Car loan companies are increasingly putting people into financial hardship, with unaffordable loans that experts believe are unlawful.
Auckland Central Budgeting Manager Tim Maurice says he sees many instances of companies breaching the Credit Contracts and Consumer Finance Act.
“It is very clear under the CCCFA that a loan that is unaffordable is unlawful,” Maurice says.
“They need to do an affordability assessment, to check the income and expenses to make sure they can afford it, they are not doing that most of the time.”
Maurice says people often drive away with vehicles with no deposit, after signing contracts that require excessive interest and add-on insurance, that he calls "junk insurance".
“They don’t pay out. It is just about impossible to get a pay-out. And there are huge profit margins for both the car dealer and the finance company,” he says.
“What the car companies know is people need their cars so they will prioritise that debt over any other debt they have. Eventually it all catches up and they will miss a car payment.”
One of Maurice’s jobs is trying to hold these companies to account, which he says is challenging given the nature of the law.
“We can fight for our client and get the interest and fees written off. But there is no further punishment for them,” he says.
“They are making so many thousands of dollars in loans every year that the odd little case where we are able to hold them to account doesn’t dent their profits,” he says.
“They just continue making unlawful and unaffordable loans to people knowing the profits are so great and the punishments are so little, there is no incentive to stop.”
One woman 1News spoke to says she was pressured into buying a car with a loan she thought was $49,000 over five years that turned out to be $75,000.
"The only thing I knew was the price that was put up on the windshield of the vehicle. That's all I know," she says.
The extra cost was because of the interest and add-on insurance she says she did not realise she was signing up for.
"When I started getting my car bills I start avoid paying my other bills, so I can focus on the car."
The dealer who sold the woman the car, GMANA Cars & Wholesale Autos, says the woman told them she understood the contract at the time.
But when the case was taken to one of the four fiscal complaints services, it was ruled it did not meet responsible lending obligations.
The lender who provided the woman the financing for the car was Go Car Finance, which told 1News it always does proper affordability assessments when lending money and follows the CCCFA.
Go Car Finance is one of the biggest perpetrators of irresponsible lending, according to Maurice.
It has been under investigation by the Commerce Commission for the past two years.
The parent company of Go Gar, Money3, is currently being investigated for responsible lending breaches in Australia.
The investigation by the Australian Securities & Investments Commission alleges Money3 has failed to consider the financial circumstances of vulnerable consumers.
“I would like to see the Commerce Commission take a stronger stand. If they see three or four unlawful loans by a finance company, take away their right to operate until they start following the law,” Maurice says.
1News asked the commission for comment but it said its inquiries are still ongoing.
Christians Against Poverty says car loans are the biggest culprit when it comes to pushing their clients into poverty.
Chief executive Sam Garaway says one out of every two families who come to them for help have out-of-control car loans with poor-value add-on insurances, exorbitant fees and interest.
“We have an entire team dedicated to filing complaints around irresponsible lending. We have launched more than 60 disputes with the enforcement agencies, and despite that there has not been one prosecution,” he says.
“Disputes resolution providers can’t enforce the law by prosecuting lenders. They are an ambulance at the bottom of the cliff while people continue to fall down that cliff.”
Community Law Centres o Aotearoa says predatory lending within the car loan industry is one of its biggest concerns.
“It's not about what is the best car for you, in some cases it is about how much they can get out of a person, a borrower to ratchet up that loan so there is as much commission, or kick back, as possible,” CLCA’s Law Reform Coordinator Karen Hodgson says.
One of the complaints authorities budgeters can go to is Financial Services Complaints Limited.
CEO Susan Taylor says for the year ending 30 June the FSCL had a 37% rise in complaints.
“If we find there has been a breach of responsible lending obligations we will reply the remedy under the CCCFA, which is to require the lender to refund and write off all the interest and fees,” Taylor says.
“The borrower is still responsible for repaying the principle sum borrowed.”
Taylor says she hopes lenders are aware of their obligations, which have now been in place for a number of years.
“We do see some cases where, even after writing off the interest and fees, the borrower is left with a substantial debt,” she says.
“Sometimes we are concerned that perhaps the borrower has paid too much money for the car, but at the moment we don’t have any guidance from the courts as to whether there is any additional relief or compensation that can be granted.”
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