New Zealand’s P2P lending sector might be a brave new world, but it is still covered by the lending obligations and practices laid out in the The Credit Contracts and Consumer Finance Amendment Act and the code which accompanies it.

Harmoney chief operating officer Brad Hagstrom said there is absolutely no difference between P2P lenders and other lenders when it comes to the Responsible Lending Code.

“We are a personal lender so we have to abide by the code and by credit control legislation and apply the code to our service.

“Just as all responsible lenders do, we thoroughly assess our applications and the product options available to borrowers that we are dealing with and see what it is best to offer them.”

It is in the best interest of Harmoney’s investors and in the company’s interests as a lender too, he said.

Many of Harmoney’s management staff have a background in Australia where a Responsible Lending Code was introduced several years ago.

Hagstrom said this means they were used to complying with responsible lending criteria before the code was introduced in New Zealand.

“We knew a similar code would be introduced here, so we have simply applied that same rigour to our applications here.”

Some lenders have said the code makes for a significantly increased workload.

Hagstrom said there is more work than there used to be to ensure that someone is eligible for, and can service, a loan.

“But there are a lot more, and better, resources and technology to allow you to find the accurate and comprehensive information that you need.”

For Squirrel Money managing director John Bolton, the problem with the code is its interpretation in unusual situations.

The code is not written in a way that gives clarity for every borrower and every situation, and it was aimed at dodgy loan sharks and payday lenders who lend to people who can’t afford to borrow, he said.

“Money is a bit like a drug and it’s easy for people to dig themselves into a hole. It is the responsibility of a lender to make sure that doesn’t happen. But the regulations around that are not perfect.

“Therefore you can get problems when you have a good person in an unusual situation where the Code is not so relevant.”

As an example, Bolton cites the case of a woman whose husband had died suddenly.

She wanted to borrow in order to go away and grieve for a few months. The women had low debt levels and was planning to sell her house in the near future.

The woman’s case is not clear-cut, but he doesn’t think it would be irresponsible to lend to her.

“Alternatively, if someone has a low income, high debt and is wanting to borrow more to buy another car… That is irresponsible lending.”

In Bolton’s view, it is necessary to look at every situation on a case-by-case basis and P2P lenders can often be more flexible because they are not governed by the type of black and white rules that traditional lenders are.

But that does not make P2P lenders a walkover for bad lending, he said.

“We are probably more conservative than the banks in terms of bad credit. We don’t want to write bad loans. For us, it would impact on our reserve fund. For Harmoney, it would impact on their investors.

“Ultimately, it is all about making sure that we are doing what is best for the borrowers and about being responsible lenders in the process.”

Lend Me CEO Marcus Morrison said his company, which is aiming to launch later this month, takes its responsibilities under the code very seriously.
“Our rigorous, comprehensive credit assessment minimises the chances for borrowers to overcommit themselves to loans they are not able to repay.

“If an individual’s financial circumstances change, we encourage borrowers to get in touch with us immediately so we can work with them to reach a satisfactory solution.”