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MPs Asked To Back Bill Capping Loan Shark Rates

Contributor:
Fuseworks Media
Fuseworks Media
Charles Chauvel
Charles Chauvel

Wellington, March 11 NZPA - MPs are being urged to send to a select committee a bill seeking to cap interest rates that loan sharks charge.

Labour MP Charles Chauvel's member's bill -- the Credit Reform (Responsible Lending) Bill -- was introduced to Parliament last August. Labour's Carol Beaumont is taking over the bill and is urging MPs to vote for it when it gets its first reading, likely to happen in April.

Ms Beaumont said the bill would be part of a bigger campaign to crack down on unscrupulous money lenders.

Loan sharks charged "obscene rates" and were unconcerned whether the borrower was able to pay money back, she said.

"Increasing numbers of people are pawning items like bikes and children's toys to borrow funds to be able to pay the bills.

"In some cases people are borrowing to pay off interest and then incurring much higher interest as a result, leaving them in more trouble than they were in the first place."

Predatory lenders targeted vulnerable communities including Maori and Pacific people and students. Rates were known to have exceeded 1000 percent.

In June last year a damning Consumer Affairs Ministry report outlined how "fringe lenders" generally targeted low income areas with high Pacific Island and Maori populations.

Borrowers were generally not able to get mainstream loans, and as a last resort accepted offers from lenders charging huge interest rates and fees, severe penalties, inflexible terms and conditions and little documentation.

Research identified over 180 fringe lender companies, including "pay day" lenders, who offered advances to cash-strapped borrowers waiting for their next pay cheque, but gouged huge fees in the process.

However the report cast doubt on the potential effectiveness of introducing legislation to cap interest rates.

Ms Beaumont said the bill was not a complete fix but would make a difference. Education about budgeting and financial matters and a boosted minimum wage were also needed.

"We need to find a way for those people turned away by the mainstream banks to find credit when need it."

Ms Beaumont outlined case studies of families badly burnt by loan sharks.

* A loan for a $3000 car saw a large Tongan family end up with no car and a $10,000 debt;

a Samoan family declared themselves insolvent after being charged exorbitant interest on a loan to pay the rent when the father lost his job;

a Tongan mum with four children lost all her furniture and other possessions which were security on a $13,000 loan to go to Tonga to bury her father. She now owes nearly $24,000.

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