It’s hard to ignore the indications of an incoming recession. Rising living costs, increased petrol prices, and inflation at rates we haven’t seen since the days of the GFC. New Zealanders are feeling the financial crush more than ever. While some will manage the economic storms ahead, others will turn to other high-cost loans to manage financial hardships. More New Zealanders will be exposed to greater personal debt and the unregulated “Wild West” of debt collection and buy-now-pay-later (BNPL).

Given the tidal wave of economic hardship on the horizon, we need to pay attention to these overlooked aspects of lending.

Both industries are often overlooked aspects of consumer credit lending—despite the growing evidence of their harm. Poor debt collection practices include using intimidation tactics (like debt collectors dressing as police or court officers) when turning up to peoples’ homes. Other practices include falsifying documents to look like court attachment orders, requiring borrowers to make immediate repayments. Whilst BNPL services are innovative, without the checks and balances of standard loans this is a fast-track to unmanageable debt. Without direct regulation, BNPL companies can decide whether credit checks are conducted, and consumers can sign easily up to all six BNPL services.

Given the tidal wave of economic hardship on the horizon, we need to pay attention to these overlooked aspects of lending. Recent changes to lending laws were met with hostility and unenthusiastic responses from banks, mortgage brokers, and some parts of the lending ecosystem. The ability to obtain financing for a home is important. However, mortages are only one part of the picture, and a balanced assessment of the new lending laws is essential.

Our track record of consumer credit reforms demonstrates that our lending landscape operates as a Wild West.

The newly amended Credit Contract and Consumer Finance Act 2003 (CCCFA) aims to curb irresponsible lending practices, including poor debt collection practices. The goal is to protect all borrowers, and in particular vulnerable borrowers. Think of the safety proofing for appliances, say, toasters. Safety assessments ensure the toaster you buy is fit-for-purpose, not faulty or causing electrical fires. By analogy, the CCCFA provides the safety check for all consumer credit lending.

Our track record of consumer credit reforms demonstrates that our lending landscape operates as a Wild West of sorts in the absence of healthy regulation. History has much to teach us in the present if we will listen to it. Edmund Burke put it best “Those who don’t know history are destined to repeat it”.

We need imaginative thinking around solutions and the role we all play.

Changes to consumer credit regulations have gone some way towards increasing protection for borrowers and ensuring a safer consumer credit lending environment for individuals, whānau, and communities. But regulatory gaps remain, leaving opportunities for lending practices that contribute to financial hardship and unmanageable debt to continue.

Healthy regulation that balances consumer protection and competition in the credit lending industry isn’t impossible. However, it requires the same teamwork and gusto that helped navigate the COVID-19 pandemic. It calls for imaginative thinking around solutions and the role we all play, from Government, policymakers, and the Building Financial Capability sector, to not-for-profit organisations, in ensuring our consumer credit lending landscape is safe, responsible, and fair.