Call to stop lenders diverting benefits

More than 24,000 beneficiaries have ‘‘attachment orders’’ diverting some of their meagre incomes into the pockets of lenders, a Salvation Army report has revealed.

It was a practice that should be banned, the Salvation Army said in the Debt Collection and Repossession in Aotearoa report.

Under the army’s proposal, if a person in significant financial hardship qualified for ‘‘judgmentproof debtor status’’, they could not be forced to repay their debts using their government welfare benefits, report author Ronji Tanielu said.

‘‘Since nearly 80 per cent of our clients have as their main source of income a government benefit, then this policy change would greatly help us support our clients facing mountain loads of problem debt.

‘‘With more than 24,000 attachment orders made against beneficiaries in 2018, this new kind of policy would aid thousands of poorer New Zealanders not to fall into deeper debt traps and spirals, and hopefully to not go down the debt collection and insolvency pathways too quickly.’’

Commerce Minister Kris Faafoi plans lending law reforms to reduce the amount of harmful lending happening in lowerincome areas, including measures to prevent debts spiralling over extended periods of time such as setting legal caps on loan interest rates and limiting the total amount lenders can earn from loans.

But the Salvation Army did not believe the proposed reforms went far enough, and wanted heavier regulation of debt collectors, in line with other developed countries.

‘‘There has been a lot of good focus recently on the interest rate cap campaign,’’ Tanielu said.

‘‘But the proverbial light needs to continue to be shone on other important credit contracts and financial issues such as debt collection and repossession.’’