Radical thinking needed in war on loan sharks

PRESS RELEASE
Westforce Credit Union
29 May 2013

Low interest loans won’t work in isolation
Radical thinking needed in war on loan sharks

Personal loans charging low-income earners up to 600 per cent interest will continue to persist unless Government legislates a behaviour change by loan sharks.

Operations Manager for Westforce Credit Union, Victor Martick, said that while the credit union welcomes the announcement by Government in this year’s Budget to explore ways of combatting the hold of so-called finance companies, a much more radical approach is needed.

“When somebody borrows money from an unscrupulous finance company – we've sighted very high interest rates – it becomes difficult for borrowers to extricate themselves because it is complicated.

“In this type of scenario, low interest rates are not the only answer. We know this because low interest rates are already available through credit unions.

“I would encourage Government to talk with credit unions when working out ways to assist low-income families trapped by so-called finance companies, because this is the coalface we are working at every day – far more so than the banks and Government itself.

“Don’t try to re-invent the wheel.”

Mr Martick said one idea may be to pass laws that allow other financial institutions to take over an existing debt within 90 days, if the original finance rate is 20 per cent more than the borrower can achieve by refinancing with the other institution.

“An additional penalty could be that the original finance company, which charged the excessive finance rate, has to pay back the difference they over-charged the borrower. That money is then used to off set part of the new loan.

“People take these loans out because they desperately and urgently need the money. Then when they’ve had a chance to take a breather, they realise they could have got it cheaper elsewhere.

“In essence, if you charge excessive rates it should be possible for a competitor to undercut you. At the moment the loan sharks have too many fishhooks that make escaping the loan very painful – it won’t affect the people who charge a fair price.

“If you charge 20% more than anybody else out there, be prepared to have it taken off you. This gives consumers the ability to get out of trouble.”

Mr Martick said a system is needed that helps people out of debt, but which also teaches them better money management because lower interest rates aren’t the only solution – there needs to be a managed learning process.

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About Westforce Credit Union

westforce™ Credit Union is not a registered bank but a locally owned and operated FINANCIAL SERVICE PROVIDER that offers financial services to its MEMBER/OWNERS with offices situated in West Auckland, South Auckland and Whangarei.

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