Loan shark clampdown fast-tracked

Fears that desperate households will resort to crippling highinterest loans during the coronavirus crisis have prompted the Government to fast-track legal protections against loan sharks.

From today, lenders charging interest of 50 per cent or more will not be allowed to charge interest and fees adding up to more than 100 per cent of the amount they lend to any borrower.

Compound interest on highinterest loans will also be banned, and fees for defaulting on will be capped.

The measures under the Credit Contracts Legislation Amendment Act were due to come into force on June 1 this year, but Commerce Minister Kris Faafoi said the economic disruption caused by the fight against Covid-19 meant the change had to be accelerated.

‘‘These are financially stressful times for many wha¯ nau and families around New Zealand,’’ he said.

‘‘I urge anyone facing financial difficulties to explore other options before taking on any new loans.

‘‘They can talk with their lender about alternative repayment payments arrangements, contact Work and Income for financial assistance, get in touch with Good Shepherd about a no-interest loan, or call the MoneyTalks helpline . . .

‘‘The Government wants to do as much as possible to ensure vulnerable borrowers don’t get trapped in spirals of debt.’’

The pressure on households as the economy came to a virtual halt under the nationwide lockdown was shown in figures released yesterday by the Financial Services Federation of non-bank lenders.

‘‘Federation members have been hugely responsive in assisting customers experiencing urgent

Commerce Minister financial stress, with 3700 loan variations in the first fortnight of lockdown alone, and 5843 in the second,’’ executive director Lyn McMorran said.

She said those loan variations included changing some loans to interest-only payments, allowing people to defer payments or extend the term of the loan.

Very few new loans were being made by members, which include Instant Finance, Toyota Finance and Avanti Finance, she said.

None of the federation’s members were among the high-interest lenders Faafoi’s new laws were designed to rein in, she said.

‘‘The Government wants to do as much as possible to ensure vulnerable borrowers don’t get trapped in spirals of debt.’’

Kris Faafoi