Government crackdown on loan sharks
Legislation to protect vulnerable people means predatory lenders will face fines of $600K if they breach laws
Savings and budgeting groups have welcomed the Government’s crackdown which will see loan sharks hit with fines of up to $600K. Peter Cordtz, the The Commission for Financial Capability (CFFC), said predatory lending actions were having a crippling effect on families and communities.
“High interest debt traps them in poverty and hinders not only their own future but that of their children,” Cordtz said.
The Government’s measures announced yesterday will also cap the amount of interest that loan companies can charge.
Prime Minister Jacinda Ardern and Commerce and Consumer Affairs Minister Kris Faafoi said the Government would impose stiff penalties for those who break the rules and also introduce a fit and proper person’ test for lenders, door-to-door salespeople and truck shops.
“This Government is committed to making New Zealand the best place to raise a child,” Ardern said. “To do that we must stop families becoming trapped in the appalling debt spirals and poverty that result from onerous lending and payback terms.
“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.
“They will protect families through capping the total interest and fees charged loans, introducing tougher penalties for irresponsible lending, and raising the bar for consumer lenders to register as a Financial Service Provider,” she said.
These statements were applauded by Tim Barnett, the chief executive of charity group FinCap, who said he was pleased to see the Government tackle an issue that was hitting New Zealand’s kids hard. “The lives of children are harmed by the excessive repayments required to service high cost lending,” Barnett said. “Money isn’t there for the basics, and children suffer. Preventing harm from consumer lending will improve the lives of thousands of children in New Zealand and support the aims of the measures to reduce child poverty such as the Families Package.”
The changes won’t come into effect until 2020.
Kris Faafoi said changes to the Credit Contracts and Consumer Finance law in 2015 didn’t do enough to protect vulnerable.
“The introduction of an interest and fees cap on high-cost loans will prevent people from accumulating large debt from a single small loan. For example, if you borrow $500 you will never have to pay back more than $1000 in total, including all fees and interest.
“The changes also lift the level of professionalism across the industry, by requiring directors and chief executives of lenders offering consumer credit contracts to pass a ‘fit and proper person’ test to register as a Financial Service Provider.
“Any lenders breaching the responsible lender principles will face stiff new penalties of fines up to $600,000 under the strengthened enforcement provisions in the [law].”
The Government is also tackling predatory behaviour by truck shops and others who sell door-to-door on credit or other deferred payment, by requiring all mobile traders to pass the ‘fit and proper person’ test.
In April this year, the Commerce Commission imposed its biggest ever fine on a truck shop, whacking Mobile Shop with a $330,000 fine after the company pleaded guilty to 12 charges under the Fair Trading Act and a further 12 under the Credit Contracts and Consumer Finance Act.