Interest rate cap welcomed by FinCap
FinCap welcomes the Government’s and Minister of Commerce Kris Faafoi's move to introduce an interest rate cap into the Consumer Credit Legislation Amendment Bill (to amend the Credit Contracts and Consumer Finance Act) and to encourage more borrowers to use financial support services including local financial capability and budgeting services.
This shows that the Government has heard the voices of consumers and financial capability services loud and clear through the Select Committee process and has been open to improving the legislation.
FinCap Chief Executive Tim Barnett says if the change is to make a difference it is vital that the 0.8% rate will be simple interest - i.e. 292% per annum. "That's still a high rate but it will take the most predatory debt products out of the market. FinCap advocated for a lower interest rate cap of 50% per annum.
"The critical detail is that the rate is not allowed to be a compounding rate, if it is then lenders will still be able to charge rates in excess of 1000% per annum and very little will change for our most vulnerable borrowers and their children.
"High cost short term lending take around $120m a year out of the pockets of low income New Zealanders. That comes at the expense of basics such as food, housing, and electricity.
"This predatory lending is a significant factor in child poverty and it is a good thing for people that the Government is moving to curtail it.
"The 200 financial capability and budgeting services around New Zealand will monitor the effect of this cap and if we find it needs to be lower to protect Kiwi families we will look for further change to make that happen. We welcome the commitment to a review of the cap in three years.
"The directive to lenders to recommend borrowers seek advice from financial support services will mean more people get the help they need when they need it. It will help us support more New Zealanders out of debt and provide us with even deeper insights into the effect of the lending sector on them and their families"