Consumers lack loan knowledge

A survey shows many consumers have a low level of knowledge about loans and they are now being urged to swot up on their rights when they borrow money or buy something on credit.

The Ministry of Business, Innovation and Employment (MBIE) says if someone takes out a loan and finds a better deal within five working days, they can cancel the original loan, but a recent study shows only one in five people know this.

Mark Hollingsworth, national manager, consumer protection, explains some knowledge of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) is vital, to ensure people understand their rights when they borrow money or buy something on credit.

Almost half of respondents to the 2020 New Zealand Consumer Survey took out a loan, bank overdraft, or other hire purchase agreement to pay something off in the past two years.

Results from the study show about one in three of those surveyed have not heard of the CCCFA, five per cent are unaware of the Consumer Guarantees Act 1993, and six per cent do not know about the Fair Trading Act 1986.

People most likely to have not heard of the CCCFA are families at 45 per cent, those aged 18-26 on 43 per cent, or 27-36 years on 36 per cent. The results show 32 per cent of women and 35 per cent of people living in Auckland were also unaware of the legislation.

The survey reveals those most likely to have entered into a credit contract include those aged 27-46 years on 55 per cent, Pacific consumers on 57 per cent, or 53 per cent of those with an annual household income of more than $100,000. Other substantial groups for taking out loans are Maori consumers at 54 per cent and those in paid employment on 51 per cent.

“In today’s increasingly dynamic and evolving consumer finance and credit marketplace, and given the steady rate and diverse range of people entering into credit contracts, it’s important people have a robust knowledge of the CCCFA and are fully equipped to transact with confidence,” Hollingsworth says.

“Our research helps enable us to report on emerging trends, so we can identify key population groups who most need advice and guidance, and ensure interventions are targeted to where they’re needed most.”

The Consumer Protection website offers resources and information for consumers understand their rights, including a “Shopping for a loan” fact sheet.