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Loan Sharks A Problem In Straightened Times

"Loan sharks prey on the lack of financial sophistication of many lower-income people, and communities need better legislative protection from them," say Porirua Mayor Jenny Brash, Deputy Mayor Litea Ah-Hoi and Chairman of Parliament's Finance and Expenditure Committee, Wellington Labour List MP Charles Chauvel.

Mayor Brash, Ms Ah-Hoi and Mr Chauvel met in Porirua recently to discuss their concerns about "fringe" or "payday" lenders. These lenders typically offer short-term loans, taking stereo systems or other items of personal property as security, at rates of interest of around 8% per week.

The Mayor called the meeting after being contacted by Andrew Shann, who is studying for his Master's degree in Law at Victoria University. Mr Shann's research indicates that:

• actual annual interest rates being charged by fringe lenders can exceed 400%pa, effectively compounding to well over 1500%;

• insufficient attention has been paid by regulators to the fringe lending sector;

• whether fringe lenders can legally recover the extremely high rates of interest they charge is unclear; and

• New Zealand is lagging behind the Australian states in protecting consumers from the behaviour of the fringe lending sector.

"With more difficult economic times on the horizon, I am very concerned that people on lower incomes may get into trouble by borrowing small amounts from fringe lenders and then having to make very large repayments thanks to the enormous interest costs," Mayor Brash said.

"It is misleading of these lenders to express their interest rates as "only" 8% per week. I want people to understand that at "only" 8% per week, compounding, a loan doubles its size every three months.

"For example, a $300 loan over 14 weeks becomes $636. Lower-income people can get into terrible financial difficulties trying to repay that sort of money", said the Mayor.

Porirua's Deputy Mayor Litea Ah-Hoi agrees and is working to promote awareness across the lower-income communities in Porirua about the need to avoid fringe lenders, especially with Christmas on the way when household budgets are tighter.

"I will be speaking to our network of Pacific Church Ministers to encourage them to help their congregations understand the dangers of approaching lenders of this type", said Ms Ah-Hoi.

"What looks and sounds like easy money can come at a terrible price".

MP Charles Chauvel said legislation that went through his Finance and Expenditure Committee over the last year would start to make a difference by putting in place a tougher regulatory regime for the finance sector. The Reserve Bank Amendment Act, the Financial Providers Registration Act and the Financial Advisors Act would also lead to a major Government-funded push to encourage financial literacy.

But he agreed that special legislation aimed at fringe lenders was desirable.

"I'm grateful to Jenny Brash, Litea Ah-Hoi and Andrew Shann for helping to identify this problem," said Chauvel.

"I have drafted a Bill that would mean the most an irresponsible lender would be able to sue to recover would be the original principal amount of the loan. That would put an end to them recovering charges of over 1500% of the original loan. I will be seeking to progress this measure as soon as Parliament resumes after the election", said Chauvel.

"There is no reason for lower-income consumers in Australia to have better protection than they do here.

"With an election only days away, I call on all MPs and political candidates to support taking decisive action against loan sharks", Chauvel said.

ENDS

© Scoop Media

 

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