Headline vs story
The headline in Stuff was:
Couple’s $800 debt spirals into $70,000
When I saw the headline I thought it was about one of those bottom dwelling scummy companies that charges something like 10% weekly interest or 500% annual interest. How else does a debt increase 875 fold?
I detest those rip off companies. They are exploitative and worse.
But is this story about one of those?
It started with an $800 loan to replace their car tyres. Ten years on, Teresa and Lomitusi Fesuiai owe $70,000 and face having to sell their home to pay their debts.
The lead paragraph makes it seem so. But then in the second paragraph we read:
The Porirua couple say the tyre loan from Finance Now in 2003 was followed by “$1000 here and $1000 there” to cover family events, gifts and other expenses.
So it wasn’t an $800 loan? It was a series of loans. How much?
Early 2003: The Fesuiais get a loan of $819 from Finance Now to replace car tyres. Over the year they get six other loans for family events, gifts and other expenses.
December 2003: Their seventh advance is for a consolidation loan of $18,639 to settle the existing total and a $1000 cash advance.
So over less than a year, almost $20,000 was borrowed. This is a story more about not borrowing large amounts of money.
So if $20,000 was borrowed in a year, I can see how over a decade that can grow to $70,000. What was the interest rate?
By the end of that year, interest rates of more than 17 per cent, insurance and a swag of fees had combined to leave them with a total debt above $34,000.
An interest rate of 17% doesn’t seem too over the top. It is high, but it is a long long way away from the truly exploitative companies. Maybe the insurance and fees were unreasonable – but we have no details on them.
The couple, who both had steady jobs, managed to pay back $23,000 over the next three years. But in 2008 their loan was transferred to debt collection agency Southern Receivables.
It is very sad for them, and they seem like a nice hard working family who made a bad mistake. But I’m still not sure where the finance company is to blame if their interest rate was only 17%.
In 2011, on advice of a local lawyer, they took Finance Now and Southern Receivables to court, claiming the loan contracts were “unjustly burdensome”, and seeking damages and costs.
But they were almost “laughed out of the courtroom”, Mrs Fesuiai said.
“The company’s lawyers were drawing in their books, the judge was almost asleep. This lawyer just wasn’t up to standard – we didn’t have a hope in hell.”
The court found in favour of the two companies, and ordered the Fesuiais to pay costs of more than $40,000.
Wouldn’t it have been better to spend $40,000 on paying the debt off, than going to court? If the interest rate was only 17% then I am not surprised the court did not find it unjustly burdensome.
They now live in hope that someone will buy their house in Ranui Heights so they can clear the debt. The Rose St property has a $250,000 RV. They still owe $120,000 on the mortgage.
“We have no choice,” Mrs Fesuiai said.
“Our kids have grown up here, we have raised our family here. But we will have to make memories somewhere else now.”
She admitted they had borrowed beyond their means, but bad financial and legal advice had compounded their problems and turned the past decade into hell.
It is a sad case. But the lesson is don’t borrow money for day to day spending unless absolutely necessary, and don’t go to court unless you are very confident of the outcome.
“I tell the kids now, if they don’t have any money for something, don’t get a loan. Just save up for it instead.”
Generally good advice. I wouldn’t say never get a loan, but if you do make sure you have a repayment schedule that you can comfortably meet.
June 2007: On advice from a local community law group, they stop paying the loans and tell Finance Now in writing it has become “burdensome”.
Not sure that was the best advice.