Consumers who are battling to keep up with loan repayments need to speak to their lender as soon as possible, says Financial Services Complaints Limited (FSCL) CEO, Susan Taylor.
FSCL offers a free service for consumers who have complaints about financial service providers, including lenders who provide secured and unsecured loans.
Ms Taylor’s comments come as credit monitoring bureau Centrix released statistics that almost half a million Kiwis are behind in at least one loan payment, following a 5% rise in arrears in the last year.
“We have seen an increase across all lending complaints by 70% in the last year and a marked increase of 120% in complaints about unsecured debt over the same period,” explains Ms Taylor, adding that all lenders are required under the Credit Contracts and Consumer Finance Act (CCCFA) to have a hardship policy and comply with the hardship provisions of the Act, and the Responsible Lending Code (the Code).
“Changes to the Responsible Lending Code, which came into effect from 1 February 2022, give lenders guidance about how to implement policies or procedures to identify repayment difficulties early and manage the loans where the lender is aware the borrower is having, or expects to have, difficulties repaying a loan,” says Ms Taylor.
According to the Code, lenders should explain their processes regarding repayment difficulties to borrowers, whether their repayment arrangement needs to be changed and what the borrower can afford.
“For example, a borrower might call their lender to tell them that they have unexpectedly lost their job and are struggling to meet their repayments. The lender should remind them that they can apply for changes to the repayment amount or credit agreement, tell them what information the lender needs to assess the application and any time limits that might apply,” says Ms Taylor.
In a recent case FSCL investigated, a lender reconsidered a hardship application, after initially turning a borrower down.
Ben fell in arrears on his personal loan when his partner had to stop working due to a medical condition. Suddenly becoming the family’s sole income earner, he told the lender he could afford his regular loan repayments, but he could not afford to clear the arrears of around $2,900.
Ben asked the lender to consolidate the arrears into his loan but complained to FSCL when the lender told him they would not be providing any hardship assistance.
The lender decided to reconsider their decision and after reviewing Ben’s updated statement of financial position, they agreed to consolidate the arrears.
The term was extended by 10 months, this meant Ben would pay more interest over the term of the loan, but he was happy to agree to this to clear the arrears.
The Code also highlights to lenders that a pattern of missed payments, including insufficient payments and late payments, exceeding the credit limit, or frequent requests to change repayment dates or to refinance, are key signs that a borrower may be experiencing repayment difficulties.
“Borrowers need to be aware that if the lender is trying to contact them and they are in arrears, it is better that they have these conversations earlier, rather than later. We understand that it can be difficult to have these conversations, however, as time goes on, the options diminish and you do not want to have to pay default fees and accrued interest, both of which will escalate the longer it takes to address the issue.”
With inflation and the cost of living rising, Ms Taylor anticipates FSCL will see an increase in complaints in the coming months.
“As we saw previously with the global financial crisis, we see an increase in complaints during times of economic downturn,” she explains, adding that the Code recommends lenders also tell borrowers that there is free and independent financial mentor advice available.
“Support from a financial mentor, when someone is in financial difficulty, cannot be understated. FinCap support over 200 free financial mentoring services across Aotearoa. These services support more than 70,000 Kiwis in financial hardship annually. Our case managers refer many people who contact us to financial mentors, and we appreciate how important it is for those struggling to have support beyond just making a complaint.”