Source: Radio New Zealand
A man who could no longer afford his car payments complained to an external dispute resolution provider. Caitlin Regan/Flickr
A man who took out a loan for a car but was unable to make the repayments when he lost his job has had the default interest and fees charged refunded.
The case may offer insights for other borrowers struggling with their loan commitments.
The man complained to Financial Services Complaints Ltd (FSCL), an external dispute resolution provider for some of the financial sector.
It does not identify people who complain or the organisations they complain about.
But it said in a case note that the man borrowed $9995 to buy a car in 2022.
He had to arrange insurance to qualify for the loan so he borrowed a total of $14,000 to cover mechanical breakdown insurance, payment protection insurance and guaranteed asset protection insurance, all through the car dealership.
In 2024, he lost his job and found it hard to keep up with the $107 a week loan payment. He contacted his insurer but was told his cover did not include any provision for redundancy. The car dealer was no longer in business.
He said he told the lender about his problems but default fees and interest were added every time he missed a payment.
The lender offered to his increase his weekly payment to $150 to get him back on track but he continued to fall behind.
He finally complained to FSCL, saying the lender had not done enough to help and it was unfair that he was being charged fees and default interest when he was in hardship.
FSCL investigated and said because he had not missed any loan payments before he lost his job it was likely that the loan was affordable when he borrowed the money.
Lenders have an obligation to ensure they do not give borrowers loans they cannot pay back.
“We considered that the lender had not done anything ‘wrong’. The lender had given [him] information about financial mentoring services and had restructured the loan once to avoid default interest and fees. Reviewing the lender’s diary notes, it appeared that [the borrower] was offering to increase his payment to get the loan back on track and avoid repossession of his car.”
The lender agreed to refund the default interest and fees, refinance one payment into the loan balance so he was not in arrears and reduce payments to $110 a week.
FSCL said lenders were required to consider whether they could do anything to alleviate financial hardship but they were entitled to charge default fees and interest.
“If you experience financial hardship and struggle to repay a loan, keep in contact with your lender, show a willingness to repay what you can, and seek help from a free financial mentor early.”
Commerce Commission general manager of competition, fair trading and credit Vanessa Horne said people who were facing financial difficulty and could not afford their repayments had two options.
Commerce Commission general manager of competition, fair trading and credit Vanessa Horne. Think Stills & Motion
“The first is to contact the lender as soon as possible to see if they can make changes to the credit contract.
“While lenders do not have to alter the contract, they are required to act reasonably and ethically when problems arise.
“The other option is making a hardship application, which [the] lender must consider by following a specific process.”
Horne said under the Credit Contracts and Consumer Finance Act, a borrower could ask a lender for a change to their loan, mortgage or credit card or other consumer credit contract if they had suffered a hardship they could not have seen coming, and could not make their repayments as a result of that hardship. They also needed to believe they could make the repayments if the contract was changed in the ways specified under the Act, including extending the loan term or a payment holiday.
“A borrower must make a hardship application in writing. They need to state the reason, or reasons, for the unforeseen hardship. It can also be worthwhile including supporting information, such as a medical certificate or letter of redundancy.
“The letter must also include the specific changes the borrower wants to make such as extending the term of the contract and reducing the amount of the repayments or postponing repayments for a specified time and both the borrower and lender must agree to the changes before they are permitted.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
