The money lending industry has always had a bad reputation. They were and are still known for targeting mainly the lower social economic class, luring them into signing ineligible contracts with horrendous interest rates which most of them can never repay. Things have improved, though, with more consumer friendly legislation and an increased awareness all around. In that respect one should also not forget that the recent financial crisis lead to many loan sharks going bust, leveling the playing field which is now dominated by more or less a handful and in the majority quite honest and reputable finance companies.
One of the most common clauses in finance agreements has recently come under scrutiny in Australia (NSW). In Fast Fix Loans (not a spelling mistake!) the Court of Appeal held that a guarantee given by the parents of the borrower, was unjust because the lender was ‘indifferent to the borrowers ability to make payments under the loan because of the security (the guarantor parents) were providing.’ In reaching the decision, the Court also considered that the guarantor parents did not understand the significance risk of being a guarantor.
Although an Australian case, it is likely that a New Zealand Court would reach the same conclusion. Under s120 of the Credit Contracts and Consumer Finance Act 2003 the Court can re-open an ‘oppressive’ credit contract, with section 124 providing guidelines what circumstances the Court shall take into consideration. This includes all the circumstance relating to the making of the contract. ‘Oppressive’ in that respect can well be interpreted to mean ‘unjust’.