The Commerce Commission has warned Hamilton-based WeCare Finance Limited that, in the Commission’s view, it likely breached the lender responsibility principles of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) by failing to make reasonable enquiries about whether a borrower could repay a loan and in unreasonably repossessing a motor vehicle.
In the Commission’s view, WeCare Finance failed to:
- exercise the care, diligence and skill of a responsible lender before entering into a loan agreement
- make reasonable inquiries before entering into the loan agreement, so as to be satisfied that it was likely that the borrower would make the repayments without suffering substantial hardship
- treat the borrower reasonably and in an ethical manner when it repossessed her vehicle
In October 2017 WeCare Finance lent $5,490 to a Hamilton borrower to buy a car. The total amount that she had to repay, including fees, interest and insurance was $10,495.68 over three years. In August 2018 the Commission opened an investigation into the circumstances of the loan following a complaint from a financial mentor.
The borrower’s application stated that she and her partner had a total income of about $600 per week and total expenses of $150. A bank statement provided to WeCare Finance showed expenses that were, in fact, about the same as the joint income.
“We think it’s important to bring the facts of this case to the attention of other lenders because, in our view, WeCare Finance did not meet the lender responsibility principles (LRPs). It did not make reasonable inquiries about the borrower’s ability to afford the loan. It took into account her income and her then-partner’s income but he was not a party to the loan and in our view,
WeCare should not have taken his income into account. WeCare also failed to make reasonable inquiries into the borrower’s expenses given that information contained in the bank statements was not consistent with the information provided by the borrower,” said Commission Chair Anna Rawlings.
The borrower missed two payments in early 2018 and subsequently arranged with WeCare Finance to reduce her repayments. At the time WeCare Finance noted that the borrower had separated from her partner. A further reduced repayment was missed and the borrower then entered into a No Asset Procedure (NAP). WeCare Finance repossessed the car on the same day it was advised of the NAP without notifying the borrower on the basis that the car was “at risk”.
“During our investigation WeCare accepted that it did not have grounds to repossess the vehicle on an ‘at risk’ basis simply because the borrower entered the NAP. The vehicle was not about to be destroyed, damaged or disposed of. In our view WeCare did not treat the borrower reasonably or ethically when it arrived at her home, without prior notice, and repossessed her vehicle without the right to do so,” said Ms Rawlings.
WeCare Finance advised the Commission that a staff member had acted outside the scope of its internal practice guidelines when it repossessed the borrower’s vehicle on an “at risk” basis. As a result of its discussions with the Commission, it has now revised its consumer lending and repossession policies and it has also addressed the borrower’s complaint directly with her.
The warning letter to WeCare Finance can be read on our case register.
No Asset Procedure
A No Asset Procedure (NAP) is a way for a person clear their debts if they have no way of paying them. It doesn’t have as many restrictions as bankruptcy, but it will have an impact on the person’s credit rating and possibly their employment prospects. It is administered by the Insolvency and Trustee Service.
Lender Responsibility Principles
Lenders entering into consumer credit contracts after 6 June 2015 are required to comply with the lender responsibility principles, as set out in the CCCFA.
These include that lenders must make reasonable inquiries, before entering the agreement, to be satisfied it is likely the borrower will make repayments without suffering substantial hardship.
Responsible Lending Code
The Code provides guidance as to how lenders can comply with the principles. It includes the type of enquiries a lender should make into a borrower’s income and expenses, and it specifies that more extensive enquiries should be made if the borrower is vulnerable.
The Code is not legally binding, but if lenders comply with it that will be treated as evidence they complied with the principles.
A warning explains the Commerce Commission’s opinion that the conduct at issue is likely to have breached the law. Only the Courts can decide whether a breach of the law has in fact occurred.
The purpose of a warning letter is to inform the recipient of the Commission’s view that there has been a likely breach of the law, to suggest a change in the recipient’s behaviour, and to encourage future compliance with the law.