The online top-up that skipped verification
Mere, 29, is a customer service team leader earning $72,000. She applies online to PocketCredit for $28,000 to consolidate a $9,000 credit card, $6,500 of buy-now-pay-later debt, $4,000 of car repairs and an $8,500 “buffer”. The application takes nine minutes. Expenses are pre-filled at $1,450 a month using a single-person Auckland benchmark. Mere’s actual rent is $520 a week, groceries $160 a week, transport $90 a week and childcare $220 a week. PocketCredit does not request bank statements or verify the BNPL accounts; it checks only her credit report. It approves the loan at 27.9% p.a. with a $780 establishment fee and a $15 monthly account fee over five years. Initial disclosure is emailed two days after the funds are paid out. Mere misses her fourth payment and says she did not realise the repayments would be $710 a fortnight.
1. Identify the lender responsibility and disclosure failures in PocketCredit’s process and explain what a compliant affordability assessment would have required.
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The core failure is that PocketCredit did not make reasonable inquiries into Mere’s income and expenses before entry. Pre-filling a benchmark and treating it as her expenses is not inquiry: her actual rent, childcare and transport alone exceed the $1,450 figure. The Responsible Lending Code expects verification proportionate to the loan. For a $28,000 unsecured consolidation loan, that means at least 90 days of bank statements, confirmation of the BNPL balances and repayments, and checking whether the credit card would actually be cleared. The lender should have calculated a realistic surplus after all commitments, tested the repayment at a higher interest rate, and considered whether the loan met her need without causing substantial hardship.
The late initial disclosure is a separate breach. Fees, interest, total cost and repayment amounts must be clear before the borrower enters the contract. Emailing disclosure after drawdown undermines the borrower’s ability to compare or cancel. A compliant file would record the verified figures, the stress test, alternatives considered and the reasons for approval. The $780 establishment fee also needed to be justified and clearly disclosed as part of the total cost.
2. Mere complains to an approved dispute resolution scheme seven months after drawdown. What remedies and evidence issues arise, and how should the lender respond?
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The complaint should be treated as alleging both unsuitable lending and inadequate disclosure. Possible remedies include cancellation or variation of the contract, refund of unreasonable fees, compensation for loss, and a payment arrangement. The lender should not defend the file simply by saying Mere signed the application. Its own records show reliance on a benchmark, no bank statements and late disclosure, which weakens any claim that it took reasonable steps.
The lender should reconstruct the position using actual bank statements from the time of application, recalculate surplus and repayment capacity, and compare what it did with the Responsible Lending Code. It should acknowledge the late disclosure if the email evidence confirms it, review whether the establishment fee reflected actual cost, and consider whether the balance should be reduced or the term varied. It must also preserve all application logs, the pre-filled expense field, credit checks, disclosure emails and call notes. A without-prejudice settlement may be appropriate, but the lender should first assess whether the conduct is systemic; if other borrowers were approved through the same benchmark, that raises a Commerce Commission notification and remediation issue.