New Credit Act leaves lenders in the dark

At a time when New Zealanders are borrowing more and more, the new Credit Act offers less information about loans than in the past.

The Government apparently decided flaws in the old rules were too hard to fix - despite the more than doubling of household debt as a proportion of income since 1990.

Household debt at the end of last year totalled $116 billion, or $29,000 for every New Zealander, says the Reserve Bank. About 90 per cent of that is mortgages, although the mortgage total includes borrowing against houses to finance other spending.

The issue arose after the Weekend Herald revealed last week that holders of term deposits receive infrequent interest payments unless they specify otherwise. This can leave people hundreds and sometimes thousands of dollars out of pocket.

While banks say they offer different interest payment schedules, many customers don't recall being given such options. The British system requires financial institutions to publish "annual percentage rates" on loans and "annual equivalent rates" on term deposits and similar products.

These take into account not only interest charges but payment timing differences and fees. They make it easier to accurately compare different companies' offerings.

New Zealand used to require a similar "finance rate" for loans, but not for term deposits and so on.

But under the Credit Contracts And Consumer Finance Act, which took effect on April 1, the finance rate is no longer required.

"Lots of people didn't understand the finance rate," says Graham Gill of the Commerce Commission.

"And there appeared to be problems in the industry in calculating it, as some lenders included some fees and others didn't.

"Now lenders put straight interest rates and fees separately."