Loan shark clampdown fast-tracked

Thursday, 30 April 2020

Commerce Minister Kris Faafoi said the economic downturn meant rule changes were needed more quickly.

Fears desperate households will resort to crippling high-interest loans during the coronavirus economic crisis has prompted the Government to fast-track legal protections against loan sharks.

From Friday high-interest lenders charging interest of 50 per cent or more will not be allowed to charge interest and fees adding up to more than 100 per cent of the amount they lend to any borrower.

Compound interest on high interest loans will also be banned, and fees for defaulting on payments will be capped.

The measures were due to come into force later this year, but Commerce Minister Kris Faafoi said the economic disruption caused by the fight against coronavirus meant the change had to be accelerated.

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“Changes under the Credit Contracts Legislation Amendment Act to strengthen protections for vulnerable borrowers were due to start on 1 June 2020,' Faafoi said.

'However, as a result of the disruption and financial concerns caused by COVID-19, the Government is bringing forward the introduction of some measures.'

A relaxed minister of commerce Kris Faafoi with Financial Services Federation executive director Lyn McMorran.

'These are financially stressful times for many whanau and families around New Zealand,' he said.

'I urge anyone facing financial difficulties to explore other options before taking on any new loans.

'They can talk with their lender about alternative repayment arrangements, contact Work and Income for financial assistance, get in touch with Good Shepherd about a no-interest loan, or call the MoneyTalks helpline.'

“Covid-19 is putting financial pressures on a lot of New Zealanders and some may have to draw on high-cost, short-term loans. The Government wants to do as much as possible to ensure vulnerable borrowers don’t get trapped in spirals of debt.'

The pressure on households as the economy came to a virtual halt under nationwide lockdown was shown in figures released on Thursday by the Financial Service Federation of non-bank lenders.

'Federation members have been hugely responsive in assisting customers experiencing urgent financial stress, with 3700 loan variations in the first fortnight of lockdown alone, and 5843 in the second,' said executive director Lyn McMorran.

She said those loan variations included changing some loans to interest-only payments, allowing people to defer payments, make lower repayments, or extend the term of the loan.

Lenders expected more borrowers to come under financial pressure.

'We expect this to only worsen when household expenditure normalises as Alert Levels

rise, and when wage subsidies run out and companies are forced to make some tough decisions,' she said.

Very few new loans were being made by Federation members, she said.

Member companies included Instant Finance, Toyota Finance and Avanti Finance.

'New lending has virtually stopped entirely over Alert Level 4 for our members, apart from the

odd vehicle loan for essential workers. Instead, our members are focussing on helping their

customers who are requesting assistance through this time,' McMorran said.

None of the Federation's members, which included Instant Finance, were among the high-interest lenders Faafoi's new laws were designed to reign in, she said.

Tim Barnett, chief executive of budgeting services umbrella agency FinCap welcomed the new laws.

'While people have been careful not to borrow during Alert Level 4 despite challenges with their cash flow, as economic activity increases, we are likely to see an uptake in lending again, particularly high cost lending,' he said.