Debt and Consumer Rights: Essential Information You Shouldn’t Ignore

Debt is a part of life for many people. Whether it’s a student loan, credit card debt, or a mortgage, many people have some form of debt. While some debt is necessary to achieve goals such as education or homeownership, too much debt can be overwhelming and can impact your financial well-being and credit score. It’s important to know your consumer rights when it comes to debt so that you can protect yourself and make informed decisions about your finances.

In New Zealand, there are several laws and regulations in place to protect consumers when it comes to debt. The Credit Contracts and Consumer Finance Act (CCCFA) sets out rules for lenders and credit providers, including disclosure requirements, fees and interest rates, and responsible lending obligations. The Financial Markets Authority (FMA) also regulates the financial industry, including debt collection agencies. 

Here are some essential things you should know about debt and consumer rights in New Zealand: 

1. Understanding Your Credit Report: Your credit report is a record that contains your borrowing history, any loans or credit cards you have, the number of outstanding debts that you have, and your repayment history. It’s very much important to check your credit report regularly to ensure that there are no errors or fraudulent activities going on. You can also get a free copy of your credit report from credit reporting agencies like Equifax or Centrix. 

If you’re having a poor credit score, then it can impact your eligibility to get credit or borrow money in the future. However, the Credit Reporting Privacy Code specifies some guidelines that credit reporting agencies must follow when collecting, using, and disclosing your credit information. Additionally, if you think the information on your credit report is incorrect, you also have the right to ask for a revision.

1. Responsible Lending: In order to ensure that borrowers can afford to repay their loans, lenders and other credit providers have a responsibility to lend money responsibly. The CCCFA provides some responsible lending principles that lenders must follow, verifying a borrower’s capacity to pay back a loan, avoiding offering money to someone who will not be able to pay it back, and giving clear and explicit information regarding the loan. 

If you think a lender has not followed the standards of responsible lending, you can also make a complaint to the lender or to the FMA. The FMA has the authority to impose sanctions on lenders who have violated the CCCFA.

1. Debt Collection:  If you are unable to repay your debts, you may receive calls or notices from debt collection agencies. Debt collection agencies must follow rules set out in the Fair Trading Act and the CCCFA, including not harassing or threatening borrowers, also not using misleading tactics, and not charging unreasonable fees.

Additionally, you have the right to negotiate with debt collection companies and ask them to stop contacting you. You can file a complaint with the Commerce Commission if you think a debt collection agency has violated the law.

1. Bankruptcy and Insolvency: If you are unable to repay your debts, you may consider declaring bankruptcy or entering into an insolvency agreement. Bankruptcy is a legal process where you declare that you are unable to pay your debts, and your assets are sold to repay your creditors. Insolvency agreements are similar but allow you to keep some assets, such as your home or car. 

While bankruptcy and insolvency can help you get out of debt, they can also have long-term effects that can make it harder for you to get credit or loans in the future and negatively affect your credit score. It’s important to take professional advice before considering bankruptcy or an insolvency agreement.

1. Debt Consolidation: Debt consolidation is a way to combine multiple debts into one loan with a lower interest rate. This makes it easier to manage your debts and reduce your overall interest payments. However, it’s important to be aware of the fees and charges associated with debt consolidation loans and to consider whether this option is right for you or not.

The advantages of debt consolidation include consolidating your debts into a single, easy-to-manage payment, perhaps lowering your overall interest rate, and lowering your monthly payments. Disadvantages may include paying more interest in the long term, additional fees, and the risk of taking on more debt if you continue to use credit cards or loans.

1. Seek Professional Advice: If you’re struggling with debt, it’s important to seek professional advice. This may include speaking with a financial advisor, a debt counselor, or any budgeting services. These professionals can help you create a plan to manage your debts, negotiate with lenders or debt collection agencies, and provide advice on options such as debt consolidation or bankruptcy that may help you out.

There are various free and confidential debt-assistance services available in New Zealand, including the New Zealand Federation of Family Budgeting Services, the Citizens Advice Bureau, and the Ministry of Social Development. These services might help you manage your debts and improve your financial status.

Despite the fact that debt can be debilitating, it’s also vital to remember that it’s not always a bad thing. Responsible borrowing can help you achieve your goals and improve your financial status, such as getting an education, purchasing a home, or starting a business. 

However, avoid taking on more debt than you can afford to pay off, and handle your debt wisely. This means setting a budget, tracking your expenses, and avoiding unnecessary expenses. It also means giving priority to paying down the debt and exceeding the minimum payments whenever possible.

By understanding your consumer rights and managing debt responsibly, you can improve your financial situation and avoid falling into a debt cycle. Take the time to find out about your options and ask a professional for advice if you need assistance. With the right tools and support, you can take charge of your finances and reach your goals.

In conclusion, debt is a part of life for many people, but it’s important to understand your consumer rights and make informed decisions about your finances. Knowing your rights in terms of credit reporting, responsible lending, debt collection, bankruptcy, and debt consolidation can help protect and improve your financial well-being.