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Couple shocked car loan repayment ‘waiver’ did not cover job loss

Couple shocked car loan repayment 'waiver' did not cover job loss
Written by Publishing Team

The repayment waivers sold with some auto loans are so poor value for money that the Commerce Commission calculates the probability of a customer's claim being approved at only 2 percent.

Nick Reed / Staff

The repayment waivers sold with some auto loans are so poor value for money that the Commerce Commission calculates the probability of a customer’s claim being approved at only 2 percent.

An investigation by the Financial Services Complaints Service found that loan repayment “waivers” on two auto loans had proved fruitless for the financially strapped couple.

A repayment waiver is a form of quasi-insurance that exempts borrowers from repaying when they are unable to work. But they were investigated by the Commerce Commission last year after complaints from financial advisors.

The commission found that each year, about 40,000 payment forgiveness was sold by lenders to borrowers. While they paid a combined premium of $35 million, they were so low for money that only $4 million in loan repayments per year were waived.

Susan Taylor, Chief Financial Services Complaints (FSCL) has warned consumers considering paying for a repayment waiver to ask themselves if it is fit for purpose, and to check that they understand the circumstances in which they can file a claim.

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Taylor said the couple complained after one of them took a job after a business dispute, but were shocked to discover it wasn’t included in the repayment waivers, despite him being jointly liable for repayment, and being the highest earner.

The borrower quit his job after the mediation failed.

The man complained to the FSCL that exemptions should have covered him and his job loss.

He claimed that the concessions were not fit for purpose, and the lender did not explain properly.

Taylor has found no evidence to support these claims, nor is there evidence to explain why only one borrower was covered.

Susan Taylor, CEO of Financial Services Complaints, says consumers need to realize that loan forgiveness generally add to a borrower's loan, leading to higher interest charges.

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Susan Taylor, CEO of Financial Services Complaints, says consumers need to realize that loan forgiveness generally add to a borrower’s loan, leading to higher interest charges.

You find no evidence that the lender was at fault.

“Unfortunately, in this case, even if the waivers did cover him, they wouldn’t be applicable to losing his job anyway, because the waivers didn’t cover job resignations,” she said.

She said the lender had offered to create an affordable payment plan for borrowers.

“If an affordable repayment plan is found, the lender will reverse the default interest that it has charged on the loan,” she said.

Taylor said the complaint precedes new lending regulations that require lenders to keep accurate records of the decision-making process.

“Now, with the recent legal changes, they’ll need records showing why the reimbursement waiver only covers one of the two.”

Taylor didn’t know if that would change the outcome of the complaint, but “in the absence of record keeping, we may give more weight to the borrower’s recall.”

She said consumers need to be careful to understand what they are buying.

They also needed to recognize that loan waivers were generally paid by the lender adding a one-time premium to the borrower’s loan, which resulted in them paying higher interest fees, she said.

This graph was created by the Commerce Commission, and was published in its November report on auto finance

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This graph was created by the Commerce Commission, and was published in its November report on auto finance “Additional Jobs.” It shows the difference between the amount “waivered” by lenders in payments and the amount that consumers pay in retail installments for payment waivers each year.

Under FSCL rules, the identity of the lender remains confidential.

Taylor expected the Commerce Commission to continue to investigate the repayment waivers.

The committee identified five lenders selling repayment waivers, Auto Finance Direct, Go Car Finance, Motor Trade Finance, Oxford Finance and Thorn Group Financial Services.

It found that the probability of the customer being asked to waive and agree to this claim was only 2 percent.

“I think it’s on their work radar this year to take a good look at some of these payment waivers,” Taylor said.

In its November report on auto finance “additions,” which include payment waivers, the commission said its research will guide its future work in law enforcement.

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