21 Dec 2018

Loan sharks targeting vulnerable borrowers this Christmas season

7:23 am on 21 December 2018

Budget advisers are worried short-term lenders and door-to-door salespeople are trying to cash in on people's anxiety about their finances in the lead-up to Christmas.

Some lenders are targeting people who've borrowed from them before.

Some lenders are targeting people who've borrowed from them before. Photo: 123rf.com

Some lenders have been ramping up their advertising and even texting people, offering loans to get them through the Christmas season

Gisborne Budget Advisory Service manager Lynda Markie said at this time of year, there was a lot of pressure on families - especially those with children - to put presents under the Christmas tree.

"We had one lady who came in recently who had a teenage son, she couldn't afford to buy anything, and she was offered a deal - buy now, pay later - she felt really pressured to buy this present for the child and she knew she shouldn't do it, her budget was already in deficit, so now it's really impacting on the family's food."

That particular example involved a door-to-door salesperson.

Ms Markie said some lenders were targeting people who had borrowed from them before.

"If you've already got a loan then you're likely to get a repeat letter to say because you're a good customer, then you qualify for this extra loan and those letters often come at a time when people need a bit extra and it's very hard for them to turn it down."

Porirua Salvation Army financial mentor Damien Hazlewood said they'd been very busy in the lead-up to Christmas, with families under financial stress.

"I had a client who I found out tried to apply for a loan and found out it was for the Christmas period. Another one asked me the other day whether we could help and she was considering getting a short-term loan to buy gifts and food."

Mr Hazlewood had noticed a lot more advertising on radio and TV for short-term loans as 25 December approached.

Damien Hazlewood

Damien Hazlewood from the Salvation Army. Photo: RNZ / Emma Hatton

But it's not just lenders who are ramping up their activity.

"The trucks get involved and make contact with clients when they've got credit, there's a real push for people to buy things from them and take out loans - it's really hard for them to say no when it's just instant."

Mr Hazlewood said while taking out a loan could be a quick fix, it could cause problems further down the track.

"Come next year, when they start struggling with the payments, and then the kids going back to school, so you've got to buy uniforms and stationery and all that sort of stuff - that's when it really hits home."

In October, the government announced changes to the Credit, Contracts and Consumer Finance Act, to clamp down on loan sharks and truck shops.

They include capping the amount that can be charged in interest and fees, and bringing in tougher penalties for irresponsible lending.

It's hoped those changes will be in place by 2020.

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