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Responsible Lending – What is this all about?

photo of Raewyn FoxRaewyn Fox
Chief Executive, Family Budgeting Services

On 6 June 2015 a new requirement for all lenders comes into law. It is the Code of Responsible Lending. This code gives guidance which all lenders must follow for all loans made from 6 June. So why is this important?

Many community workers working with low income clients constantly see the effects that unaffordable loans are having on families. The size of loan repayments is causing families to suffer financial stress and often results in a family going without food. In theory this is about to change. esponsibilities for lenders under this new code mean that;

  • Lenders must help borrowers and guarantors to make an informed decision
  • Lenders must make reasonable enquiries into loan affordability for the borrower
  • Lenders must act responsibly and ethically
  • Lenders must make sure their loans are not oppressive

After a loan has been taken out, sometimes the financial situation of a family can change and payments that were affordable at the beginning are no longer feasible causing real hardship. If a borrower is suffering unforeseen hardship, there are also responsibilities for the lender to follow to help address a hardship situation.

This all sounds very positive and helpful but will only work if borrowers understand their rights. Along with rights go some responsibilities for the borrower to make these law changes really effective to address the hardship and poverty caused by unaffordable loans.

Our organisation has developed a ‘Code of Responsible Borrowing’ to support this new legislation. Our code says that;

  • Borrowers must work out a budget before considering a loan so they know they can afford repayments
  • Borrowers must be sure they know what they are signing
  • Borrowers should provide accurate information
  • Borrowers should tell their creditors when an unexpected life event makes repayments difficult

I encourage everyone reading this article to spread the information far and wide so this new opportunity can make a real difference to those that are suffering. If you need any more information, go to www.familybudgeting.org.nz where you will find more information and contact details for anyone who needs help.

Oppressive loans are only one of the causes of poverty but one that we can do something about, so let’s do it.