In March the final version of the Responsible Lending Code was released and came into force on the 6th June 2015. NZCCSS provided comment on the draft Code and reviewing the final Code, it does not appear to address the concerns of many of our recommendations.

NZCCSS recommended that the Code include clear guidance that interest rates in excess of 50% per year are not “responsible lending” in terms of the Code. The Code has not changed from the approach in the draft Code that requires “high cost credit agreements” with interest rates over 50% per year to carry a “risk warning” that they are not suitable for long-term or regular borrowing (Clause 3.6).

Consumer NZ CEO Sue Chetwin criticised the Code because it will “do nothing to fix one of the core issues in lending to beneficiaries and poorer families, whether by mobile shopping trucks selling goods on credit, or for high interest loans.”

“Even if they abide by all these rules, which some of them will, they are still selling products at outrageous prices to the vulnerable, and the same goes for those loans.”

NZCCSS recommended that taking of direct debits for loan repayments on “high cost credit arrangements” not be accepted as responsible practice. This is a common practice of the mobile selling trucks and a significant problem in low income communities, but once again Code does not address this problem.

Reasonable Fees, Existing Customers & Cooling-Off Period

Clear guidance in the form of a published schedule of “reasonable standards of commercial practice” for fees was another recommendation we made. Because of on-going legal action around what constitutes reasonable fees in consumer credit contracts, the Code may be further reviewed once the case is concluded, But the guidance remains very general and it is hard to see how an ordinary borrower will be able to make an assessment of the reasonableness of fees in the absence of any clear guidance.

One positive change is in the clauses around assessing ability of borrowers to pay, the final Code has removed clauses relating to “existing customers” that appeared to be open  to manipulation by lenders marketing further loans to people already in debt or who have borrowed from them previously.

The Code still does not contain clear information about cooling-off periods for loan agreements. We had proposed the Code require lenders to advise borrowers about the relevant cooling-off period under which they could withdraw from any loan without penalty.

Effects on people

NZCCSS has recommended that the Code be reviewed soon after its implementation (after one year) to assess whether lender’s behaviour has improved and whether there is evidence of less exploitation actually occurring. At this stage the Consumer Affiairs Minister Paul Goldsmith has simply said that he will be “monitoring the effects of the Code”. NZCCSS has recommended that Consumer Affairs use ‘secret shoppers’ to test whether lenders are following the Code and it is to be hoped that the department has the resources to enforce the Code.