The NZ loans market is about to undergo another significant shakeup, that will impose restrictions on how lenders advertise from December 2021.
This is the second shakeup to the industry, since May 2020 which saw a substantial number of short term lenders exit the NZ Loans market. Changes made to the Credit Contracts Amendment Act prohibits lenders from charging more than double the cost of a loan over its lifetime. So, if you borrow $1000, a lender can charge no more than $2000 including fees for that loan. Prior to this change, some lenders were charging as much as 600% per annum in interest rates in addition to other costs. In other words, six times the amount borrowed in one year in interest alone. When interest rates are this high, debt can easily spiral out of control, destroying lives and pushing people into a rut from which it is difficult to climb out.
Another significant change that came into effect was the onus on lenders to assess the borrowers ability to repay the loan. Amendments to the Credit Contracts Act mean borrowers who have been offered unaffordable or inappropriate loans can now claim statutory damages, such as reimbursement of interest and fees and compensation for damages. The onus is on the lender to provide affordable loans that borrowers are capable of repaying. This means assessing their discretionary income. For low-cost, reputable lenders, these changes were welcome as they offered lower interest rates and did not lend to people who couldn’t afford to repay their loans.
The latest round of changes focuses on how loans are advertised. It is possible to obtain same-day loans with 1-2 hour approvals in the online loans market, which is a clear point of difference from traditional bank lending. However, moving forward this cannot be used in advertising without including disclaimers such as “this is subject to responsible lending inquiries and checks”. Although this may not seem significant, most lenders advertise online and have limited space in advertisements. Having to include a disclaimer in their ad text, rather than just on their website, does not make for a very attractive ad.
Disclaimers must also apply if a lender advertises a loan amount e.g. Get $10,000 today for $100 a week. In this case the lender must state the total payments that will be payable under the loan and what interest rate applies. Given the interest rate varies borrower to borrower, this isn’t possible.
In some cases fast online loan providers are able to offer lower interest rates than banks for personal loans, another advantage for consumers. However, now if they want to include a range of interest rates in their ad text, or ‘from 8.95%’, for example, they must state whether fees apply, list the fees and outline whether or not the interest rate if fixed for the term or part of the term, or not fixed at all.
Certain advertising practices are also prohibited by regulations. Lenders cannot advertise that they won’t ask about borrowers’ circumstances or take them into consideration. For instance, lenders cannot say things like: ‘No credit checks’; ‘Guaranteed acceptance’; ‘Bankrupt, OK’; ‘Bad credit history, OK’. This is a welcome change to reputable lenders who would never lend without taking a borrower’s ability to repay a loan into consideration.
So in essence, ads that include text like “Same Day Loans from 8.95% approved in 1 – 2 hours” will likely be a thing of the past from December of 2021 in the NZ loans industry.
NZ Loan lenders who breach the responsible lending obligations (including breaches of the “Advertising Standards”) can be ordered to pay penalties of up to $600,000 for companies and $200,000 for individuals, plus statutory damages equal to the costs of borrowing.