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Shop around for interest rates, 8%pw is appalling

Hon Judith Tizard
Minister of Consumer Affairs

3 September 2008

Shop around for interest rates, 8%pw is appalling

Responding to an article in today's paper, Consumer Affairs Minister Judith Tizard said it was appalling that anyone should have to pay 8% per week interest on a loan as there are far lower rates available.

"This clearly illustrates the need for better financial literacy in New Zealand. It is sad that people are paying these outrageous interest rates when there is cheaper finance available," said Judith Tizard.

"I remain concerned about advertising for easy access to credit. Last year we held a Consumer Credit Summit with the main banks and community and government agencies where we looked at these issues. From there we have been reviewing the 2003 Credit Contracts and Consumer Finance Act (CCCFA).

"We are looking at the current law and identifying areas where we might make legislative change. Fringe lending practices are a particular focus. We're working to ensure that the present law is enforced and that people are aware of their rights and have the confidence to shop around," said Judith Tizard.

"The CCCFA requires full disclosure; people need to know the full cost of borrowing. However, it is evident that some consumers are still not comparing different rates from different providers and this is a concern."

Judith Tizard said improving financial literacy was vital. There are a number of services available for people who are struggling to make ends meet such as, Family Budgeting Services, Citizens Advice Bureau and many other community groups than can offer assistance.

"We know that the most common reason for borrowing is to meet the needs of everyday household expenses. People can in the first instance contact Work and Income whether they are a current client or not, to see if they are getting the assistance they are entitled to.

"People can get help with their accommodation costs, the costs of raising children and disability costs. The Working for Families package has assisted many New Zealanders, but there are still some eligible families that are not aware they can get it.

"The government is doing what it can to give people access to good financial education. There's an increased focus in the new school curriculum on improving financial capability, and public education campaigns are being run by the Retirement Commission (Sorted). You can also get good advice from the Budget Advisory Service. In the end, its up to each one of us to improve our own understanding of how to handle our money but there is help out there to do it..

Responding to the call for a cap on interest rates Judith Tizard said that the Ministry has investigated interest rate caps and at this stage, overseas experience does not suggest that interest rate caps would offer any advantage to New Zealand consumers.

"Overseas experience tells us that when rates are capped, the capped rate can become the ruling rate, lenders can become less willing to lend or they gouge the market (by pricing higher than is reasonable or fair), or even worse, lenders can go underground where the protections of the CCCFA are not available. A capped interest rate can also give consumers a false sense of security that the interest rate is the best available," she said.

The Ministry is monitoring international experiences and will include interest rate caps in a discussion paper. Judith Tizard said she was aiming to have this paper available in early 2009 for public consultation.

ENDS

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