The government is continuing its crackdown on loan sharks, introducing new rules to protect against unaffordable loans.
Consumer Affairs Minister David Clark said the rules would ensure all consumers who borrow money get the same protections, “regardless of where they get their loans from”.
Currently lenders have high-level obligations to check a borrower will be able to pay back a loan.
But Clark said some lenders are much more careful and diligent than others.
“Around 20 percent of repayment problems experienced by Kiwi borrowers are thought to be due to the cost of the loan itself. We know that the harm caused by unaffordable debt is serious and long-lasting. We need to support all lenders to do a more thorough job of understanding their customers’ circumstances before approving a loan.
“We are making changes to ensure that the rules are clear, consistently applied and easy to enforce if they are broken,” he said.
Before approving a loan, all lenders will need to:
- make consistent inquiries about the borrower’s needs and objectives, to help ensure the credit product is suitable
- verify the borrower’s income and expenses to be satisfied that the repayments are unlikely to put the borrower into significant hardship.
Clark said these new requirements also mean that all lenders would need to do income and expenses checks when considering loan top-ups and credit limit increases.
“During this period of financial uncertainty, it will be more important than ever that people don’t take on debt that will ultimately put them in even more difficulty long term.
“If people are in financial hardship, there are other options besides taking on a loan. I encourage them to contact MoneyTalks to find out what support is available”, he said.