Watchdog targets high-cost lenders

A number of high-cost lenders have cut their interest rates or stopped doing business after coming under scrutiny from the Commerce Commission.

It follows a review of high-cost lenders by the watchdog in the wake of specific rules introduced in 2020 under the Credit Contracts and Consumer Finance Act (CCCFA).

Louise Unger, the commission’s general manager credit, says with such lenders charging at least 50 per cent in interest per year, the new rules were vital to provide added protections for borrowers.

“Since the rules were introduced the high-cost lenders that we reviewed have either exited the lending market or reduced their interest to below 50 per cent,” she explains.

“These changes have been encouraging to see, particularly as some lenders traditionally charged up to 800 per cent in interest. The reduction of interest rates has led to a cheaper cost of finance for borrowers and prevents potential harm and financial detriment.”

As part of the review, the commission identified a number of lenders whose conduct raised concern under the high-cost rules resulting in enforcement. This included formal warnings and civil proceedings filed in the High Court.

“We have also successfully secured more than $70,000 in remediation to affected borrowers from lenders who were investigated,” adds Unger, pictured.

Specific rules for high-cost lenders require them to cap interest and fees at 100 per cent of the total loan amount, the interest rate charged per day is capped at 0.8 per cent, lenders are restricted from making high-cost loans to some repeat borrowers, and lenders have additional disclosure obligations.

For more information on the obligations of lenders, click here.