Urgent Action Needed on Loan Sharking!
Urgent Action Needed on Loan Sharking!
‘Tis the Season to be Jolly – Yeah Right!
GPJA has written to the Minister of Finance Michael Cullen urging him to step in and curb the activities of loan sharks operating in low income communities of New Zealand.
Christmas is typically the time of year when families face their greatest financial pressure and these sharks circle and feed on the gap between family income and family expenses.
Local newspapers which circulate in these communities indicate the extent of the problem. For example the 23rd November edition of the Manukau Courier has no less than 37 advertisements offering cash loans – most at usurious interest rates.
We have sent Cullen the example of Lelei Finance which operates from an office in the Mangere Town Centre. Lelei Finance offers small secured loans at a barely believable interest rate of 25% per month. (The company showed a GPJA representative, John Minto, a copy of their loan form but refused to allow it to be taken from their office)
Then in the most despicable manner imaginable, the company along with others publishes the photos and names of those people unable to meet their loan repayments. These photos appear for example in papers such as the “Taimi o Tonga” newspaper which circulates in the Auckland community. (Copy attached)
Lelei Finance advert.
Click here for a big version.
The devastation this causes in the community for the families and extended families is immense. This company is feeding in a cannibalistic manner on the community. Cullen must act.
Lelei is by no means on its own. People in these communities tell us of interest rates of 20% per week being not uncommon for cash loans. It is a frequent occurrence for a person to borrow $100 to pay an electricity bill for example but pay back $300 to $400 over the following 2 or 3 months.
Other companies with lower interest rates create much the same effect however by charging large administrations fees. For example South Pacific Loans offers loans of $500 in December at an interest rate of 16% pa. However there is a $200 booking fee which brings the finance rate to more than 60% over one year. This company – which won the Best Emerging Business Award in the Manukau Business Excellence Awards shortly after it opened 4 years ago – is also offering a free XMAS ham for all borrowers during December! Such benevolence! (Copy below)
South Pacific Loans advert.
Click here for a big version
Such incentives to take out loans are directly exploiting the poverty within the community.
Loan sharking has exploded in low income communities in New Zealand in recent years. This is a direct result of poverty and the fact that we have 250,000 children living in families below the poverty line. Even after the government’s much vaunted assistance package for families is brought into being next year there will still be 175,000 children living in poverty because they are in benefit-dependant households who will receive minimal assistance.
Michael Cullen, Steve Maharey and Helen Clark will not be borrowing for XMAS at 25% per month but they can and must take urgent action to protect families whose sense of quiet desperation will see them take this fateful step.
What Can the Government do?
this week the Ministers of Finance and Social development
could hold a media conference to:
If a government can legislate to control inflation then it can legislate to control usury.
Contact: Mike Treen – (09) 3616989 or 0212547440 John Minto – (09) 8463173 (Hm) or (09) 2745764 (Wk) Geraldene Peters - (09) 3765994
Some Background Information:
(1) The companies mentioned above Lelei Finance Sole director and sole shareholder UFI, Ilaiasi Lelei 14 Solent Street, Mangere, Auckland
South Pacific Loans (sole director Christopher Connell Parkinson) Shareholders PARKINSON, Christopher Connell 1 Hopkins Crescent, Kohimarama, Auckland PARKINSON, William Frank 424 Remuera Rd, Remuera, Auckland
(2) The Legislation
The current legislation covering interest rates in relation to borrowing is the Credit Contracts Act 1981. This will be replaced from 1 April 2005, when the Credit Contracts and Consumer Finance Act (CCCFA) 2003 takes effect.
According to the background information on CCCFA 2003 it improves the information disclosure requirements for consumer credit transactions and regulates methods of interest charging, fees and payments. It also regulates consumer leases and allows for changes to the terms of contracts on the basis of hardship to a consumer. The CCCFA provides for the reopening of oppressive credit contracts, penalties if the Act is breached, and an enforcement role for the Commerce Commission.
However it is our understanding that the changes will make little difference for loan sharks. It will regulate methods of charging but put no restriction on the charges themselves. For most this will simply require a couple of extra lines in their contract agreements. The new Act has no restrictions on -
Publication of photos or details of loan defaulters
Providing “incentives” for people to take out loans
For example here is a description of the part of the Act which covers interest charges.
36 End of day
(1) A consumer credit contract may specify when a day ends for any purpose under the contract.
(2) Different times of the day may be specified as the end of the day for different purposes.
Compare: Consumer Credit Code s 25(2) (Appendix to Consumer Credit (Queensland) Act 1994 (Queensland))
37 Creditor to ensure that contract specifies annual interest rate or rates
(1) This section applies if interest charges are or may be payable under a consumer credit contract.
(2) Every creditor under a consumer credit contract must ensure that the contract specifies the interest rate or interest rates under the contract in terms of an annual interest rate or annual interest rates under the contract.
(3) An annual interest rate may be specified by describing how the annual interest rate is determined in accordance with the contract.
38 Early debit or payment of interest charges prohibited
(1) A creditor must not, at any time before the end of a day to which an interest charge applies, require payment of or debit the interest charge.
(2) A consumer credit contract may provide for an interest charge to become payable or to be debited at any time after the day to which it applies.
(3) Subsection (1) does not apply to the following:
(a) the first payment or debiting of interest charges under a consumer credit contract if the payment or debiting relates to interest charges for a period that is less than the normal period for which interest charges are to be periodically debited to the debtor's account:
(b) the debit of an interest charge under a consumer credit contract before the end of the period to which the charge applies if—
(i) the charge is debited on the last day of the period; and
(ii) the amount debited is not treated by the creditor as part of the unpaid daily balance for that day for the purpose of calculating interest charges under the contract.
39 Limit on interest charges
(1) The maximum amount of an interest charge that may be imposed or provided for under a consumer credit contract is,—
(a) in the case of 1 annual interest rate applying to the unpaid balances under the contract, the amount determined by applying the daily interest rate to the unpaid daily balances; or
(b) in any other case, the sum of each of the amounts determined by applying each daily interest rate to that part of the unpaid daily balances that it applies to under the contract.
(2) However, an interest charge under a consumer credit contract for a week, a fortnight, a month, a quarter of a year, or a half of a year may be determined by applying the annual interest rate or rates, divided by 52 (for a week), by 26 (for a fortnight), by 12 (for a month), by 4 (for a quarter of a year), or by 2 (for a half of a year), to the whole or that part of the average unpaid daily balances that it applies to.
(3) This section does not prevent the imposition, in accordance with the consumer credit contract and section 40, of default interest charges.
40 Default interest charges
(1) A consumer credit contract must not provide that an annual interest rate applicable under the contract to any part of the unpaid balance will differ according to whether the debtor has breached the contract.
(2) However, a consumer credit contract may provide for a differential rate if the higher rate is imposed only—
(a) in the event of a default in payment and while the default continues; or
(b) in the event of the debtor causing the credit limit under the contract to be exceeded and while the credit limit is exceeded.
(3) This section does not limit Part 5 or any other rule of law that limits the amount of a default interest charge that may be imposed.
(3) Ministry of Consumer Affairs
The Ministry of Consumer Affairs has the following page of advice for people getting cash loans: