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Cap on Pay-Day Loan Interest Welcome

Cap on Pay-Day Loan Interest Welcome

The Salvation Army is welcoming the undertaking by Consumer Affairs Minister Kris Faafoi to introduce caps on high interest, short-term “pay-day” loans in the Government’s first 100 days.

The Salvation Army Social Policy Unit’s policy advisor for consumer issues Ronji Tanielu says capping of interest rates and greater protections for vulnerable consumers is something The Salvation Army has consistently advocated for over a number of years.

“It is unconscionable to have no legal maximum of interest rates on these loans, especially given how they affect vulnerable consumers and perpetuate the poverty cycle,” Mr Tanielu says.

The major reason for not introducing a cap in the past has been the fear that lenders would exit this short-term market. “We do not accept this. Our experience is that lenders are only too keen to lend, but no-limit interest rates can create excessive loans that can destroy families and does not solve their immediate crisis,” he says.

In the pay-day loans market there are operators who currently set interest levels significantly past what could be termed reasonable or acceptable to most New Zealanders. A cap would mean New Zealand joins countries such as Australia and the United Kingdom, which already have caps and restrictions in place.

The Salvation Army’s financial mentoring and community loan scheme daily assists people in desperate personal circumstances who are experiencing oppressive debt levels, sometimes equivalent to a yearly interest rate of 300 to 600 percent. “This does not help a family; rather, it puts them at risk of entering a long term and crippling cycle of debt and financial difficulties,” Mr Tanielu says.

The proposed capping of interest on pay-day loans will help curb predatory lending practices targeted at low-income households forced to borrow.

Issued on the Authority of Commissioner Andy Westrupp (Territorial Commander)
The Salvation Army, New Zealand Fiji & Tonga Territory



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