New credit and finance bill "toothless" says credit union
Toothless new credit and finance bill won’t curb scourge of payday lending
An alarming growth in borrowing for everyday needs – particularly within poorer Auckland communities – is being fuelled by a burgeoning payday loan industry, and new credit legislation is unlikely to fix the problem.
The Credit Contracts and Financial Services Law Reform Bill, which passed its third reading in Parliament this week, is being hailed as a clamp down on loan sharks, but is essentially toothless in dealing with the real problem of everyday lending by unscrupulous loan sharks, says a local credit union.
The Bill amends the Credit Contracts and Consumer Finance Act, the Financial Service Providers (Registration and Dispute Resolution) Act, the Private Security Personnel and Private Investigators Act and the Personal Property Securities Act.
Education and Development Manager at Westforce Credit Union, Tu Nuualiitia, said today that requiring lenders to ‘act with skill, care and diligence in all dealings with a borrower’ was like dropping lambs into a crocodile pit, and telling the crocodiles to go easy.
“The essential thrust of the bill requires responsible lending by, for example, requiring timely and complete disclosure of loan terms. Well, if that isn’t an invitation to bury people in paperwork – some of whom are semi-literate – then I don’t know what is.”
While Mr Nuualiitia welcomed the licensing of repossession agents and employees, he likened the requirement to shutting the stable door after the horse has bolted.
“We need payday lenders and other loan shark operations to be licensed too, because at the moment anybody can set up shop and there’s nothing stopping them from lending money at outrageous interest rates – as many of them do.
“How is a Responsible Lending Code going to change the behaviour of somebody who has no conscience about charging families interest rates in the region of 800 per cent?”
Mr Nuualiitia called for:
• A cap on the
interest rates loan sharks can charge
• Licensing of private lenders
• A ban on payday, door stop and retail truck lenders
• Workplace based education on budgeting, money management and the risks posed by loan sharks
“Consumer Affairs Minister Craig Foss says the Bill reflects the National Government’s commitment to protecting vulnerable New Zealanders from spiraling debt, without imposing unnecessary compliance costs on responsible lenders.
“However, changes around the repossession regime, while good, will mostly penalise responsible lenders who require security against loans.
“Irresponsible lenders do not require security or even an ability by the borrower to pay the money back.
“When you are desperate for money to feed the family or pay bills, you will take what you can get and worry about the consequences later.
“Unfortunately the consequences that follow are far more severe – leading to gambling problems, alcohol abuse and marriage breakups – than being short of cash to pay the bills. The result is a downward spiral and vicious circle of borrowing.”
Mr Nuualiitia commended the Government’s desire to use changes in the legislation as one more way to boost confidence and trust in New Zealand’s financial markets, but says the real issue is a social one.
“For people at the coal face of the economic, day-to-day struggle, the first priority is to put food on the table and pay the bills. Unfortunately payday lenders out there are exploiting that need and, it seems, they’re set to be given a free rein for some time yet,” he said.