Call for emergency relief to cover vehicle loans

The Financial Services Federation (FSF) is calling for the government to extend a relief package for consumers affected by the recent extreme weather to those needing vehicles and household appliances.

Following the devastating floods in late January and the impact of Cyclone Gabrielle this week, a statutory relief package for the Upper North Island was introduced by the government on February 13. 

The Credit Contracts and Consumer Finance (Exemption for Emergency Relief) Amendment Regulations 2023 have been published to provide exemptions from sections of legislation for credit provided under home loans or temporary overdrafts.

It means people requiring emergency relief can gain an additional $10,000 of credit without being subject to the usual affordability assessment requirements under the Credit Contracts and Consumer Finance Act (CCCFA) 

Lyn McMorran, executive director of the FSF, warns the government’s action is off the mark and means a significant number of New Zealanders are being left out.

“The federation is pleased that officials have acted swiftly to help support New Zealanders during this time, but the decision not to extend the exemptions to personal loans or other credit products at this time will restrict relief for people who will be really needing it,” she explains.

“During consultation, we made clear that home loans and overdrafts were not the most suitable products for the type of lending that people will need to help themselves get back on their feet following such a disaster, as for many people a vehicle or household item is their biggest asset. 

“It is simply logical that products offered by non-bank lenders specialising in lending against household items and motor vehicles would be of greater use to people in these situations.”

McMorran, pictured, adds that more than 48 per cent of personal lending for such items likely to be damaged and needing urgent replacement because of the storms is financed by FSF members alone. About 1.7 million New Zealand consumers and businesses deal with one of its non-bank lenders. 

“That is a significant number of people and it is difficult to see this decision as considering all New Zealanders during this tough time, regardless of which responsible lender, bank or non-bank, they have a loan with.”

McMorran says the FSF told officials last week that neither an overdraft nor a home loan is the appropriate product to provide emergency assistance to people needing funds to obtain accommodation, purchase replacement household goods or a replacement vehicle.

“Only those people in the fortunate position of owning a home can access this type of lending,” she continues. 

“Many of those most severely affected by the flooding of a fortnight ago and the weather event that we are still experiencing will not be in the lucky position of owning a home.”

Furthermore, the FSF says an overdraft as opposed to a personal loan is unsuitable in this context. It explains an overdraft is likely to be unsecured lending and therefore the cost of credit would be greater than that of a personal loan secured over the goods being purchased. 

The fact an overdraft facility does not amortise over a specified term like a personal loan does, will mean the borrower could be left with a hardcore debt with compounding interest being charged on it each month.

Having to obtain an overdraft facility will also “seriously inconvenience someone who is in a desperate situation” and needing to purchase necessary items by requiring them to arrange finance on a transactional account rather than at point of sale. 

The CCCFA requires lenders to ensure the product they are offering is suitable for the purpose for which the borrower requires the credit. 

“This exemption is being provided to allow lenders to offer entirely unsuitable products for the purpose for which it is intended,” adds McMorran.

“The FSF will continue to voice its concerns with officials and hopes a more sensible outcome that ensures people who need assistance can get it will ensue.”

CCCFA fallout

McMorran says the government’s emergency relief package highlights another problem with the CCCFA, which underwent substantial changes at the start of December 2021 but has been dogged by controversy since.

The FSF is still calling for a repeal of the “heavily prescriptive regulations” that have been introduced, saying a regime that requires lenders to treat all consumers as vulnerable by default is unreasonable. It adds it is also one of the reasons for the fallout of restricted lending that occurred subsequently.

“The idea that lenders have to get statutory relief to assist customers in an emergency, suggests the law is fundamentally flawed, and more needs to be done to get this right for New Zealand consumers,” she adds.