Loan sharks attack by Labour’s Kris Faafoi

‘‘When many are barely getting by, and are often very close to going under, the appeal of easy credit is not hard to understand.’’

Some cynics might say the Government’s crackdown on loan sharks and truck shops has a whiff of easy, virtuous politics, but in reality it is a welcome and overdue move. That there has been no criticism of it from the Opposition or even the Right-wing blogs that routinely attack most of the Labour-led coalition’s decisions shows the move is both necessary and uncontroversial.

The backdrop to the review of the Credit Contracts and Consumer Finance Act (CCCFA) is that a 2015 overhaul under the previous government did not do enough to protect vulnerable consumers. The 2015 changes came in a context of increasing media and political attention on poverty and overcrowding, and a growing awareness that even the working poor find it hard to make ends meet.

When the Government talks about vulnerable consumers, it refers to people with low literacy and numeracy skills, who may not be confident speakers of English or are under financial pressures, time pressures or both. These are the people who fall victim to loan sharks and truck shops in areas such as south Auckland and Porirua.

Porirua is the turf of Mana MP and Minister of Commerce and Consumer Affairs Kris Faafoi, who is behind the legislative changes. As he told Stuff in July, he has seen the problem first hand: ‘‘I’ve certainly had close family who’ve been in this situation and it’s not pretty,’’ he said. ‘‘Seeing the things they can’t do for their children because they have to pay back huge amounts of debt.’’

The problem of debt is described in the footnotes of the Cabinet paper released this week. Two Wha¯ nau Ora providers, one working with Ma¯ ori families and the other with Pacific families, said ‘‘most of’’ their clients struggle with unmanageable debt. When one surveyed 74 Ma¯ ori Housing New Zealand tenants, they found 42 per cent had debt to lenders, 43 per cent had debt being pursued by debt collectors, while a staggering 89 per cent reported running out of food due to lack of money, sometimes as often as once a week.

When many are barely getting by, and are often very close to going under, the appeal of easy credit is not hard to understand. Rapidly accumulating debt from high interest rates becomes a problem for another day.

The new measures will limit debt size. An interest and fees cap means the debt cannot be more than double the original loan. As the Government explained, ‘‘If you borrow $500 you will never have to pay back more than $1000 in total, including all fees and interest’’.

That will benefit the borrower. Other new measures will regulate lenders, the most striking a fine of up to $600,000 for breaching the responsible lender principles. The legislation also demands greater transparency from lenders and tests ensuring lenders are ‘‘fit and proper’’.

As Prime Minister Jacinda Ardern said, this crackdown must be matched by the creation of more reasonable, even government-led, alternatives, but ending the debt spiral is the first priority.

Few would disagree that predatory activities targeting vulnerable, uninformed, desperate communities must be stopped. The bigger and tougher problems of poverty and inequality making such activities possible also need addressing.