FSF reacts to government's interest rate cap announcement
The Financial Services Federation (FSF), the industry body representing responsible finance and leasing companies in New Zealand, says new proposals to better protect borrowers are a step in the right direction, but more can be done to target predatory lenders causing harm to consumers and tainting the sector.
Commerce and Consumer Affairs Minister, Hon Kris Faafoi, released on September 3, 2019, further proposals to better protect borrowers, including a 0.8% per day cap on interest and fees.
"This cap equates to an effective finance rate of 292% per annum, which is still high-cost lending in anyone's terms," says Financial Services Federation (FSF) Executive Director, Lyn McMorran.
"This sort of high-cost lending is not the market in which our members operate, so we are not trying to wriggle out of anything with our recommendations, but we do want to make sure that reforms will actually make a targeted difference where harm is being done, and will be enforced to stamp out dodgy lenders.”
The FSF is still of the stance expressed in its submission that the Bill should go further in providing consumer protections when consumers are borrowing from lenders who charge at or near the proposed cap, by clearly defining parameters for payday lending in the law. It should be explicit that that these loans should be small amount and provided only for short terms or “emergency” type situations, and that payday lenders should be identified as such on the Financial Services Providers Register to assist with enforcement of these parameters.
Further proposals released on Tuesday state that all truck shops and mobile traders will be required to check that credit is suitable and affordable for each customer and to help borrowers make informed decisions about whether to sign up for credit - obligations that already exist under the current law.
"These very proposals made today around mobile traders already exist in the current law, and if they are clearly being flouted by rogue lenders as we have seen in the media, the question is why are these obligations not being enforced now?," says McMorran.
FSF supports the third, new proposal to encourage lenders to put borrowers who are struggling with repayments in touch with financial mentors, and just last month proactively signed a Memorandum of Understanding with FinCap formalising the two organisation's already good working relationship and commitment to working together towards good outcomes for consumers.
FSF is still firm in its stance that passing any further legislation will not make a difference to harm being caused by irresponsible lenders unless it is properly enforced and the Commerce Commission sufficiently resourced to so.
The FSF's submission can be downloaded here.