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Is this responsible lending?

A company called Teleloans is putting fake $100 notes in consumers’ letterboxes in an effort to drum up business. A sticker attached to the fake note announces “Emergency cash loan in your bank as soon as today without leaving home!”.

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The sticker has a range of options for contacting the company but nowhere on it is there any information about interest charges or loan fees.

It’s easy to see how consumers struggling to make ends meet might be tempted by the offer of a small loan arranged over the phone. The advertising flyer and headlines on the home page of the company’s website imply borrowers won’t be held back by a bad credit history either, stating “your credit history is history!”. Evidently, all borrowers need is an active phone account. Teleloans’ director Jessica Swanepoel tells us there’s more to it than that: “in fact, a client cannot borrow from us unless they have read and agreed to our full disclosures and authorisations.”

We’re also concerned about Teleloans’ loan-cost information. If you borrow $50 and pay it back over four weeks, the Teleloans’ website calculator shows that you’ll pay back $139.50. That works out as 179 percent interest for the four weeks of the $50 loan. However, on the home page the company states “these loans can cost as little as 5% of the amount you borrow”. It also adds “you may be charged extra fees”.

We hope advertising like this will become a thing of the past when changes to credit law finally come in next June. Under the Credit Contracts and Consumer Finance Amendment Act, lenders will have to follow a set of responsible lending principles. These principles include ensuring advertising practices are responsible. The Amendment Act can’t come soon enough.

A responsible lending code containing more detail about lenders’ obligations is currently being developed. A discussion document on the content of the proposed code has been released by the Ministry of Business, Innovation and Employment. You can read the proposals and make a submission at http://www.consumeraffairs.govt.nz/legislation-policy/changes-to-credit-laws.

Submissions close on 13 August 2014.

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