One in five online lenders reviewed by the Commerce Commission failed to comply with disclosure rules under the Credit Contracts and Consumer Finance Act.
The commission's been in contact with the lenders and informed them of the potential breaches and asked them to address the problems. The commission says it will be following up later in the year and will consider further action if the lenders have failed to comply by that stage.
The commission reviewed 215 selected lenders’ websites between May and December of last year. While the review was for the commission's own internal purposes, it decided to release its report publicly.
The review didn't cover the major banks, who will be the subject of a separate review by the commission.
The review covered:
- Whether the lender had published its standard form contract terms and costs of borrowing clearly and prominently as required under the law
- What the lender had represented about the borrower’s right to cancel the contract
- The number of fees charged, their names and the amount charged
- The published interest rate for each lender.
“Our review has shown that 46 or 21% of the lenders included in the review potentially failed to comply with one or more of their obligations to clearly and prominently display costs of borrowing, standard form contract terms and accurately represent a borrower’s cancellation rights,” Commissioner Anna Rawlings said.
“Failure to disclose this information breaches the CCCF Act and deprives consumers of information that would assist them to make informed credit choices. We contacted all of the lenders covered by the review to remind them of their responsibilities. While most lenders have shown a willingness to make changes, we will be checking back later in the year and will consider further action if they have failed to comply.”
The CCCF Act does not cap interest rates, prescribe how lenders should name fees or impose a limit on the number of fees a lender may apply.
“We observed significant variation in interest rates and fees. The review found interest rates ranging from no interest at all, all the way through to 803% per annum. We also found more than 500 names used for fees ranging from $5 to $5,000,” Rawlings said.
“Overall, this review provides a good insight into the information being provided to consumers and some of the difficulties consumers may face in trying to access and understand the true costs of borrowing, comparing lenders, and making informed borrowing decisions.”
The Commission said lenders covered by the review were compiled from a range of sources. This included Commission enforcement registers and complaints data and lenders registered on the Financial Services Providers Register as providing consumer credit contracts.
Under the CCCF Act, the Commission can seek an injunction through the Courts if a lender does not comply with their website disclosure obligations. Failure to comply with other aspects of the CCCF Act can result in prosecution and fines of up to $600,000 per offence.