How to Make a Complaint About Your Car Loan
Have you signed up to a car loan rip off? Our definitive New Zealand guide explains how to effectively lodge complaints against car lenders for unfair practices, unaffordable loans, and more.
Updated 22 February 2024
Introduction
- Throughout New Zealand, many car loans are, at best, unfair and, at worst, illegal. This 1News story from August 2023 highlights the money bad players in the industry being made from uninformed borrowers.
- Our view is simple: Too many car loans have financially destroyed hard-working New Zealand families because they're structured as long-term and unaffordable debts.
- Government legislation was designed to protect borrowers from unfair lending practices. However, some lenders include potential penalties in their fees and interest rates and continue to make unaffordable loans because the profits are high (and the risks of such penalties are low).
- Budget Advisors throughout New Zealand routinely work with people who are sinking because of car loan debt. The risk of signing up for an unaffordable car loan is still high despite law changes to protect consumers.
The good news is that if you have an unaffordable car loan, you have rights and can get help. If you feel that your lender has not acted in your best interest, whether it's due to misleading information, unfair contract terms, or improper conduct, you can make a complaint and demand the loan be changed.
Our guide sets out how to effectively make a complaint and get a resolution to an unaffordable loan. We aim to empower New Zealanders with the knowledge to assert their rights and seek resolution when they believe their car finance provider has wronged them.
Related resources:
Financial Hardship: If you're facing hardship and are struggling to make a car loan repayment, our dedicated hardship guide has more details and explains your options.
Beyond Complaints: While understanding how to make a complaint is crucial, knowing the formal dispute resolution process outlined in your car loan contract is equally important. This process is designed to handle disagreements and breaches of your loan terms.
To understand how disputes are formally resolved, including the steps involved and your rights as a borrower, explore our detailed guide on Dispute Resolution for Car Loans which complements this guide and offers a broader perspective on managing and resolving conflicts with your lender.
Our View: Direct Resolution is Your First Step Towards Peace of Mind
- Approaching a dispute with your lender or broker directly might seem intimidating, but it's often the most effective first step.
- We walk you through how to engage in this process with confidence, from gathering your documents to articulating your concerns clearly.
- This guide has been published to provide a structured approach to help you seek a resolution, ensuring you feel supported and informed at every stage.
- It's natural to feel anxious or worried when dealing with financial disputes, but remember, you have rights, and laws are in place to protect you.
- The first step to solving your problem is always to either seek advice from an experienced advocate or starting a direct conversation with your lender.
- We understand that every situation is unique, and while the path to resolution may vary, the goal remains the same: to find a fair outcome that respects your rights as a borrower. With the right information and support, you can navigate this process more confidently and effectively.
Let's Get Started
- With this guide, we hope to empower you with the knowledge and tools you need to address your car loan dispute head-on.
- Remember, seeking help and advice is a sign of strength, not weakness. You're taking an important step towards resolving your car loan dispute - it's up to you to see out the process and fight what you believe to be unfair.
Car Loan Expert Founder Christopher Walsh Explains How to Find Support and Resolution:
"If you're facing challenges with your car loan, feeling overwhelmed or unsure where to turn, you're not alone. Financial disputes can be daunting, but remember, knowledge is power, and support is closer than you think. This guide is designed to be your ally, offering clear steps and pointing you towards free, invaluable resources to help you navigate this challenging time.
Many New Zealanders find themselves in financial disputes, from misunderstandings about loan terms to disputes over charges. It's okay to seek help, and it's important to know that dedicated organisations are ready to support you. Whether you need someone to talk to about your rights or require guidance on approaching your lender or broker, help is available".
Important - Consumer resources are free of charge and have a track record of helping everyday New Zealanders with car loans:
- Community Law Centres (CAB): A treasure trove of free advice and information on a wide range of issues, including financial disputes. The CAB can provide practical advice, guide you on your rights, and suggest next steps to take.
- Community Law Centres: Offering free legal advice, Community Law Centres are staffed by friendly legal professionals who understand the intricacies of consumer finance law. They can help clarify your situation and options.
Who Do I Complain To? The Car Yard or the Finance Company?
When you're dealing with issues related to car loans obtained through dealers or car yards, it's crucial to understand the distinction between the car yard (dealer) and the finance company/lender. Only by knowing the difference can your complaint be sent to the right company, significantly increasing the likelihood of a favourable resolution.
Car Yard (Dealer) Responsibilities:
Car yards or dealers are primarily responsible for the sale of the vehicle itself, as outlined under the Consumer Guarantees Act and Fair Trading Act They are responsible for:
- The condition of the car at the time of sale.
- Any warranties or guarantees offered directly by the dealer.
- Any consequences for misleading or deceptive conduct during the sales process.
- Any additional products or services sold by the car yard, such as insurance or extended warranties, if they are the ones providing it directly.
Finance Company Responsibilities:
The finance company, on the other hand, handles the loan or finance aspect of your car purchase. Their responsibilities include:
- The car loan terms and conditions, including interest rates and repayment schedules.
- Approval of the loan and any related financial assessments.
- Disclosures related to the loan, including any fees, charges, or insurance added to the finance agreement.
- Handling of repayments and any issues related to loan servicing, such as early repayment, late payment chasing and hardship arrangements.
When to Complain to the Car Yard:
You should direct your complaint to the car yard if your issue relates to the sales process or the car's physical condition. Examples include:
- Finding out the car has significant mechanical issues immediately after purchase, which were not disclosed.
- Being misled about the features or condition of the car.
- Issues with any dealer-provided warranties or service plans.
When to Complain to the Finance Company:
Your complaint should be directed to the finance company if it relates to the car's financing. Situations might include:
- Discovering undisclosed fees or charges on your loan.
- Disputes over the terms of your finance agreement.
- Problems with how your repayments are being handled or reported.
Steps to Take Before Filing a Complaint
Before contacting your lender, we suggest the following pre-steps:
- Review Your Agreement: Before complaining, thoroughly review your sales contract and loan agreement to understand what was agreed upon.
- Gather Evidence: Compile all relevant documentation, including contracts, receipts, and any correspondence related to your complaint.
- Identify the Issue Clearly: Be clear about whether your issue is with the condition or sale of the car (car yard) or with the financial arrangement (finance company).
By determining the correct party responsible for your issue, you can streamline the complaint process and increase your chances of achieving a satisfactory resolution. Remember, both entities are regulated and have obligations to treat consumers fairly.
Complaining about a car loan is not something many people are familiar with. If you're unsure how to proceed or want someone to fight in your corner, help is available free of charge. We suggest talking to MoneyTalks, your local Community Law Centre or the Citizens Advice Bureau. Their teams have the experience and expertise to help clarify to whom your complaint should be directed.
Identifying Valid Reasons to Complain about a Car Loan
When signing up for car finance, you trust your lender to provide accurate, fair, and lawful information. However, this trust can sometimes be misplaced, and many New Zealanders find themselves in financial hardship from unaffordable loans. This frustrating situation is outlined in a May 2023 NZ Herald article. Our list includes the most common reasons car loan complaints arise:
- Misleading or Incomplete Information Provided at the Time of Loan Agreement: Lenders might not fully disclose the annual interest rate or how it's compounded. For instance, a lender advertises a low monthly interest rate without clarifying that it's compounded monthly, significantly increasing the annual interest rate.
- Unfair Terms That Were Not Fully Disclosed or Explained: Imagine signing a loan agreement under the impression that you can make early repayments without penalties, only to discover later that doing so incurs substantial fees. Such terms, hidden in the fine print, can make a loan much more costly than initially presented.
- Charges or Fees That Were Not Clearly Communicated: A lender may add administrative fees, processing charges, or insurance costs to your loan without clear communication. For example, a $10,000 loan might suddenly become $12,500 due to these hidden fees, significantly affecting your repayment plan.
- Aggressive or Unethical Collection Practices: If a lender frequently contacts you at odd hours, uses intimidating language, or threatens legal action prematurely, these practices are not only unethical but can also be illegal, depending on their methods.
- Changes to Loan Terms Without Proper Notification or Consent: A lender might decide to increase the interest rate or change repayment amounts without your agreement or without giving you sufficient notice, directly contradicting the original loan terms.
- Unaffordable Loans: Loans should be based on your ability to pay, considering your income and expenses. If a lender has not adequately assessed your financial situation, leading to an unaffordable loan, this is a legitimate reason to complain.
- Financial Hardship Ignored: If you've told your lender about your financial hardship to the lender, but they've failed to offer reasonable assistance (or have proceeded with punitive measures like activating an immobiliser), you may have grounds for a complaint.
- Misuse of Immobilisers: If your vehicle has been immobilised without due notice, especially when payments are up-to-date or when you've already communicated about a hardship situation, this practice may not only be unethical but could also breach consumer protection laws and is justification for a complaint.
Examples of Formal Complaint Situations
Disputes between borrowers and car finance companies arise daily. Understanding the types of disputes that can arise helps in preparing for and effectively addressing them. Below are examples of situations where formal complaints may be warranted, reflecting common grievances without attributing them to specific individuals:
- Unapproved Charges for Insurance or Add-Ons: Discovering that your car loan includes expensive add-ons such as mechanical breakdown insurance (MBI) or GAP insurance, which you don't remember consenting to, can significantly inflate your monthly payments.
- Unannounced Interest Rate Increases: Finding out through a routine statement that your loan's interest rate has significantly increased without any prior notification or justification can disrupt your financial planning and budgeting.
- Aggressive Repossession Tactics: Experiencing threats of vehicle repossession after missing a single loan payment, especially after attempting to communicate your temporary financial hardship to the lender, can be distressing and may feel disproportionately punitive.
- Exorbitant Late Fees: Being hit with unexpectedly high late fees for minor payment delays, especially when such fees are not clearly detailed in the loan agreement, can add undue financial strain.
- Inaccurate Credit Reporting: Encountering errors in how your payment history is reported to credit agencies by your lender, such as being marked late for payments made on time, can unjustly damage your credit score and affect future borrowing capability.
- Mismanagement of Early Repayments: Attempting to pay down your loan early only to find that the lender has not properly accounted for the reduction in principal, leading to incorrect interest calculations, undermines the financial benefits of early repayment.
- Neglected Financial Hardship Requests: Seeking a modification of your loan terms due to financial hardship, such as job loss or medical emergencies, only to be met with silence or refusal from the lender can exacerbate an already difficult situation.
- Misleading Loan Terms: Entering into a loan agreement based on certain promises or representations made by the lender or broker, only to find the actual terms to be markedly different and more onerous.
- Unauthorised Direct Debits: Finding unauthorised or incorrect amounts being debited from your account by the lender, leading to financial discrepancies and potential overdraft fees.
- Failure to Honor Warranty Claims: Dealing with a lender who refuses to honour valid warranty claims on a vehicle financed through them, especially when those warranties were a key factor in the loan agreement.
- Lack of Transparency in Loan Costs: Struggling to understand the full cost of your loan due to hidden fees, complex interest calculations, or lack of clear explanation from the lender.
These scenarios underscore the importance of clear communication, thorough documentation, and understanding one's rights as a borrower. Should you encounter similar issues, knowing the proper channels for lodging a complaint and seeking resolution is crucial to protecting your financial interests and well-being?
Navigating Direct Resolution with Your Lender or Broker: A Step-by-Step Guide
Before you consider contacting external dispute resolution schemes like IPSO, FSCL, or FDRS, it's essential to attempt direct resolution with your lender or broker and make an official complaint. This initial step is not only a prerequisite by many dispute resolution services but also offers a potentially faster and simpler way to address your concerns. Here's how to approach it effectively:
Step 1: Understand Your Agreement
- Review Your Loan Documents: Carefully examine your loan agreement, focusing on terms related to your dispute. Understanding your rights and obligations can provide a solid foundation for your complaint.
- Identify the Issue: Clearly define what the problem is, whether it's an incorrect charge, misleading information, or another issue. Being specific can help in communicating your complaint effectively.
Step 2: Gather Evidence
- Document Everything: Compile all relevant documents, including communication records (emails, text messages), loan agreements, payment records, and any promotional materials that influenced your decision.
- Keep Notes: If the issue involved verbal communications, note down dates, times, and the gist of conversations as accurately as possible.
Step 3: Contact Your Lender or Broker and Make a Complaint
- Use Official Channels: The contact information in your loan agreement or the lender's website is the best communication method. This could be through customer service email, a dedicated complaints line, or a physical address for correspondence.
- Be Clear and Concise: Explain the issue, how it affects you, and what resolution you're seeking. Attach or reference the evidence you've gathered to support your case.
- Do you need a complaint letter template? Download our trusted template; it's designed to be adaptable for various issues, such as misleading information, unfair contract terms, or financial hardship. You'll need to fill in your specific details and circumstances to create a compelling and structured complaint.
Step 4: Propose a Resolution
- Be Reasonable: Suggest a fair resolution that would rectify the situation. This could be a refund of incorrect charges, adjustment of loan terms, or another appropriate remedy.
- Give a Timeline: While it's important to allow reasonable time for investigation, setting a clear deadline for response can help keep the process moving.
Step 5: Follow Up
- Keep Communication Lines Open: Be responsive to any requests for additional information or clarification from your lender or broker.
- Record Interactions: Document all follow-up communications, including what was discussed, any promises made, and any changes in your situation.
Step 6: Escalate If Necessary
- Internal Review: If the initial response is unsatisfactory, request an internal review or escalate the complaint within the organisation, if possible.
- Prepare for Next Steps: If the issue remains unresolved and you've given the lender or broker adequate time to address your complaint, prepare to escalate it to an external dispute resolution scheme like IPSO, FSCL, or FDRS, as outlined below.
Our View: Attempting direct resolution with your lender or broker is a crucial first step in resolving disputes related to your car loan. It fulfils the prerequisite for escalating the complaint to external organisations and often leads to quicker resolutions.
Following these steps ensures you've given the process every chance to succeed before seeking third-party intervention.
Remember, direct resolution is the step you undertake after identifying an issue and before officially lodging a complaint with external dispute resolution schemes. Being thorough, patient, and clear during this phase can significantly enhance the chances of a satisfactory outcome.
If the lender's response is unsatisfactory or fails to address your complaint within the given timeframe, it's important to know the next steps available to you, including contacting financial dispute resolution schemes (outlined below) or regulatory bodies like the Commerce Commission for further assistance.
Financial Dispute Resolution Schemes - FDRS vs FSCL vs IFSO
1. Financial Dispute Resolution Service (FDRS)
The FDRS serves as a mediator between consumers and financial service providers over disputes that cannot be resolved internally. This includes a wide range of financial disputes, including car loan-related ones.
Services Offered:
- Mediation: FDRS can help mediate between you and your financial provider to reach a mutually acceptable resolution.
- Adjudication: If mediation does not resolve the issue, FDRS can formally adjudicate. This decision is binding on the financial service provider if you accept it.
How to Use:
- Verify your lender's membership on the FDRS website.
- Lodge your complaint directly with FDRS after attempting a resolution with your lender.
- Utilise the FDRS's resources and guidance throughout the process.
2. Financial Services Complaints Ltd (FSCL)
The FSCL specialises in resolving disputes between consumers and financial service providers, including issues arising from car loans. It aims to resolve complaints quickly and fairly.
Services Offered:
- Structured Process: FSCL offers a clear, step-by-step process to address and resolve complaints.
- Decision Making: In cases where mediation is unsuccessful, FSCL can issue decisions that, while not legally binding, carry significant weight.
How to Use:
- Check if your car lender is registered with FSCL.
- Submit a complaint form along with any relevant documentation to FSCL.
- Engage in the resolution process, which may include mediation and investigation.
3. Insurance & Financial Services Ombudsman (IFSO)
The IFSO Scheme provides independent, impartial support for resolving insurance and financial service disputes, including car finance-related ones.
Services Offered:
- Mediation and Investigation: IFSO can mediate disputes and, if necessary, conduct formal investigations to determine the outcome.
- Recommendations: IFSO can issue recommendations to resolve disputes, which are highly persuasive to financial service providers.
How to Use:
- Confirm that your lender is a participant in the IFSO Scheme.
- File your complaint with IFSO, providing all necessary documentation.
- Participate in the dispute resolution process as advised by IFSO.
Complaints and How They Affect Your Credit History
It's a common concern that lodging a complaint or dispute against a car loan might negatively impact your credit history. However, the act of making a complaint itself does not affect your credit profile. Here's what you need to know:
- Complaint Process: When you lodge a formal complaint with your lender or a dispute resolution scheme, this action is not reported to credit agencies and, as such, has no direct impact on your credit history.
- Loan Payments: What can affect your credit history are the actions surrounding the complaint, such as missed or late payments. If you're disputing a charge and withhold payment during the dispute, the lender might report these missed payments to credit agencies, potentially harming your credit profile.
- Dispute Resolution: If your complaint leads to a dispute resolution process and you've been advised not to make payments until the dispute is resolved, ensure you get this advice in writing from the dispute resolution service or your lender. This documentation can be crucial if negative marks appear on your credit report as a result of withheld payments during the dispute process.
- Rectifying Errors: If your complaint is about incorrect reporting by your lender (e.g., they've wrongly marked payments as late or missed), resolving the complaint in your favour should lead to the correction of these errors on your credit report. It's important to follow up and ensure that any corrections are made.
- Credit Report Monitoring: Regardless of the complaint or dispute outcome, it's wise to monitor your credit report regularly; this guide explains how to access your credit history. Checking your report can help you identify any inaccuracies or unexpected changes to your credit profile.
- Documentation: Keep detailed records of all communications with your lender or the dispute resolution scheme, especially regarding advice on payment arrangements during the dispute. This information can be invaluable if you need to contest any negative information on your credit report.
Important: While lodging a complaint or dispute about your car loan does not directly affect your credit history, associated factors like payment history during the dispute process can have an impact. It's crucial to stay informed, maintain clear communication with your lender, and monitor your credit report to protect your credit health.
Frequently Asked Questions
What constitutes misleading information from a car lender?
Misleading information can include incorrect details about interest rates, loan terms, fees, or the total cost of the loan. If a lender advertises or provides information that is false or leads you to make a decision you wouldn't have otherwise, it's considered misleading.
Can I complain if I was sold add-ons without my consent?
Yes. If you find charges for insurance or warranties you didn't agree to, you have grounds to complain. Lenders and dealers must obtain your explicit consent before adding any extra services or products to your loan.
What should I do if my car loan becomes unaffordable due to financial hardship?
Contact your lender immediately to discuss your situation. You can request a hardship variation to your loan terms, which might include reducing your payment amounts, extending the loan period, or temporarily pausing repayments.
Are car immobilisers legal, and can I complain about their use?
Yes, immobilisers are legal when included in your loan agreement and used according to specified terms. However, if an immobiliser is activated without proper notice or justification, especially if you're up-to-date on payments, you can lodge a complaint.
What steps should I take before filing a complaint against a car lender?
Review your loan agreement and gather all relevant documentation, including communication records and payment receipts. Clearly identify the issue, whether it's related to the sale or condition of the car (car yard) or the financing terms (finance company).
How do I write an effective complaint letter to my car finance provider?
Your letter should include your personal and loan details, a detailed explanation of the issue, evidence supporting your complaint, the resolution you're seeking, and a deadline for response. Be clear, concise, and factual.
Your complaint letter is a critical part of the complaint process. It should include:
- Your Personal and Loan Details: Clearly state your name, contact information, and loan or account number to help the lender identify your case.
- A Detailed Explanation of the Issue: Describe what has gone wrong with your loan. For instance, "I was charged for gap insurance that I did not agree to, resulting in an additional $600 on my loan."
- Evidence: Attach or reference the supporting documents you've collected. If you're complaining about an undisclosed fee, include a copy of the section of your contract that you believe proves this.
- Desired Resolution: State what you want to happen next, whether it's the removal of unjust charges, adjustment of your loan terms, or another specific outcome.
- Response Deadline: Give the lender a reasonable timeframe to respond, typically 14-28 days, to address your complaint.
What if my financial hardship application is rejected by the lender?
If your hardship application is rejected or you're unsatisfied with the response, you can escalate your complaint through the lender's internal review process. If still unresolved, consider contacting an external dispute resolution scheme or the Commerce Commission.
Can I switch lenders if I'm unhappy with my car loan?
Yes - you can refinish your car loan with another lender if you find better terms. However, check for any early repayment fees or penalties in your current loan agreement.
What if my complaint is about a car loan broker?
If your complaint concerns a broker's conduct or service, you should first attempt to resolve it directly with the broker. If unresolved, check if the broker is a member of a dispute resolution scheme or consider contacting the Commerce Commission.
How long does a dispute resolution process usually take?
The duration can vary depending on the complexity of the complaint and the resolution scheme's process. It could range from a few weeks to several months.
The information presented in this guide serves solely for informational purposes and should not be considered financial advice. If you need assistance regarding the car finance options mentioned here, we recommend contacting your bank, lender or broker for expert guidance.
Car Loan Expert is not a lender but operates as an introducer to car loan brokers and lenders. To apply for a car loan, you must be a resident of New Zealand and aged 18 or older. Approval is contingent upon your affordability and eligibility.