rules for high-cost lenders require lenders to cap interest and fees at 100% of the total loan amount; the interest rate charged per day is capped at 0.8%; lenders are restricted from making high-cost loans to some repeat borrowers; and lenders have additional disclosure obligations.
“These rules build on existing obligations that all lenders have under the CCCFA. It is vital that all lenders understand and carry out their obligations to avoid causing financial harm to borrowers and facing legal consequences,” Ms Unger says.
The Commission is also encouraging borrowers to take their time to prepare themselves before borrowing money.
“Whether you’re borrowing money to buy a house, a TV or car, or to sign up for a store card, it’s really important that you take the time to know what you’re signing up to, what to expect during the process and what you can do if you run into financial difficulty.
“Every borrower has rights when it comes to taking out a loan. It really pays to understand those rights, so if things don’t go as planned, you know what to do and who to talk to for help.”
More information on the obligations on lenders is here.
The Commission has published a quick guide to borrowing for consumers on its website which is available here.
Background
High cost loans
High-cost lending to consumers is subject to specific restrictions that do not apply to other forms of lending.
The Commission has developed guidance which explains these key restrictions. The specific rules are set out in the Credit Contracts and Consumer Finance Act 2003 and the Credit Consumer and Consumer Finance Regulations 2004. These rules are complex, and lenders are encouraged to take legal advice to ensure that they operate within the restrictions.
Enforcement outcomes following the High Cost lender review Following the Commission’s review into compliance by High Cost lenders, the Commission issued warning letters to the following lenders:
