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Lawless loans?

Wiremu’s parents borrowed $115,000 from a lender to complete the purchase of their home. The lender is a commercial enterprise and makes its money by charging interest rates that are higher than those of a first-tier lender (a bank) or a second-tier lender (a building society or similar). However, it still has to abide by the same laws as every other lender.

For eight years, Wiremu’s parents paid interest at a rate that fluctuated between 10% and 11%. They never missed a payment, although they were stretched financially.

When it came time to refinance in 2017, the lender offered Wiremu’s parents a much lower interest rate. Wiremu did some digging, and discovered that the lender had been offering lower rates to new lenders for some time.


Wiremu’s view

Wiremu thought the fluctuating interest rates that the lender applied to his parents’ loan did not reflect underlying market conditions. In his view, the interest rates should have gradually declined over time (rather than the sudden drop in 2017). He considered that the lender had breached various laws including the Fair Trading Act. He helped his parents to arrange new finance elsewhere, and he complained to FSCL.


The lender’s view

In the lender’s view, it had broken no laws. The lender said that Wiremu’s parents had never contacted it about interest rates.



We reviewed the mortgage documentation. It seemed to comply with relevant legislation, but we noted that for some time the lender had been advertising lower interest rates on its website than those offered to Wiremu’s parents. We considered that it was arguable that the lender should have let Wiremu’s parents know about the possibility of more favourable rates, even though Wiremu’s parents had not asked.



We negotiated a settlement between Wiremu’s parents and the lender. The lender made a one-off payment of $3,000 to Wiremu’s parents to settle the claim, without admitting it had done anything wrong.


Key insight for consumers

When you borrow money, it is wise to keep checking whether you are getting the best interest rate the lender can offer you.