ComCom warns vehicle lender over irresponsible loans to beneficiaries

The Commerce Commission expressed concern that the vehicle financier did not meet its lender responsibilities under New Zealand law. Photo/123RF.

The Commerce Commission has issued a warning to a vehicle finance company for failing to meet its responsible lending duties in respect of three loans to beneficiaries.

The commission issued the warning to Dealer Finance Limited (DFL), a Christchurch-based motor vehicle finance lender, after an investigation revealed issues relating to loans given to borrowers between September and December 2015 by DFL's agent Nigel Thompson Motor Company Limited (NTMC), now in liquidation.

DFL provides vehicle finance through 20 Christchurch-based motor vehicle dealers. Each dealer holds a 5 per cent share of the company and acts as an agent for DFL in entering into loans, using documentation supplied by DFL.

"The lender responsibility principles require lenders to ensure that they make reasonable inquiries into whether a borrower can make loan repayments without suffering substantial hardship," said Commissioner Anna Rawlings.

"The commission's concern is that DFL, through its agent NTMC, failed to do that."

In the first case, a beneficiary was given a loan despite telling NTMC she had personal debts of $30,000.

Another case saw a beneficiary given a loan despite having only $1.65 in her bank account at the time of entering into the agreement.

And in the third case, NTMC staff approved a loan to a sickness beneficiary without asking for any documentation other than her passport and driver's licence.

"In all these cases the commission is concerned that either DFL obtained insufficient information about the borrower's financial affairs, or it didn't sufficiently take into account other relevant information," Rawlings said.

"While NTMC was DFL's agent in all three cases, in our view NTMC did not make sufficient enquiries about the borrowers' ability to repay the loan to ensure that DFL complied with its obligations."

DFL has advised the commission that it now ensures its dealers satisfy a checklist of reasonable inquiries before approving finance. It now also reserves the right to undo agreements made by dealers upon review of documentation.

Rawlings said: "We acknowledge that DFL had begun developing its procedures before our investigation and that it has settled the debt of two borrowers."