Govt should fast-track loan shark clampdown

There are many wise and welcome moves against predatory loan shark practice in the proposed changes to the Credit Contracts and Consumer Finance Act announced this week – but I am deeply disappointed that none of the changes will be introduced until 2020.

That means thousands of families have two more years where they have to choose between making a high-cost debt repayment, or putting food on the children’s table.

It means two more years of vulnerable people being plunged into stressful all-consuming debt when, in desperation, they risk involvement with these lenders and traders.

The proposed changes, when they do eventually come into force, are good.

For example, the Government hasn’t fallen into the trap of setting an interest rate cap which could have been easily circumvented by loan sharks setting higher fees for set-up and administration. Instead, the Government is proposing a total cost of credit cap of 100 percent, including interest and fees, so if someone borrows $500, the most they have to repay is $1000. In the current regime, where 500 percent interest is not uncommon, a small debt can easily escalate into something crippling.

It is good, too, that the Commerce Commission will have more power to challenge lenders regarding the reasonableness of their fees.

A recent applicant for one of Ngā Tangata’s no interest, no fees loans was with a high-cost loan provider who was charging, in addition to interest of 29 percent, a monthly administration fee just a few dollars less than the monthly repayment. This had gone on for years. A lifetime of repayments would leave the applicant still with a debt almost as big as when they first borrowed the money.

This illustrates exactly why the Government was wise to include all fees and interest charges in the cap.

Other much-needed changes are more accountability for mobile traders, including a ‘fit and proper person test’, and the enforceable use of ‘Do not knock’ stickers for people who do not want the mobile traders to call on them.

Changes to the Act also recognise there is a need for alternatives to banks and mainstream lending for people who are in financial strife. Instead of loan sharks, ethical lenders like Ngā Tangata Microfinance can fill this need.

Ngā Tangata’s loan capital is provided by Kiwibank, and the lean administration costs are met by the JR McKenzie Trust. The organisation, like other ethical lenders, survives through the committed contribution of these partners and volunteers. But the sector can’t continue to function and grow without government support – maybe this is a change that could be made by 2020 too? Maybe the Government could fast-track the legislation and bring the changes in sooner?