Consumer affairs minister Kris Faafoi has been working on trying to limit the damage by loan sharks, and has tightened up the measures contained in a new bill to do just that.
He wants to cap interest rates at 0.8 percent; limit the total repayment to twice the original loan sum; and force lenders like truck shops and mobile traders to screen people before they hand over the cash.
Stuff business reporter Rob Stock says to him the term loan sharks involves the threat of violence and intimidation – although the minister used the term on a press release this week.
“That’s a broadening of the term,” he says. “They may be exploitative lenders but I don’t see them as loan sharks.” Stock says we’re talking about someone who lends money on such terrible terms that it leaves a person in a dreadful position.
“The chances of them carrying on paying the loan for months if not years are very high, and that’s just dreadful.”
Stock says the market in these times of lenders at the moment is vast and extremely easy – a lot of people get money very quickly.
FinCap – the federation of family budgeting services, that helps people in a mess – has gathered case studies in its push to get the situation changed. It reckons high cost short-term lending costs poor New Zealanders $120 million a year.
But Stock says if we reduce the lending available from these types of operations, the government is going to have to step up in the form of back-stops like WINZ.
And he says while the minister says this will limit the accumulation of interest fees, this legislation will make things “modestly better, but not desperately better”.
It will affect so-called ‘pay day lenders’ who offer short-term loans – Stock saying it’s conceivable some of them will no longer be able to do business.
He says Kris Faafoi has continued a path that other ministers have also reacted to.
“Which is individuals walking into their constituency offices, showing them their loan documentation, showing them the financial mess they’re in, and them as MPs being horrified at what they saw; and thinking ‘can this be legal?’”
Faafoi says the government looked at banning these lenders all together. “But on the balance of probabilities some of these shops offer a service to some people who struggle to have transport to get to some shops. I think most people would have concern about the way that they operate, and a lot of them may look at the measures (we’ve announced) and say they’re out.”
Stock says if these laws pass, traders will have to be certified as a ‘fit and proper person’. With 10 business days notice, the Commerce Commission could take that certification away from you.
He says that’s going to be a big stick, and a powerful way to make enforcement work.
The Credit Contracts Legislation Amendment Bill is currently going through Parliament. It is expected to pass this year and will come into effect in stages starting in March next year.