Be­ware the usurer

Element - - Snapshot - Adam Gif­ford Per­sonal fi­nance

There are 218 third-tier lenders op­er­at­ing in New Zealand, pro­vid­ing per­sonal, non­mort­gage loans.

Or at least there were when the Min­istry of Consumer Af­fairs counted them ear­lier this year. Since 2006, 95 lenders have left the mar­ket and 127 new ones have come in. There has been a 60 per cent growth in the num­ber of out­lets in the past five years, with 47 out­lets in South Auck­land alone.

About a third of the lenders ap­peared to have not reg­is­tered as re­quired by law, which the reg­is­trar of fi­nan­cial ser­vice providers is in­ves­ti­gat­ing.

Their ad­ver­tis­ing tends to tar­get low-in­come earn­ers, ben­e­fi­cia­ries and young peo­ple who don’t have the sort of credit his­tory de­manded by banks, and it em­pha­sises the ease, speed, flex­i­bil­ity, and nor­mal­ity of third-tier loans.

What it of­ten doesn’t do is dis­close bor­row­ing costs, which when added to the rate on the sticker and any de­fault costs can mean real an­nual in­ter­est rates of 100 per cent plus.

About a third of the lenders ap­peared to have not reg­is­tered as re­quired by law, which the reg­is­trar of fi­nan­cial ser­vice providers is in­ves­ti­gat­ing.

Adam Gif­ford

The at­tempt by Labour MP Carol Beau­mont to in­tro­duce a bill which would have capped in­ter­est rates and set out rea­son­able lend­ing pro­vi­sions was voted down by the Govern­ment.

But Beau­mont says the pres­sure gen­er­ated by a broad coali­tion against loan shark­ing led to Consumer Af­fairs Min­is­ter Si­mon Power call­ing last month’s Fi­nan­cial Sum­mit. His of­fi­cials are now work­ing through what was said with the aim of pre­par­ing an op­tions pa­per for Cabi­net by early Oc­to­ber.

“We will sup­port any ini­tia­tive they come up with that will im­prove things,” Beau­mont says. There are al­ter­na­tives to this kind of bor­row­ing: Aotearoa Credit Union gen­eral man­ager Bruce Bleak­ley says credit unions are keen to di­rect peo­ple away from loan sharks, pro­vid­ing rea­son­able in­ter­est rates and com­pas­sion­ate loan terms. “In our case we will work with peo­ple with ad­verse credit rat­ings, per­haps set­ting up a re­pay­ment sched­ule to get them off that yoke,” he says.

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