Loan sharks face $600k fine

Lenders who breach responsible lending principles will face new penalties of up to $600,000, it has been revealed.

The Government is targeting loan sharks and truck shops.

‘‘The 2015 amendments to the Credit Contracts and Consumer Finance Act [CCCFA] did not go far enough in protecting our most vulnerable consumers from loan sharks,’’ Minister of Commerce and Consumer Affairs Kris Faafoi said.

‘‘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,’’ he said.

‘‘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 the ‘fit and proper’ test in order to register as a financial service provider.’’

Lenders breaching the responsible lender principles will face stiff new penalties of fines up to $600,000 under the strengthened enforcement provisions in the CCCFA.

The announcement was made at the Vaiola Pacific Island Budgeting Service in Mangere, Auckland, where Prime Minister Jacinda Ardern and Faafoi met with people affected by predatory lending, as well as with budgeting and financial advice providers.

‘‘We listened to consumer advocates and the finance sector’s feedback and will also be seeking increased resources for enforcement and monitoring to ensure lenders who break the law are detected and stopped,’’ Faafoi said.

‘‘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.’’

The changes are expected to come into effect from 2020.

Faafoi said: ‘‘Kiwis are still getting dragged into debt spirals where a small debt goes into a large debt due to accumulating interest.’’

He said he would boost resources going to the Commerce Commission before the next Budget to beef up the watchdog’s enforcement powers.

Ardern said the Government wanted Work and Income to be the first port of call for New Zealanders facing financial difficulty.

‘‘Providing alternative sources of low- and no-interest loans is something that we do continue to work on, but what we needed to do was rein in that predatory lending that’s out there now . . . We need to make sure that in desperate circumstances that families [who] are going to those predatory lenders are not finding themselves in a debt spiral,’’ Ardern said.

The Government will also require all mobile traders to pass the ‘‘fit and proper person’’ test. In addition, consumers will have clearer powers when asking uninvited salespeople to leave their premises, including by a strengthening of the legal status of ‘‘do not knock’’ stickers.

‘‘Kiwis are still getting dragged into debt spirals.’’

Minister of Commerce Kris Faafoi