Couple shocked car loan repayment ‘waiver’ doesn’t cover job loss
Nick Reed / Stuff
The refund waivers sold with some auto loans are extremely poor value for money, with the Commerce Commission calculating the chance of a customer’s application being approved is just 2%.
Loan repayment ‘waivers’ on two auto loans proved worthless to a couple who struggled financially, a Financial Services Complaints Department investigation has found.
Repayment waivers are a form of quasi-insurance that exempts borrowers from making repayments when they are unable to work. But they were investigated by the Commerce Commission last year after complaints from financial mentors.
The commission found that every year about 40,000 repayment waivers were sold by lenders to borrowers. Although they paid combined premiums of $35 million, their value for money was so poor that loan repayments of just $4 million a year were forgiven.
Susan Taylor, chief executive of Financial Services Complaints (FSCL), warned consumers considering paying for a refund waiver to consider whether it is suitable for their purpose and to check that they understand the circumstances in which they may make a refund waiver. complaint.
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Taylor said the couple complained after one of them stopped working following a labor dispute, but were shocked to find he was not included in the waivers of reimbursement, although he is jointly liable for reimbursements and is the highest earner.
The borrower quit his job after mediation failed.
The man complained to the FSCL that the waivers should have covered him and his job loss.
He claimed the waivers were not fit for purpose and were not properly explained by the lender.
Taylor found no evidence to support these claims, nor any evidence as to why only one of the two borrowers was covered.
She found no evidence that the lender was at fault.
“Unfortunately, in this case, even if the waivers had covered him, they would not have been applicable to his loss of employment anyway, because the waivers did not cover resignations,” she said.
The lender has offered to put in place an affordable repayment plan for borrowers, she said.
“If an affordable repayment plan could be reached, the lender would waive the default interest they had charged on the loan,” she said.
The complaint predates new lending regulations that require lenders to keep accurate records of decision-making, Taylor said.
“Now with the recent changes in the law, they would need documentation showing why the refund waiver only covered one of the two.”
Taylor wasn’t sure if that would have changed the outcome of the complaint, but “when there’s no record keeping, we can put more weight on the borrower’s recollection.”
Consumers had to be careful to understand what they were buying, she said.
They also needed to realize that loan repayment waivers were usually paid for by the lender by adding the one-time premium to a borrower’s loan, causing them to pay higher interest charges, she said. declared.
According to FSCL rules, the identity of the lender is kept secret.
Taylor expected the Commerce Commission to continue investigating the refund waivers.
The commission identified five lenders selling refund waivers, Auto Finance Direct, Go Car Finance, Motor Trade Finance, Oxford Finance and Thorn Group Financial Services.
He found that the probability of a waiver client requesting and that request being approved was only 2%.
“I think it’s on their work radar this year to take a closer look at some of these refund waivers,” Taylor said.
In its November report on auto finance “surcharges,” which include refund waivers, the commission said its research will inform its future enforcement work.