Charles Chauvel

Wellington, Nov 26 NZPA - New Zealand should wait and see whether Australia moves to set a maximum interest rate that loan sharks can charge, MPs were told today.

Parliament's commerce select committee was to told by consumer affairs ministry officials that they still advised against capping interest rates, but it was worth waiting to see what happens in Australia.

Labour MP Charles Chauvel has a bill before Parliament that proposes capping the interest rate lenders can charge under a consumer credit contract at 48 percent.

It would also render a contract unlawful if a lender reasonably believed the borrower will not be able to repay the loan and limits the amount a creditor can recover from a debtor.

Mr Chauvel said the bill was seeking to curb the actions of loan sharks who charge excessive interest rates.

Consumer affairs officials said Australia was in effect acting as a test ground for whether loan caps worked with three states imposing them and the rest not.

If Australia implemented caps at a federal level, then this might indicate New Zealand should move in a similar direction.

The ministry believed that setting caps just meant all loans moved to that interest rate and loan sharks changed their behaviour by creating fees and different lending instruments to get around the rules.

Some Australian states were evolving their caps rules to try to keep up with changes, officials said.

New Zealand officials were working closely with their Australian counterparts to see if the interest rate caps were worth implementing nationally.

Mr Chauvel said he had put his bill on hold and was hoping to get support from National or ACT to send it to select committee for closer scrutiny next year.

"Payday loans from loan sharks at 2000 percent a year are a disgrace and New Zealand is one of the few countries left that does not have laws in place to deal with them," he said.

The bill was drawn out of a ballot for laws proposed by backbencher and opposition MPs.

These bills usually make slow or no progress through Parliament as they are only dealt with in a specified fortnightly session.

Under the current composition of Parliament members' bills need the support of National or every other party in Parliament to even make it past their first vote.