Predatory lenders in the crosshairs as Government's consumer reform takes effect

Thursday, 4 June 2020

They sell $35 packs of noodles to poor families, but they finally face tighter restrictions as new consumer law reforms kick in.

Mobile truck shops and loan sharks are now in the crosshairs as the Government's consumer law reforms take effect.

Prime Minister Jacinda Ardern is adamant the changes are enough to tread the fine line between a debt spiral and a legitimate loan for the nation's poor.

Consumer Affairs Minister Kris Faafoi and Ardern visited a Porirua kindergarten on Thursday, to publicise the Government's efforts to curb predatory money lenders.

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Ardern said she had a 'shocking realisation' when she discovered lenders - whom she saw as predators - were often seen as saviours by those most in need.

The Government aimed to reduce need and to regulate predatory behaviour, she said.

'That applies not just to those loan sharks, it also applies to those trucks that we see moving around communities, often preying on people.'

As previously reported by Stuff, the mobile traders targetted low-income communities by offering weekly repayments on overpriced goods.

Consumer NZ had found instances of mobile traders charging $35 for noodles, and $4500 for a pair of cellphones.

Changes to the Credit Contracts and Consumer Finance Act came into effect this week. Mobile traders and truck shops will now have to meet already established 'responsible lending protections', there will be a cap on interest rates for loans, and there will be a limit on how often lenders can provide credit to people already in debt.

Faafoi said debt spirals in low-income families - that saw $150 debt turned into '$1500, $2000' - needed to stop.

As the nation came out of alert level 4, the Government was concerned that some families could turn to loan sharks or truck shops to reduce financial pain.

They pushed forward the latest tranche of changes by a month, he said.

Some lenders who offered people high-cost loans were charging more than 600 per cent interest a year, Faafoi said. An interest cap would now limit this to 0.8 per cent per day.

'We also made sure lenders can't enter into a third loan with someone who has taken out two loans already in the last 90 days.'

Speaking after the announcement, Ardern was adamant the changes would make a difference to low-income families.

'When you look at the caps that are in place, we're talking about the difference between a loan and a debt-spiral.'

The Porirua kindergarten visited by Faafoi and Ardern, Whānau Manaaki o Tararua, also holds a social work contract and offers a budgeting service to families.

'BORROWERS ARE SO ENSLAVED'

Porirua-based social worker Moamoa Faleafaga says the impact loan sharks have on people in low-income areas is massive.

'The impact is huge in regard to the financial struggles that families have, it's an ongoing struggle that they have because of the impact of loans. And those mobile lenders, the trucks, it's so easy to access them and most of the people are getting preyed on,' Faleafaga said.

He has dealt with and seen certain families who aren't even told by lenders how much they will be paying for particular products they're buying. Some cell phones, for example, can cost about $2000 towards the end of payments.

One family Faleafaga knew of borrowed $5000 from a lender and ended up paying back nearly $9000.

He reckoned the new caps would help the current situation, but said there was room for even further cracking down.

'Their prices are so inflated … borrowers are so enslaved by these borrowings, but it's easier for them [than the] worst-case scenario [of going without].

'It's really sad. These people need to buy socks or shoes … you can't see those trucks in … Whitby. I live in Porirua - you see them around Cannons Creek, Titahi Bay. They look for houses and low-income families who are trying to get through day-by-day.

'They seem so attractive, no hassles … if you're longing to have a laptop, they get sucked in to that just to get their hands on it and end up paying a lot more.'