The Commerce Commission says it has issued a warning to Rapid Loans NZ Limited (Rapid Loans) about a loan it issued to a vulnerable borrower.

It says Rapid Loans has been warned that it is likely to have failed to comply with the lender responsibility principles set out in the Credit Contracts and Consumer Finance Act 2003.

In the Commission’s view, Rapid Loans failed to make reasonable inquiries into the borrower’s income and expenses and could not be reasonably satisfied that the borrower could afford the payments on the loan without suffering substantial hardship.

“The CCCF Act is clear that lenders must comply with the lender responsibility principles. In this case, we think Rapid Loans failed to do so and that this was not responsible lending,” says Commissioner Anna Rawlings.

The Commission says it received a complaint from a budget advisor that a borrower had suffered substantial hardship as a result of making payments on a Rapid Loans agreement.

It says its investigation showed that the borrower had borrowed to meet repayment obligations on existing loans from Rapid Loans. Rapid Loans advanced her $1,850 in April, she defaulted on that and Rapid Loans advanced her a further $2,500 in September 2016. On both occasions the borrower was also at her overdraft limit. She defaulted on the second loan within a few weeks.

“We consider that Rapid Loans failed to make inquiries about the borrower’s circumstances and it incorrectly assessed her income and expenses. For example, it made no allowance for the borrower’s rent or power, and it treated cash withdrawals as discretionary spending, when there was no reasonable basis on which to do so,” says Ms Rawlings.

“In our view the borrower was likely to be vulnerable because of her existing levels of debt and that, because of this, Rapid Loans should have made more extensive inquiries to be reasonably satisfied that she could afford the loan."

The Commission says Rapid Loans has advised it that it has revised its processes for affordability assessments and made significant investment into its own software, allowing it to capture more data.