Opinion on consumer finance laws
This omnishambles it the confluence of a wish by legislators to get loan sharks and the laws of unintended consequences.
Both the legislation and this court case revolves around using fees as a profit centre rather than for the recovery of costs. The legislation tries to prevent this but ended up being over-broad and overreaching.
Previously in order to appear competitive some lenders and retailers would advertise a low interest rate and then seek to recover this discounting with masked fees.This was viewed by the legislators as a deceptive practise.
Rogers point about the recovery of profit margins is a valid one. The doctrinaire approach by MBIE that all profits should be recovered through interest charges is bad because there is no reason that I can think of that makes a disclosed explicit charge for the lenders profit abhorrent and as Roger points out in some circumstances is the more reasonable approach.
My solution to this would be to allow loans with a less rule bound approach where the loan is tied to a physical purchase and this purchase secures the loan on a non recourse basis.
Non recourse loans are where the recovery of a loan in default is limited to the item used as security. So if a lender loans shonkily to an at risk borrower it more likely to blow up their face with less prospect of a full recovery. This in my opinion will do more to encourage responsible lending than poor rules badly enforced by MBIE.
My idea would divert MBIE efforts to where it is really needed, cash advances from pay day lenders
Boop boop de do
Marilyn