Financial mentors have issues with Gem loans

Gem by Latitude is part of Latitude Financial Services, an Australian based lender, that offers a range of loans, and credit cards to customers here and across the ditch.

You may have heard of them via ads for Gem Visa interest-free deals, which are offered at some big box retailers.

We spoke to two financial mentors who have concerns about Gem by Latitude’s communication, as well as its affordability and suitably checks before accepting loans.

Bad communication

“They are one of the most difficult creditors to get information out of,” said a financial mentor we’ll call Tracy*.

Like the other mentor mentioned in this story, she wants to keep her identity, and the identity of her clients, private.

“You get transferred around, and they say it’s not their department, so you get transferred somewhere else, and that person can’t help you. And you could’ve waited for 20, 30, 40 minutes and I just don’t have the time to sit with someone for 2 hours to make a phone call that should have been answered in 5 minutes,” Tracy said.

So, Tracy sends emails which also have a slow response time.

Another financial mentor, Fred*, said Gem’s emails are, “unprofessional, shoddy and inactionable”.

The mentors are trying to get hold of key documents to understand how much their clients owe, but in most cases they’ve handled, it’s not forthcoming.

Tracy said, in the first instance, Gem doesn’t accept the privacy waivers – which other finance companies and banks have no problem accepting. Then the advisors are given the runaround when they ask for key documents.

Difficulty getting key documents

When you apply for credit the finance company has to complete an affordability and suitability assessment.

This means it needs to check whether you can afford to pay the loan back, and the loan is what you’ve requested and meets your requirements (whether it’s suitable for what you need).

The financial mentors we spoke to said in some cases Gem loaned people more money than they requested, meaning the loans didn’t fit the suitability criteria.

Tracy told us about her client who wanted to borrow $3,000 to buy laptops for her two children to use at school. Yet, Gem loaned her $8,000.

Fred also told us about one of his clients who wanted to borrow $1,300 but was told, “Oh, look you’re eligible for $8,000, we’re going to give you $8,000.”

Fred thinks offering people more money than they’ve requested gives them the chance to buy things they haven’t had the opportunity to save for.

“And it looks so good, and then they not only get enough to get the product, but they get a whole lot more besides, and the hard part is when they can’t keep up with repayments. Then they’re struggling – we face this an awful lot as a service – people get themselves into a bit of a bind and they’re not able to keep up with their bills because they’ve got these high interest loans.”

Lenders are meant to keep a record of the affordability and suitability assessments. But the mentors we spoke to have found these documents hard to come by.

The mentors also have trouble getting hold of full loan disclosures – a document that gives key information to help borrowers understand what the loan costs and the key terms of the contract.

Access to the disclosure documents would enable the mentors to understand the debt and when the lender expects it to be paid.

Having the documents also means the mentor can work out a more suitable payment plan. Or even transfer the loan balance to another provider that doesn’t charge as much interest.

While the mentors wait for the documentation, the interest on the loans is still adding up, putting their clients in further financial distress.

“These are standard documents that everyone in the industry knows about,” said Fred.

Gem’s response

When we raised the mentors’ concerns about getting in touch with Gem by phone or email, a Gem spokesperson said it “consistently meets, or betters, industry standards for customer response times”.

We also asked Gem whether it was confident it adheres to all requirements under the CCCFA; it responded, saying it “takes its obligations to Gem customers very seriously and stringently meets all regulatory requirements. We are readily contactable online via our website or through our call centre, have a dedicated financial counselling team to support customers and recognise all appropriately authorised third-party representatives.”

It also said no customer is leant money they don’t fully consent to. In some cases, “Latitude might advise an applicant that they can apply for a higher amount than they initially sought.”

However, “no customer is compelled or forced in any way to accept a higher limited offer,” and any offer is made after an assessment is made as to whether the applicant can afford to pay the loan back, the spokesperson said.

Yet Gem – who are part of Latitude Financial – is being investigated by the Commerce Commission under the CCCFA.

It’s also the subject of a joint New Zealand and Australian investigation into a data breach in March 2023 by the privacy commissioner in each country. In the breach, Latitude estimated that 14 million customer records were exposed, over a million of which were records of New Zealand customers.

Gem offered to look at the cases the mentors mentioned for this story. However, both mentors were hesitant to identify their clients, and will raise the cases with Gem directly.

A group of financial mentors is meeting with Gem to discuss their concerns in the coming week.

Upcoming law changes?

In April, Andrew Bayly, the minister for Commerce and Consumer Affairs, announced his plan to reform the CCCFA – which sets out the rules lenders must follow when lending money.

The minister said the Government plans to revoke “overly prescriptive affordability regulations” which has “meant it was no longer affordable for many providers to offer small loans.”

Vulnerable “Kiwis were instead forced to borrow from high-interest loan sharks,” the minister said.

While there isn’t a lot of detail in the minister’s announcement, in essence it appears lenders will no longer have to follow the prescriptive affordability assessments. Instead, a more flexible process will be introduced which will differ depending on the amount borrowed.

The CCCFA had been amended in 2021 with the aim of protecting consumers from taking on debt they can’t afford.

However, there were stories in the media about people having to jump through too many hoops to get a loan because lenders had to do more homework on customers’ financial histories. And people who expected to get mortgages, didn’t.

Jake Lilley from FinCap, the umbrella organisation for 900 financial mentors throughout New Zealand, strongly cautions any roll back in protections for consumers in the CCCFA.

“Robust regulations for lenders to conduct affordability assessments and know they are not setting a borrower up to fail are vital,” Lilley said.

“FinCap is concerned about the signalled roll back of regulations that make vital credit protections for consumers unambiguous. Without them we’ll likely be waiting years for courts to sort out the grey areas on the law’s application. Meanwhile many whānau will struggle with unmanageable debts that lenders should have never burdened them with.”

Fred, one of the mentors we spoke to, said since the Commerce Commission has been looking into Gem, there has been some improvement in the handling of hardship cases.

“We have had some success recently, but in the past, we had no success, they always didn’t want to talk to you, or just didn’t respond … they are getting a bit of a wakeup call.”

We think rules that protect consumers from unaffordable loans need to stay.

*The names in this story have been changed to protect privacy.

6 things to check when you take out a loan

1. Ask the lender for the disclosure statement

This statement sets out all the details of your loan, like how much repayments are, how much interest you’ll be charged, and any other fees, such as an establishment fee.

2. The loan documents should be in a language you understand

The lender has to make reasonable steps to provide you with information in a language you understand so you can make an informed decision.

3. Cancelling is an option

By law, you've got a cooling-off period if you change your mind and want to cancel the deal. You have 5 working days from the date you were handed the disclosure statement.

If you cancel a loan for an item, like a fridge or TV, but have already taken the goods home, you’ll still have to buy the items. This means you may have to apply for credit elsewhere if you haven’t got the cash to pay.

4. Try and pay back the loan within the interest-free period

High interest rates will kick in if the loan isn’t paid back within the interest-free period. The current interest rate on the Gem Visa card is 29.49%.

5. Minimum payments are a potential trap

The minimum monthly repayment amount required under the finance agreement may not be enough to pay off your purchase during the interest-free period. Check with the lender the amount that will clear the debt in the interest-free period.

6. Watch out for late payment fees

If you don’t pay the instalment on time, you will be whacked with a $15.00 late payment fee with Gem Visa.

Other options for getting a loan

• Good Shepherd provide interest-free loans for a number of expenses, such as second-hand cars or computers. You can apply for an interest-free loan if your income meets the criteria e.g. if you’re a single person who earns less than $60,000, or a family of four whose yearly income is less than $96,000.
• Ngā Tāngata microfinance also offers interest-free loans to people who are eligible for a community services card, along with other criteria.
• Work and Income NZ may also provide some help with essentials for your home and family.

Getting out of debt

There are several community agencies that can work with you to manage your finances.

• Christians Against Poverty
• Debtfix
• MoneyTalks