Banking Ombudsman says repayment holidays still attract interest

The Banking Ombudsman says she is starting to see the consequences for Christchurch residents of both the September and February earthquakes as customers talk to the Banking Ombudsman scheme about their financial situation.

“While it’s pleasing to see that most banking service providers are working closely with their customers in response to hardship issues, we are concerned about what will happen once the initial package of bank and government initiatives comes to an end. We want to ensure that customers fully understand repayment holidays,” Deborah Battell says.

“Repayment holidays can offer significant relief, since borrowers can temporarily avoid paying what is probably their largest bill. But it’s important to remember that interest is added to the loan while payments are on hold. This increases the size of the debt. It means either that repayments will be higher once they resume, or the term of the loan will be longer.”

Ms Battell says customers need to keep talking with their banking service providers about their financial position so that their debt can be managed effectively before they get into arrears and even further into debt.

“Another issue we’ve seen following the earthquake is a number of customers receiving credit card statements with late fees. If customers have not received statements as a result of postal delays, it is most unlikely they would be held responsible for late fees,” she says.

© New Zealand Law Society 2008