A new report by FinCap says the ongoing cost-of-living crisis has led to an increased debt burden for many people. Photo: RNZ
Financial mentors say problem debt isn't only a problem for the lowest-paid New Zealanders, and action is needed to stop debt collectors "deliberately distressing" struggling people.
FinCap, which represents the country's financial mentors, has released its latest Voices report, outlining data for 2024.
It was to be presented at Parliament on Thursday morning.
The report shows mentors are dealing with a growing number of clients, despite the number of people working in the field dropping. From 19,543 closed cases in 2021, there were 25,140 dealt with last year.
The top reason that people were experiencing hardship was the cost of living, responsible for 29 percent of cases.
FinCap said mentors had reported much more engagement with people who might previously have not needed assistance, including those in work and not receiving a benefit, and people with home loans.
Ten percent of the mentors' clients were people who owned their own homes. That is up from 7.5 percent in 2021.
The mentors reported an 88 percent increase in the number of people seeking help who earn more than $1000 a week in the past three years.
One mentor who was not identified, but worked in a regional centre, said they had seen some "really, really well off people".
"In their previous lives, [they] have been extremely well-off, had really, really good jobs. And then just one thing has unravelled and then slightly another thing and then ... Trying to negotiate our systems seems to have caught them out."
People earning more than $1000 a week were spending a median 19.7 percent of their money on groceries, compared to 25 percent for people earning $250 to $499.
One in eight closed cases resulted in a client taking money out of KiwiSaver.
Car loans were 21 percent of all unique debts reported, at a median $10,230.
People with a car loan reported expenses exceeding income by 10 percent, and those without a car loan by 6 percent. But the percentage by which expenses exceeded income had decreased for those with a loan, and risen for those without.
"The ongoing cost-of-living crisis has led to an increased debt burden for many people. Many of the whānau financial mentors work alongside are resorting to KiwiSaver hardship withdrawals just to make ends meet or avoid further debt," FinCap's report said.
FinCap says many consumers feel vulnerable, especially if they are not familiar with the laws governing the debt collection process. Photo: 123RF
Chief executive Fleur Howard said "unreasonable" debt collection practices were making the experience worse.
She said debt collectors did not have incentives to consider the impact of their actions on the people they were chasing for money.
"The consumer protections financial mentors might use to challenge unreasonable debt collection conduct can be unclear or unactionable depending on which industry the debt originated from.
"Debt collection issues can be overwhelming for many whānau who have multiple debts being chased. Interactions with debt collectors can be confrontational, intimidating, and stressful."
Many consumers felt vulnerable, especially if they were not familiar with the laws governing the process.
"They can feel there is no option but to pay unrealistic demands relative to their financial circumstances, despite this meaning they might not be able to afford food to eat."
Debt collectors faulted
Howard said debt collectors were sometimes contacting people unreasonably frequently, calling at unreasonable hours, calling other family members or employers and applying unreasonable fees and interest.
Sometimes people were being coerced into paying debt that had previously been written off.
Howard said the rules on debt collector conduct should be tightened. She said it was still not even possible to tell who the country's debt collectors were.
The line between legitimate behaviour and harassment needed to be more clearly defined.
"Financial mentors tell us they are working with people who are being harassed and coerced by debt collectors at work, at home, and on social media. This can endanger people's employment and embarrass them in front of their communities," Howard said.
She said it seemed deliberately distressing.
"These tactics force people to agree to repay debts they may not be legally responsible for, and repayment plans they can't afford. This can send people into a spiral of missed repayments, and see small initial debts balloon in size.
"There are debt collection agencies who act responsibly, but the lax legal framework creates a wild west situation, where some unscrupulous debt collectors act unethically.
"The Financial Services Reforms Bills currently before Parliament and the government's planned review of the Fair Trading Act are important opportunities to fix the law around debt collection."
The Green Party supported the call for action.
"We support the calls to regulate debt collectors, including greedy behaviour by Buy Now Pay Later companies. We also agree that the government needs to address the core issue by lifting income levels so families can survive without falling into debt or poverty," said Green Party spokesperson for commerce and consumer affairs, Ricardo Menéndez March.
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