The Nation: Lisa Owen interviews Kris Faafoi
On Newshub Nation: Lisa Owen interviews Commerce and Consumer Affairs Minister Kris Faafoi
Lisa Owen: The Consumer Affairs
Minister is circling loan sharks and predatory lenders with
potentially tighter regulations to stop vulnerable people
falling into debt traps. The Government’s currently asking
for submissions on how to improve the way that New
Zealanders borrow money. Commerce and Consumer Affairs
Minister Kris Faafoi joins me now. Good morning,
Kris Faafoi: Good morning, Lisa.
Before we get on to predatory lending, you’ve got an update for us on the big Takata airbag recall. Now, let’s remind people. This is the airbags that are at serious risk of exploding and causing injury. So how many cars do you now know that have the most dangerous versions of those airbags?
So when we first started looking at this issue, we were advised that there are about 50,000 of these Alpha type airbags in New Zealand. It was difficult to get some solid numbers. Now that we’ve put a bit more sunlight on the issue, we now know that there are a total of 103,000 of these Takata airbags. About half of those have been fixed. So I think there are about 53,000 of the 103,000 still outstanding. And we’ve obviously got that compulsory recall for those to be repaired over the next 15 months now.
That’s massive numbers.
It is. And that’s why we decided to take action. There was a voluntary recall in place since 2013. And when we were first advised of the numbers, because the Australian competition watchdogs made a compulsory recall, and we looked at numbers. We were worried then. And that’s when the numbers were 53,000—
So how worried are you now?
Still worried. But we’ve still got 53,000 outstanding. We’re working very closely with the industry, both the Motor Industry Association — the new car sellers — and also the VIA, who represent those who are selling second-hand vehicles. They’re still pretty confident that we can get to as close to 100% of those cars being repaired before December 2019.
December 2019? Because here’s the thing, what if there was a more imminent danger? Because it seems like we are not equipped to deal with something like this at speed.
Yeah, and that was one of the issues with the voluntary recall as well. It just wasn’t being—
But even with a compulsory recall, you’re still talking about next year.
Yeah, and it’s going to— 53,000 cars are a lot to repair. We don’t know where all of those cars are. Some people won’t even know they’ve got these cars. So we’re still working behind the scenes to make that much easier, but as I say, we’re working very closely with the industry to make sure that the deadline of December 2019, as it stands now, to make sure we can get those cars repaired.
And as yet, still no reports of failures of these airbags in New Zealand?
No, not yet. We do know that around the world, there have been 23 fatalities linked to these Alpha type airbags, but none, touch wood, here in New Zealand.
All right. Well, let’s move on to your discussion paper that’s looking at loan sharks and predatory lenders. One option is to cap interest rates on loans. Now, some of these companies are charging up to 400% interest or more. What range do you favour for interest?
Not necessarily favour, but I think if you look at the options, I think what runs through all those options is to make sure that you can cap the amount of interest and fees at 100 per cent of the principal of the loan. So in plain English, if you borrow $1000, then the interest that you pay can’t go over $1000. And I think that will prevent a lot of the situations where we’re seeing a relatively small loan spiralling out of control into several thousands of dollars in which people aren’t able to pay back. So there are a couple of options within that discussion document — one is about somewhere between 200 per cent and 300 per cent, the other one is capping it at 30% or 40%. We want to make sure—
But do you think 100 per cent is realistic and where you would like to aim for?
I think that fundamentally makes sure that those large balances don’t spiral out of control. So at the moment, we’ve got a $1000 loan. If it’s uncontrolled, it can turn into several thousand dollars. This way, if it’s 100 per cent of the principal borrowed, then we can roughly control the amount that someone has to pay back.
Because that still sounds like huge numbers. So how many lenders do you think that that potentially would put out of business?
I don’t know if they would go out of business or not, but what we do know is about 150,000 Kiwis do use high-cost lenders every year. That’s a lot of Kiwis. We’re still trying to get our head around how many of those would fall into serious trouble, but certainly when we’re visiting the likes of budget advisory services, Citizen Advice Bureaus around the country, it’s a constant thing that they continue to see this kind of predatory behaviour.
The thing is that a lot of borrowers who use the kind of services that you’re talking about, they’re desperate; they’ve got no other option, so they’re forced to go there. It is a last resort. What obligation do you think there is on the Government to provide them with an alternative, in terms of emergency short-term loans or assistance, particularly if you’re going to, you know, bring the lid down on this industry?
I don’t think it’s necessarily an obligation of the Government alone. And I think there’s already some private and not-profit people working in that space. If you look at the likes of Good Shepherd, who are working with the likes of the Salvation Army and Vaka Tautua, which is a Pacific mental health provider, they are already working in the space of either nil interest or no interest loans for people who are in this situation. We had Newtown Budgeting Services with us on Wednesday when we launched the discussion — they offer nil interest. So I think it’s about making sure that we can have an environment where more of that happens, and there are some banks that are interested in helping in that area. But there’s also another part of this puzzle, and that’s making sure that people who are in this situation are making wise and motivated financial decisions and have the financial capability to know whether or not it’s a wise thing to take one of these loans out or not.
Yeah. Well, there’s a couple of things there. So for families that are already in debt to these kinds of predatory lenders, as you mentioned, so the likes of the Salvation Army, they will pay off a client’s debt at a high interest rate, and then the client pays the charity back at zero interest. Can you conceive of the Government offering a scheme like that?
I think the Government has to make sure that they have a part in making sure that those are available. And I think there is enough interest to make sure that the Government can help coordinate that or help what’s already there. I don’t think we want to—
But you’re relying on charities to provide that service at the moment.
And they are quite happy to do that. And I think there’s more possibility for that kind of action in that space. I think what it needs is a bit more coordination, because at the moment I think you’ve got pots of people assisting in those situations, but not necessarily a level of coordination, which I think could be needed. And that’s where the Government can step in.
All right, so if you over-regulate, there is a risk, and it’s identified in your discussion document, that you could simply send the industry underground, and then it would be totally unregulated cos it would be a black market, basically. How are you going to stop that happening?
By making sure that we are assisting, as you’ve just mentioned, that there are safe places for people to borrow. They are in the community, they are again—
But if they are there, Minister, why are all these people in debt up to their eyeballs to companies that are asking for up to 400 per cent interest?
And that’s our job, as well as tightening the regulation, making sure that we can assist in those areas to make sure there is more responsible lending. There are, as I say, several organisations that are more than happy to be in that space, who, some of them — many of them — who are offering nil per cent interest rates on their loans. We have to make sure we can encourage that as well as increasing the financial literacy and financial capability of the people in these situations.
Yeah, well, you talk about that, because the thing is, legislation — is it really the antidote to bad judgement or desperation?
No, the regulation is one part of the triangle. We can help protect, in regulation, some of the behaviour that is seeing some of these vulnerable consumers being preyed upon by those loan sharks in truck shops. We’ve got to make sure that the other parts of the puzzle — the financial capability — making wise decisions — and making sure that if people do need to borrow, there is a safe and responsible place to borrow. And as I say, I think there is enough capacity out there at the moment. It just might need a bit more encouragement and help from the Government.
Let’s move on to the banking sector. You’ve put them on notice in a couple of areas. Open banking — you want banks to share data and account access, with the customer’s permission. So, let’s just make up an example here. For example, they might have to have all their accounts, regardless of what banks those accounts are with, loaded onto a single app where they could access the information. Things aren’t going as fast as you would like them to go, are they, so what role does the Government play in nudging that along?
We’ve given Payments New Zealand, who are responsible for a trial that’s going on at the moment, to move things along. We’ve said that to them at their conference earlier this week.
And what if they don’t?
Well, then obviously there’s a chance for us to get in there and say, ‘This is how we would like the system to work.’ We are not at that stage yet. We are relatively happy with where things are at this stage, but we’ve told them by the end of the year, we want to see certain things. In 12 months, we want to see certain things to make sure- that are in the consumers’ interest and in the interests of making sure that there’s an ability for third parties, those app developers, to make sure that there’s a platform for them to get on so they can get into that market too.
What do you mean by ‘get in there’? ‘We will get in there if it doesn’t move along’? What does that mean?
Well, we can assist them in ways.
Look, I think if we have to say to them-
Force them? Is that what you mean, Minster?
I’d prefer to work with them, to be fair, and I think we are working quite well together at this stage. But if there isn’t progress in a timely manner, for a whole host of reasons — we want to make sure we have a good platform in terms of third parties who want to get into there, who are making up front-tech apps; we want to make sure they’ve got good and affordable access to the framework, but also to make sure that for consumers, the system works in their interests. Because I think consumers are frustrated that the traditional banking systems haven’t worked in their favour from time to time.
All right. Also this week, you indicated that you don’t want to see merchants’ service fees go up on credit cards, and you’ve warned that you have options. So what would it take for you to step in and regulate those?
If they went north. They’ve been given lots of signals that we want those fees to go down and be much more transparent-
Down? You want them down?
If they don’t go down, will you regulate?
We’ve told them again at the Payments New Zealand conference earlier this week that if they head north, we’ve got the tools, as has the EU and Australia, to make sure that we control the prices of those, because at this stage, Lisa—
Sorry to interrupt you, Minister…
…becoming more ubiquitous, and if you’ve only got one way to pay, it’s small merchants and consumers end up paying more.
You’ve said two things there — north and drop. So what is it? Do they have to stay where they are?
We said to them very clearly earlier this week if they head north, then we won’t be happy with that, and we have other tools available to us to make sure that we’re protecting consumers from unfair charges.
So you’re okay if they stay at current levels? It’s just if they increase?
We also said to them as there’s more competition in this payments space that we expect competition to bring prices down. That’s how the market apparently works.
So will you regulate if they don’t go down?
Well, we’ll have to just wait and see. As I say, one of the companies dropped their prices earlier this year in April. We are happy about that. But as we see these kinds of payments become more ubiquitous, we want to make sure that it’s fair to consumers and small retailers who end up paying the charge for this.
All right. Thanks for joining us this morning, Minister Kris Faafoi.
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