Christians Against Poverty New Zealand (CAP NZ) has called on the government to ban flex commissions on interest and insurance.
The religious charitable institution recently published Lifting the Bonnet, a report about unethical practices in the New Zealand vehicle finance industry. In the report, CAP NZ said that the government should follow the lead of the UK and Australia and prohibit the practice, which it says causes many families’ car loans to spiral out of control.
“The higher the interest rate, and the more add-on insurances, the higher the commission is for dealers,” said Michael Ward, CAP NZ senior policy advisor. “So, from the very start, there is an incentive to make car loans as expensive as possible.”
Ward said that one out of every two families that approach CAP NZ for help have “out-of-control car loans stacked with poor-value add-on insurances, exorbitant fees and interest.”
According to Ward, these families are struggling to afford the huge weekly repayments. However, because they rely on their cars to get to work and bring their children to school, families often have to cut back spending on essentials like food and power to avoid the vehicle getting repossessed.
“Our client, Kayla, was sold a defective vehicle on finance, stacked with poor-value add-on insurances – none of which covered mechanical issues,” Ward said. “When her car repeatedly broke down, the mounting costs of continuous repairs and additional insurance expenses led to financial hardship – as well as threats of vehicle and phone repossession. Christians Against Poverty is therefore calling on the government to follow other countries like the UK and Australia in banning flex commissions on interest and insurance.”
CAP NZ also called for a ban on the use of vehicle immobilisers as a punitive measure to force repayment of car loans. It argued that vehicle immobilisers were designed to prevent car theft and that it is inappropriate to use these as a debt collection tools.
“Lenders are making people pay to have vehicle immobilisers installed, and then immobilising their car when they miss repayments,” Ward said. “This is degrading for people, and often dangerous, particularly for those with children.”
