RED FLAGS - Commerce Commission · RED FLAG 1 Mobile traders and door-to-door sellers For contracts...

The Commerce Commission is the enforcement agency for fair trading and credit laws that protect the interests of consumers. We work with

consumer advisory services to help monitor trade practice in consumer credit markets and identify areas of unlawful conduct.

To help identify issues that cause borrowers harm and protect the wider community from unlawful lending practices, we have developed

RED FLAGS to alert you to the areas we would like to hear about:

RED FLAGSFor the consumer advisory sector

The following pages outline our concerns in these areas and how to report on the problems you see in credit markets.

Mobile traders and door-to-door sellers

RED FLAG 1

Irresponsible lending practices

RED FLAG 3

Unreasonable credit fees and default fees

RED FLAG 5

High-cost-short-term loans, like payday loans

RED FLAG 2

Prohibited items taken as security

RED FLAG 4

Debt collection practices

RED FLAG 6

Repossession practices

RED FLAG 7

May 2017

RED FLAG 1

Mobile traders and door-to-door sellersFor contracts entered into on or after 6 June 2015

Areas of concern: goods not being delivered, lending irresponsibly, poor disclosure practices, unregistered traders, deceptive pricing, excessive cancellation fees.

The Law → traders selling goods using credit contracts must be

registered on the FSPR* and belong to a disputes resolution scheme

→ traders must properly assess affordability and help the consumer understand the full implications of the contract

→ traders must disclose the total cost of goods and be transparent about all fees and charges.

Let the Commerce Commission know about:

→ unregistered traders* selling goods door-to-door or through mobile shops on credit

→ irresponsible lending practices where no proper assessment or explanation has been carried out and the borrower cannot afford to pay

→ borrowers who were misled about the total cost of goods or when they expected to receive goods they had ordered.

* you can search the Financial Service Providers Register to check for registration and which disputes scheme a company belongs to on www.fsp-register.companiesoffice.govt.nz

Provide some supporting evidence

→ any contracts and loan statements from the trader

→ the client’s budget and bank statements if possible.

Make a report to the CommissionPhone 0800 943 600Email [email protected] in the Report A Business form on our website www.comcom.govt.nzLet us know what happened

For what you can do to help the individual, see the last page.

http://www.fsp-register.companiesoffice.govt.nz

mailto:contact%40comcom.govt.nz?subject=

http://www.comcom.govt.nz

RED FLAG 2

Areas of concern: lending irresponsibly, never-ending loans, high rates of default, advertising targeted at vulnerable consumers,

unreasonable fees, misuse of wage assignment clauses.

The Law Lenders must:

→ make reasonable inquiries to be satisfied that the borrower can afford the loan without suffering substantial hardship

→ assist the borrower to understand the full implications of the agreement

→ not mislead borrowers about assignment of wages, like saying they are irrevocable (cannot be cancelled)

→ exercise care, diligence and skill of a responsible lender in advertising providing for credit.


→ advertising that is misleading, for example ‘money within minutes’, no questions asked, no checks done

→ lenders who do not appear to assess affordability or assist the borrower to understand the costs of these types of loans and what can happen if payments are missed, particularly if the borrower has signed a wage assignment authority

→ lenders who continually refinance payday loans

→ borrowers defaulting shortly after taking out the loan and are not able to catch up

→ contracts that contain wage assignment clauses

→ lenders who delay taking action when payments are missed allowing fees and charges to build up

→ lenders encouraging regular use of payday loans and targeting clients who have requested not to be contacted.


→ the contract and loan statements (the loan statements are quite important)

→ advertising that may have attracted your client (including method, such as texts or phone calls)

→ your client’s budget and bank statements

→ clients’ wages slip to show the deductions made.

High-cost-short-term loans, like payday loansFor contracts entered into on or after 6 June 2015





Irresponsible lending practicesFor contracts entered into on or after 6 June 2015

RED FLAG 3

The Law Lenders must:

→ make reasonable inquiries to be satisfied that the borrower can make repayments without suffering substantial hardship*

→ make reasonable inquiries about the purpose of the loan so it will meet the borrowers requirements and objectives*

→ assist the borrower to make an informed decision and to be reasonably aware of the full implications of the loan*

→ ensure they do the same for guarantors if required

→ exercise care, diligence and skill in all subsequent dealings with the borrower and guarantor.

* This also applies to credit related insurance


→ borrowers who were already in substantial hardship and were very recently given a loan

→ guarantors unable to afford the loan repayments and/or who did not understand the implications of being a guarantor

→ borrowers who have been given loans for more than they asked for

→ unnecessary and unexplained credit related insurance

→ unsolicited or unwanted offers of pre-approved credit.

Areas of concern: inadequate affordability assessments, failure to assist the borrower to understand the implications of the loan, 100% online lending processes,

irresponsible taking of guarantees, unnecessary credit related insurance.


→ the loan contract

→ loan statements that may show early default and inability to catch up

→ 3 months bank statements at the time of the loan if possible (client may be able to access this online)

→ your client’s budget if possible to show their financial position.






→ the loan contract that specifies these items in the security section

→ any repossession warning notice that specifies these items and/or contains an ALL PAAP clause.

Prohibited items taken as security For contracts entered into on or after 6 June 2015

RED FLAG 4

Areas of concern: contracts that list prohibited items as security, ALL PAAP clauses (All Present and After Acquired Property) giving the impression

everything is security for the loan and can be repossessed.

The Law Lenders are prohibited from taking security over:

• beds and bedding• cooking equipment, including stoves• medical equipment• portable heaters• washing machines• refrigerators• travel documents• identification documents• bank cards.

→ the only exception is when the borrower has borrowed the money to buy these household goods

→ lenders must not present information that is likely to be misleading, deceptive or confusing.


→ contracts that list prohibited items as security

→ borrowers who may have prioritised loan repayments over food, rent or power because the loan contract contains an ALL PAAP clause and they believe these items can be repossessed (or taken in the case of documents).






→ the contract

→ loan statements that show how the fees are applied.

Unreasonable credit fees and default fees

RED FLAG 5

The Law → a consumer credit contract cannot provide for a credit

fee or a default fee that is unreasonable;

→ fees must not recover more than the lenders’ costs associated with that specific transaction (lenders therefore cannot make a profit from fees); and

→ lenders cannot add a margin onto fees that they pass on from an unrelated third party (like warranties or insurance premiums)

→ lenders must not present information that is likely to be misleading, deceptive or confusing.


→ fees that appear unusually high compared to others

→ fees that are charged for general costs such as ‘miscellaneous’ or ‘marketing’

→ lenders who apply fees in an irresponsible way, for example by charging a reasonable fee for text messaging, but send an excessive number of text messages

→ lenders charging fees for actions they never carry out, for example credit checks or PPSR* checks that are not done.

* Personal Property Securities Register

Areas of concern: consumer credit contracts providing for unreasonable fees, irresponsible application of fees.






→ the loan contract if possible

→ any communication or documents provided by the collector

→ details of any communication with the lender.

Debt collection practices

RED FLAG 6

The Law → lenders (and their agents) must treat the borrower and

their property reasonably and ethically

→ debt collectors must not mislead borrowers about taking court action if that is not possible

→ lenders are prohibited from trying to enforce debts that are included in a NAP, SIO* or bankruptcy

→ lenders can only charge collection fees if the credit contract provides for a fee to be charged

→ lenders must notify borrowers if they sell the debt and assign their rights to a new creditor.


→ lenders continuing to require payment for debts included in a NAP, SIO* or bankruptcy

→ collection agents who misled borrowers about court action or communicate in a way that mimics court or government documentation

→ excessive debt collection fees

→ lenders enforcing disputed debts, or when an unforeseen hardship application is being considered

* No Asset Procedure, Summary Instalment Order

Areas of concern: misleading and deceptive conduct, communication that mimics court documents, excessive debt collection fees,

trying to collect on clearly disputed debts.


For what you can do to help the individual, see the last page




→ the loan contract

→ repossession warning notice

→ post-repossession notice

→ statement of account (must be sent 7 days after the sale)

→ loan statements after security goods have been sold (this is quite important).

Repossession practicesFor contracts entered into on or after 6 June 2015


→ lenders who continue to charge interest and/or fees after repossessed goods have been sold

→ lenders enforcing contracts (like taking repossession action) when a complaint or hardship application is unresolved

→ lenders who may not have followed the correct procedures* before, during and after repossession

→ repossession agents who have repossessed goods on the basis of an ALL PAAP clause including prohibited items

→ lenders repossessing goods but not selling them.

* See the Commerce Commission Repossession Guidelines for the rules on repossession

RED FLAG 7

Areas of concern: using repossession punitively, repossessing prohibited items, inadequate paperwork, unregistered agents, making misrepresentations, adding interest and

fees after repossessed items are sold; lenders repossessing goods but not selling them.

The Law → the lender (and their agents) must follow a very

prescriptive process when enforcing contracts through repossession

→ secured goods must be specifically identified on the contract. General descriptions are not sufficient

→ if a borrower receives a repossession warning notice, they can voluntarily return the specified goods and the lender must accept them and treat them as if they were repossessed

→ importantly, if a lender sells repossessed goods and the borrower still owes money, the balance is frozen at the amount stated on the Statement of Account. No more interest or fees can be added. This includes debt collection fees.


For what you can do to help the individual, see the last page

GUIDELINE

NOVEMBER 2015

Repossession Guidelines

http://www.comcom.govt.nz/consumer-credit/guidelines-post/repossession-guidelines/



What to do when you see unlawful conduct

Red Flags are not the only things we need to hear aboutThe aim of RED FLAGS is to make it easier for consumer advisors to recognise possible breaches of the law and report it. However, if you notice other behaviour you think is unlawful, we would still like to hear about it.

What else can you do to help your client?

→ If there is a dispute or problem and the lender is not helpful, you can take the matter to the lender’s dispute resolution scheme. It should be in the contract, otherwise you can check the Financial Service Providers Register on www.fsp-register.companiesoffice.govt.nz

→ For a legal matter you can contact your local community law centre

→ In addition to our fact sheets on the Commerce Commission website, the Consumer Protection website offers useful information www.consumerprotection.govt.nz

→ If lenders’ agents have used extremely threatening behaviour or physical force, let the police know. Call 0800 555 111.

What happens to the information you give us?We will assess the information you provide according to criteria such as:

→ the extent of the harm;

→ the seriousness of the conduct; and

→ public interest in the matter.

Following an assessment, the Commission will decide whether to take further action. The Red Flags represent priority areas for the Commission. All major enforcement outcomes are published in the media and listed on our website under the Enforcement Responses tab in the credit section.

RED FLAGS

Make a report to the CommissionPhone 0800 943 600Email [email protected] in the Report A Business form on our website www.comcom.govt.nzPlease tell us what happened

Please include any evidence you have. The easiest way is to scan and email or take a phone picture and email that.

The purpose of making a report is to bring our attention to unlawful conduct that affects the wider community. Our job is to protect consumers’ interests through the laws we enforce and your client’s experience may represent consumer harm happening on a wider scale. Often these are stories we would never hear about otherwise.

The best kind of report is one where your client is happy to talk to us. You will need a Privacy Waiver.

Please explain to your client that we may contact them, and if they are willing to share their experience it may help us deal with unlawful behaviour that may also be harming other people. If they want to remain anonymous, you can let us know what happened without naming them and you can redact their personal details from documents.

Please note that the Commerce Commission is a law enforcement agency and does not take up ‘complaints’ on behalf of an individual.

http://www.fsp-register.companiesoffice.govt.nz


mailto:www.comcom.govt.nz?subject=

RED FLAGS - Commerce Commission · RED FLAG 1 Mobile traders and door-to-door sellers For contracts...

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