Submission to Credit Contracts and Consumer Finance Amendment Bill

Transcription

1 Submission to Credit Contracts and Consumer Finance Amendment Bill By Shula Newland, Owner and Manager FULL Balance Financial Coaching May Introduction I commend the MCA for making these amendments to the CCFA, far too often families in NZ are struggling financially due to extra expenses from debt payments which leads to stress, health issues and family breakdowns. If we can stop creditors lending to consumers, where they know in advance that those debt payments are going to put stress on the families budget, then that is going to be a big step forward in reducing the stress and poverty in peoples lives, and make NZ a better place to live. The main point I would like to make in my submission is that in NZ on the average wage, there is little room for anything more than a small debt payment, otherwise there will not be enough money to meet their basic living costs (food, housing, power, transport, clothing) and have enough left over for contingencies (health care, house, car, and appliance maintenance and insurances, loss of income) or activities that allow families and their children to have a normal happy life (sports, hobbies, socialising, holidays, pocket money, mobile and internet access). At what point are costs consider to be a basic living cost for living in NZ? Why are we allowing families to take on extra debt payments when they should be using the income and government entitlements to provide for their children s immediate costs and put savings aside for contingences and extra activities that allow them to have a normal, healthy, happy life? Yet the way the draft Act is written is saying it is ok to lend them more money, which if they are on an average wage or have high mortgage costs will make their life more stressful and more difficult, as long as they are not in substantial hardship? Therefore I challenge you to think about the appropriateness of the wording and definition of significant hardship. Let s not just make this about keeping people off the poverty line, but let s stop people from coming under stress in the first place from borrowing, as well as stamping out the grossly irresponsible lending when people obviously can t afford more debt. Below is further specific comments and feedback in regard to the Consultation Explanatory Information. As an Appendix is some examples of typical budgets for different scenarios of income and expenses to show you the different types of living costs and how much surplus income there is How does your budget and what you would consider to be a basic living costs compare?

2 Responsible Lending Full Balance thinks that the draft principles do encompass the principals that should apply, and that it is ok for the code to provide the guidance of how the principals can be implemented instead of the bill, as long as the code is still practical and prescriptive and aimed at protecting the consumer and is done by a code committee that has representives from both the businesses and non profit sector. It is noted that the code should include specific reference to how the lender ensures the that they have enough information to make a decision regarding whether it is responsible lending as given in 9D (1)(a), given that desperate borrowers will hid other debt payments or be ignorant of their true financial situation and it is not enough to rely on verbal information provided by the borrower alone. Because of the privacy rules this will mean that lenders may then need the authority to make enquires to other lending institutions for this reason. Full Balance also makes the following comments on the following Sections: 9B(2)(a) exercise reasonable care and skill - add what this is in reference to make it more clearer e.g. is it to exercise reasonable care and skill in following the principles (b) In making informed decisions, again add what is this in reference to e.g. in deciding whether the loan and the details of the loan is appropriate for their situation, again this will make it more clearer (c) (d) No comment (e)(i) Add in current and reasonable foreseeable future financial circumstances. This then puts the responsibility on the lender to inquire about the security and consistency of the borrowers current situation and include contingencies for any future changes that may affect the borrowers income or expenses e.g. do they have permanent position or is it casual, are they of ill health which may mean they will not be able to work in the future, are expecting a baby, or they going to be starting a business, do they have other loans payments starting up etc (ii) No comment (f) (i) As discussed above substantial hardship is not good measure or definition here, do we really think it is ok to lend if it puts people into hardship as long as it is not substantial? There are already legal avenues for borrowers to pursue if they are under hardship with the insolvency and creditor negotiation options, which should already act as a deterrent for irresponsible lending that results in hardship. A reference to basic living costs instead of or as well as could be better as this then infers that a more descriptive definition can be made. A reference could also be given to without suffering or adding unnecessary stress (now or in the foreseeable future) to meet basic living costs, which means a contingency for future costs should be included in the definition of basic living costs. Either way a definition of which ever word is used to define this aspect of responsible lending needs to be added into the Interpretation Section in order to give more clarity of the expectation of minimum costs before debt payments can be allowed for.

3 (f) (ii) While this is good to put in here, I am not really sure that it is the role of the lender to make a decision to whether the loan is appropriate to the borrowers objectives, as this would then put the lender in the role giving advice in an area that they are not necessarily trained in, and to which they have an invested interest in the outcome. (g) (h) No comment 9D to add in a reference to provide referrals/advice on other non lender agencies if the borrower is refused credit and is unable to meet living costs because of this e.g citizen advice, WINZ, Budgeting, EAP, Foodbanks, Salvation Army etc Amended Purpose Full Balance agrees with the new clauses emphasising consumer protection through responsible lending, not allowing unreasonable fees, and requiring disclosure. Disclosure and Standard Terms and Costs of Borrowing Full Balance supports the requirement for disclosure before the transaction is entered into, so that the consumer can compare contracts and understand it fully before committing, and supports the extended cooling off period so borrows have a chance for what they have done to sink in and to seek additional advice if necessary to ensure the loan is right for them, and that this should be a big step in towards improving transparency and competition. I am unsure that a legal obligation to provide complete disclosure on the website is reasonable though, perhaps this would be better to remove section 9H(2) and make section (3) to include electronically available on request, thus giving more flexibility to the audience exposed. Fees No comment other than does there need to be a specific section to cover leases, where the item is often bought back at the end of the lease and therefore there is no intention to re-lease the item if the lease is broken early, thus meaning the leaser is forced to pay out the whole lease regardless, and essentially means that there is no way of getting out of the lease? Hardship Full Balance agrees that by extending the hardship provisions to include debt that has been in default under 2 months is a good idea (but to extend it to 3 months), as most clients that require negotiation of debt don t seek help until they are quite behind in payments. However it has been our experience that lenders are still willing to negotiate to some degree even if clients are in default currently, so whether this will make much of a difference is debatable. However it is noted that a lot of clients are under financial stress/hardship not because of unforeseen circumstances, but because of too much borrowing and not putting aside enough contingencies for

4 the future, which has then maybe been made worse by unforeseen circumstances, which often can be due to health or relationship breakup due to the stress the extra borrowing has put on them. Therefore it requested if the hardship provisions could be extended to include excessive irresponsible lending to 55(1), even if it was not from that lender that tipped them over the edge. This means the borrower then has the ability to informally negotiate to reduce payments without having to go through the court system. It is also noted that at times borrowers get desperate and lie about the amount of debt they have, in these circumstances, it seems only fair that the lender would not have to follow the hardship provisions due to irresponsible lending. Other specific comments include: 57 (1) A (a) Should this acknowledgement be in writing, otherwise the borrower may not be aware that they have received the application or not? The request for extra information should also be limited to reasonable information to provide evidence of hardship, and provided in a reasonable timeframe for this. This is because applications can be held up due to the lenders requiring excess information in short time frames, putting additional unnecessary stress onto borrowers and giving the lenders a reason to reject applications. 57 A (2) (b) Needs to be more specific with regard to when they can t charge default interest, is it at all, or just during the application process? Unregistered Creditors No comment other than if this is the right place to provide penalties for another act? Oppression Provisions No comment. Disclosure of Statement of Rights Agree that reference to their right for relief under hardship and contact details for dispute resolution is needed in the disclosure. Also question whether there should be any reference in allowing for the lending to be responsible, of what expenses have been allowed and which haven t been allowed for in the budget. This will then make sure the borrower is aware that the lending is based on a certain budget which may or may not include all their actual costs of their current and future living situations.

5 Transitional Provisions No comment other than noting whether the suggested inclusion of hardship due to irresponsible lending will be able to be applied for current agreements, thus making the Amendments more retrospective and therefore having a more immediate positive effect for struggling families. Conclusion Easy access to high levels of consumer debt and an attitude of living in the now, is leading to NZ families struggling to have a normal happy life, and resulting in a large imbalance of too much debt and not enough savings. By legally restricting borrowing to only responsibly lending where it can be clearly shown that debt payments can be accommodated in a basic robust budget; will ensure that NZders can build a healthy foundation from which to prosper from. In order to strengthen the current proposed Act, the following changes are suggested: 1. Contingencies are allowed for for future changes in peoples circumstances by including lenders to consider reasonable foreseeable future financial circumstances, as well as current financial circumstances 2. Reconsider the use of the word substantial hardship and give more direction to its meaning to include how basic living costs are defined and take into account the amount of stress that additional debt payments will put on peoples abilities to cope with current and foreseeable future costs. 3. Whether it is appropriate for lenders to be making decisions of the appropriateness of the lending to the borrowers objectives, if they are not trained in this area. 4. Whether an additional sub section to cover lease to own agreements is needed for fees for breaking the lease early, with regard to whether it is reasonable to for the borrower to have to pay out the rest of the lease. 5. Realise that clients under hardship that are unable to continue debt payments, can often be from irresponsible lending rather than unforeseeable incidents, and that there is an opportunity here to encourage negotiation with current debt agreements where previous lending was irresponsible. 6. Be more specific around hardship applications requiring only reasonable information to be provided in reasonable timeframes so it isn t too onerous on the consumer to apply for. 7. Ensure that the borrower is aware of which expenses have and have not been allowed for in allowing the lending to make sure the agreement doesn t put them under undue pressure/hardship. Thank you for considering my submission, feel free to contact me if you have any queries regarding it. Shula Newland

6 Appendix Typical basic weekly budgets for different living situations with a 5% contingency. Two income family with two teenage children and a $300,000 mortgage over 30 years at 7% Outgoings Mortgage Payments $465 House Maintenance $10 Insurance - house/contents $20 Council Rates - city and regional $30 Water Rates $10 Power/Gas/Firewood $50 Phone $25 Mobile $10 Groceries (e.g. food, toiletries) $300 Other Food/Drink (e.g. lunches, snacks, takeaways, coffees) $20 Car - fuel $100 Car - rego, warrant $14 Car - insurance, memberships $20 Car - service, maintenance $20 Pet Care (e.g. food, rego, vaccs, vet) Memberships (e.g. sports, club, mags, sky, gym) Hair and Beauty $10 Hobbies Family / Children Activities $20 Entertainment (e.g. drinks, dinner, movies, taxis, DVDs) $40 Spending allowance (e.g. clothes, C.D's etc) $60 Presents $15 Trips Away (e.g. transport, accommodation) $10 Donations Insurance - health Insurance - life/trauma $20

7 Insurance - income/disability Health Care - medical (e.g. doctors, phisios, chiros etc) $10 Health Care - dental $6 Optometrist / Orthodontist Bank Fees $2 Child Care Payments Study / School Costs $19 Child Clothes/Shoes $15 Pocket Money $20 Personal Development (e.g. courses, counselling, coaching) Professional Fees (e.g. accountant, lawyer, financial) Kiwisaver 1 $23 Kiwisaver 2 $12 Debt Repayment - hire purchase Debt Repayment - student loan Debt Repayment - vehicle Debt Repayment - credit card Miscellaneous Contingency 5% $40 TOTAL OUTGOINGS $1,416 Incoming Salary 1 - gross per year $60,000 Salary 2 - gross per year $30,000 Salary/Wages 1 - net $918 Salary/Wages 2 - net $483 Government Benefits - net Interest from others - net per week $0 TOTAL INCOMINGS $1,401 GRAND SURPLUS/SHORTFALL (per week) -$15

8 One income, two parents, renting with two teenage children and a car loan of $8000 at 18% over 3 years Outgoings Rent/Board $300 Insurance - house/contents $10 Lawns Water Rates $10 Power/Gas/Firewood $50 Phone - rental $12 Phone - tolls Internet Mobile $5 Groceries (e.g. food, toiletries) $250 Other Food/Drink (e.g. lunches, snacks, takeaways, coffees) $10 Car - fuel $80 Car - rego, warrant $7 Car - insurance, memberships $10 Car - service, maintenance $10 Pet Care (e.g. food, rego, vaccs, vet) Memberships (e.g. sports, club, mags, sky, gym) Hair and Beauty $5 Hobbies Family / Children Activities $10 Entertainment (e.g. drinks, dinner, movies, taxis, DVDs) Spending allowance (e.g. clothes, C.D's etc) $40 Presents $10 Trips Away (e.g. transport, accommodation) Donations Alcohol (wholesale) Cigarettes Gambling Insurance - health

9 Insurance - life/trauma $5 Insurance - income/disability Health Care - medical (e.g. doctors, phisios, chiros etc) $10 Health Care - dental Optometrist / Orthodontist Bank Fees $2 Child Care Payments Study / School Costs $19 Child Clothes/Shoes $12 Pocket Money $10 Personal Development (e.g. courses, counselling, coaching) Professional Fees (e.g. accountant, lawyer, financial) Kiwisaver 1 $15 Kiwisaver 2 Debt Repayment - hire purchase Debt Repayment - student loan Debt Repayment - vehicle $70 Debt Repayment - credit card Miscellaneous Contingency 5% $40 TOTAL OUTGOINGS $1,011 Incoming Salary 1 - gross per year $40,000 Salary/Wages 1 - net $638 Government Benefits - net $229 Interest from others - net per week $0 TOTAL INCOMINGS $867 GRAND SURPLUS/SHORTFALL (per week) -$144

10 Single living alone with a student loan Outgoings Rent/Board $250 Insurance - house/contents $10 Lawns $10 Water Rates $5 Power/Gas/Firewood $35 Phone - rental $19 Mobile $10 Groceries (e.g. food, toiletries) $80 Other Food/Drink (e.g. lunches, snacks, takeaways, coffees) $10 Car - fuel $50 Car - rego, warrant $7 Car - insurance, memberships $10 Car - service, maintenance $10 Other Transport Fares / Parking Pet Care (e.g. food, rego, vaccs, vet) Memberships (e.g. sports, club, mags, sky, gym) Hair and Beauty $5 Hobbies $10 Entertainment (e.g. drinks, dinner, movies, taxis, DVDs) $30 Spending allowance (e.g. clothes, C.D's etc) $40 Presents $10 Trips Away (e.g. transport, accommodation) $10 Donations Insurance - health $10 Insurance - life/trauma Insurance - income/disability Health Care - medical (e.g. doctors, phisios, chiros etc) $5 Health Care - dental $5 Optometrist / Orthodontist Bank Fees $2

11 Personal Development (e.g. courses, counselling, coaching) Professional Fees (e.g. accountant, lawyer, financial) Kiwisaver 1 $19 Debt Repayment - hire purchase Debt Repayment - student loan $60 Debt Repayment - vehicle Debt Repayment - credit card Miscellaneous Contingency 5% $30 TOTAL OUTGOINGS $741 Incoming Salary - gross per year $50,000 Salary/Wages - net $788 Interest from others - net per week $0 TOTAL INCOMINGS $788 GRAND SURPLUS/SHORTFALL (per week) $46