Consumer NZ warning about dodgy car finance deals
After receiving a complaint from a Wellingtonian who unwittingly signed up for a $30,000 Go Car Finance loan for a car worth $7000, Consumer NZ is warning buyers about just how easy it is to get ripped off.
“In our view, both the dealer and finance company have fallen foul of the law and taken this customer for a ride,” said Consumer NZ investigative team leader Rebecca Styles
Consumer heard from Jimmy, who needed a car for a second job, but due to a bad credit score, was struggling to get finance.
A Gem Cars advert on social media offering finance to people with poor credit scores gave Jimmy hope. Four days after filling in an application on Gem Cars’ website, his loan request was approved.
“Jimmy was told only one car in the car yard was available for him to purchase on finance – and that was a 2007 Toyota with over 115,000kms on the clock,” said Styles.
Desperate for a car, Jimmy agreed to purchase the vehicle sight unseen.
“No one at Gem Cars or the car finance company, Go Car Finance, went through the terms and conditions with Jimmy.
“When Jimmy arrived at the car yard in Hamilton to collect the car, he inspected it, was given the finance documentation and the car keys, then sent on his way by the salesman.”
The car had a sale price of $13,000, but by the time the high-interest rate and a heap of “optional” extras were added on, the total cost for the loan amounted to almost $30,000. A Trade Me car valuation tool estimated the car's value was around $7000.
“We were also alarmed to hear that Jimmy was charged for a 'Go Connect Device’, which allows Go Car Finance to deactivate the engine if Jimmy misses a payment.”
Jimmy's boss, Toby, a qualified accountant, looked over the contract and was appalled by the details. Toby helped Jimmy terminate the contract within the five-working day cooling-off period which borrowers have under the Credit Contracts and Consumer Finance Act (CCCFA).
“The car yard didn't tell Jimmy about the cooling-off period, so he was lucky his boss was able to provide him with sound advice.”
Under the CCCFA lenders must exercise the care, skill and diligence of a responsible lender. This includes making sure the loan is both suitable and affordable.
“Although Go Car Finance appears to have checked the loan was affordable for Jimmy, we have seen no evidence it checked the loan was suitable.
“We also don't think Jimmy was given all the information he needed to make an informed decision about whether to enter into the loan. It's highly likely that Go Car Finance, in this instance, has breached its obligations under the CCCFA.”
The add-ons Jimmy was sold included mechanical breakdown insurance, a restart waiver, a maintenance package, and the Go Connect Device.
“Jimmy doesn't recall discussing these add-ons or agreeing to purchase them. We think Gem Cars misled Jimmy about these products, breaching the Fair Trading Act.”
Over the last two years, the Commerce Commission has received 53 enquiries about Go Car Finance. The Commission opened an investigation into Go Car Finance in October 2021, and this is ongoing.
Financial mentors and social agencies around the country have complained to the Commerce Commission about Go Car Finance's "systematic irresponsible lending.”
Ruth Smithers, CE of FinCap, agrees, saying “too often we’ve heard of issues involving this lender concluding with a whānau having no car to show for a huge debt. It makes it even harder for them to keep food on the table.”
Calling for change
Consumer NZ supports The Salvation Army, FinCap and Christians Against Poverty (CAP) in their call for an investigation into the car finance sector.
“Our most vulnerable people are at risk of significant financial harm because of the way things are currently done,” said Styles.
Consumer supports the call for changes in the way car finance and add-on products are sold, including the following:
- Introducing a ban on car dealers deciding on the interest rate for finance deals.
- Setting limits on the amount of commission a car dealer can earn from selling add-on insurance products.
- Stopping payment for add-on insurance products being rolled into the finance deal. This would mean consumers aren’t paying interest on the add-ons.
- Implementing a four-day pause between the promotion and sale of add-on insurance products.
- Banning immobiliser devices.
- Reducing the amount of interest that can be charged on loans. The current cap is 0.8% per day.