Cap on ‘payday loan’ cost
WELLINGTON: Small payday loan costs will be capped at 100% of the amount borrowed, as part of Commerce and Consumer Affairs Minister Kris Faafoi’s crackdown on predatory lenders.
But consumers being fleeced are likely to have to wait until 2020 for any change.
Announcing the measures with Prime Minister Jacinda Ardern, the minister confirmed plans to cap accumulated interest and fees on highcost loans at 100% of the principal amount. This means someone who borrows $500 will not pay more than $1000. The cap is one of the measures imposing tougher oversight and criteria on socalled payday lenders, with bigger penalties if they get it wrong.
‘‘These new measures will halt the very worst of those preying on vulnerable and desperate people, while enabling borrowing that meets their needs in an affordable way,’’ Ms Ardern said in a statement. ‘‘They will protect families through capping the total interest and fees charged on loans, introducing tougher penalties for irresponsible lending, and raising the bar for consumer lenders to register as a financial service provider.’’
Mr Faafoi sought feedback on ways to tighten money lending regulations in June, after deciding a review of the Credit Contracts and Consumer Finance Act by the previous administration did not go far enough. He has been focused on improving the lot for consumers, and put his hand up for the commerce portfolio to address some of the issues he sees in his Mana electorate.
Limiting loanrelated interest and fees only applied to highcost lenders, he said in a Cabinet paper. The measure aims to prevent debt from spiralling out of control and causing serious financial hardship.
The other major reforms include requiring consumer finance firm directors and executives to meet a ‘‘fit and proper’’ test as a requirement of registration.
This will be extended to mobile traders offering credit. MBIE officials said the regime would impose moderate costs on lenders that might be passed on to consumers, but noted the majority of stakeholders wanted greater registration or licensing requirements.
The Government plans to increase penalties to $600,000 for a corporate and $200,000 for an individual and impose a duty on directors and management to ensure obligations are met.
Mr Faafoi will also introduce powers allowing the Government to set standards for loan affordability and suitability, and for responsible advertising.
The new measures are expected to come into effect in 2020, subject to Parliamentary timeframes.
Mr Faafoi will also get a new power to adjust the law to deal with harm that comes from unregulated products in the future. — BusinessDesk