DROWNING IN
Despite changes to the law three years ago, easy credit is still dangerously easy to get so the Government is considering upping the ante on loan sharks, reports.
ELSIE Meads understands only too well how easy it is to get credit.
A long-time resident of Porirua, Meads is something of an expert on the array of different companies which are willing to extend her credit, despite her being a sole parent who relies mainly on a benefit and part-time work.
At one point, the mum-ofseven, whose partner died almost two years ago, had debts of $27,000 to finance companies and retailers which had sold to her on credit or layby.
Since taking office in October, the new Government has promised to review credit laws passed in 2014, which were meant to prevent loans being given to those who could not afford them.
Labour has also raised the prospect of capping interest rates, a subject ministers admit will be complicated, and adding requirements to protect the vulnerable.
But to those on the receiving end, as well as those who advise them, the issue appears to be as much about the availability of the credit to people with little means to repay, it as it is about the price.
Even after years in debt, Meads is not claiming she was taken in. She says most of the debt was built up to Wellingtonbased Superloans, which makes it clear on its website (as it is required to do) that its interest rates are between 100 per cent and 400 per cent a year.
The company did not respond to requests for comment on this story, however, its website describes using annual interest rates as a ‘‘crazy’’ way to measure its loans, which are meant to be short-term.
‘‘I knew all about the interest and stuff like that, but at the time I was in need of money that day, towards bills,’’ Meads said.
‘‘Knowing how much to pay, I knew everything. But I still put myself in that situation.’’
Even after she began receiving budgeting advice, she still found herself returning to Superloans, where staff were welcoming and willing to lend, and inevitably she borrowed ‘‘the max’’, several thousand dollars each time.
‘‘Sometimes I try to stand on my own two feet without having the agencies help,’’ Meads said. ‘‘I always seem to go good for a bit, but then something will come up and it just takes me back to where I started.’’
The plethora of options available to her, or practically anyone, is surprising.
From clothing shops offering the latest fashion at inflated prices, to shopping trucks which offer goods delivered to your door (also at inflated prices), to loan companies which provide highinterest loans and pawn services, Porirua has it all, as do other predominantly low-income communities.
Meads’ debts are now slowly coming under control, to around $10,000, after budgeting help from the Salvation Army, as well as low and no-interest loans to assist her to manage the liabilities.
Her mother and step-father have moved back from Australia to help assist her, generosity she hopes she is able to return.
She believes it is too easy for people to get credit, a lesson she learned the hard way. ‘‘You have to struggle to learn.’’
Alexandra Rumbal, a financial mentor for the Salvation Army, said the amount of credit offered by finance companies is clearly beyond what many people can afford.
Rumbal has a client who she knew could not afford her loans because the money was being used to fund a drug habit.
‘‘I’ve got people who have got $200 in repayments a week. That’s more than what they get from the benefit. How can these companies possibly come to the conclusion that people can pay these loans back?’’
The exact extent of the problem of finance company lending to low-income people is unknown, but it appears to be acute in some communities.
The Salvation Army in Porirua has 167 people receiving budgeting advice, and while the source of trouble is varied, hundreds of thousands of dollars is owed to finance companies, retail store cards and credit card debt. Most of those in debt trouble are on benefits, and most are Maori or Pacific Island families.
Interest rates offered by some second-tier lending will be shocking to those able to rely on the mainstream banks.
In September, Cash Converters said it was taking on new, larger offices in Lower Hutt to allow its finance arm to expand.
Launched two years ago, staff numbers had already grown from seven to 50, and it was receiving 4000 calls a week for loans which carry annual interest rates of 144 per cent, excluding fees.
Fees included a $145 establishment fee, on loans as small as $600.
Other companies are charging even more.
Damien Hazelwood, another financial mentor with the Sallies, said he had seen contracts with interest rates of up to 800 per cent, using language which the clients clearly could not understand.
He had seen shopping trucks try to charge people $75 for visits which they had not asked for.
The impact of loan sharks, or second-tier lenders, is not new in New Zealand, and the former National-led Government promised to make changes to protect the vulnerable.
The Credit Contracts and Consumer Finance Amendment Act 2014 led to the creation of the Responsible Lending Code, which required lenders to assess whether borrowers are in a position to repay loans.
It also required that fees imposed on borrowers should be proportionate to the cost involved, not as a means of profit.
Labour has consistently argued that the 2014 changes did not go far enough, and its stance has not softened since taking office in October.
New Minister of Commerce and Consumer Affairs Kris Faafoi gave a blunt assessment of what the impact of the law changes had been.
‘‘Some, quite frankly, dodgy behaviour, masquerading as checks of whether people have the ability to pay the loans,’’ he said.
If we think the settings as they are right now are right, then I think we’d be dreaming. KRIS FAAFOI, LEFT
‘‘The law may have changed but the practices of some of the businesses that are offering credit, their behaviour has changed in a way to try to usurp the law.’’
Faafoi said the agencies which offered budget help to the indebted was providing him with examples of affordability assessments which were blatantly ignoring the real situation borrowers were in.
‘‘It’s quite clear the calculations aren’t valid. We’re talking people being assessed with the ability to pay and they’re not factoring [in] rent or power. That may meet the test of doing a calculation, but I don’t think it’s a reasonable calculation.
‘‘If we think the settings as they are right now are right, then I think we’d be dreaming.’’
As well as spending a day with budgeting agencies in South Auckland since becoming minister, Faafoi has also seen the issues raised frequently asMP for Mana, the scale of which was ‘‘a bit scary’’.
Beyond what he hears from the budgeting agencies, Faafoi suspects there are people who