Plea for loan ad­vert curbs

Marlborough Midweek - - FRONT PAGE -

rob.stock@fair­fax­me­dia.co.nz

Some­times ad­ver­tis­ing is so nakedly re­al­ity-deny­ing that it grates.

Loan com­pa­nies are among the worst at this.

Their loans, their ad­verts claim, are the way to gain ‘‘con­trol’’, to ‘‘get a plan’’, to ‘‘make it hap­pen’’.

Their loans are ‘‘a brighter way to bor­row’’ for ‘‘or­di­nary Ki­wis’’, for ‘‘ev­ery­day’’ peo­ple.

Im­ages of tremen­dously happy, successful ‘‘bor­row­ers’’ adorn their web­sites. They are often in­ex­pli­ca­bly wan­der­ing along beaches, or on swings, or do­ing hand­stands.

Loan com­pany staff in ad­verts are al­ways good look­ing, beam­ing be­at­if­i­cally, or giv­ing you one of those ‘‘come hither’’ smiles.

But peek be­hind the ad­verts at the hard re­al­ity of the loans they are mak­ing, and a less sunny pic­ture emerges.

When the Bri­tish author­i­ties did this with Payday loans in 2013 they dis­cov­ered a very hard re­al­ity.

Sure, the an­nual payday loan Avoid con­sumer debt It erodes your fi­nan­cial well­be­ing It de­stroys your abil­ity to pros­per

in­ter­est was high, but these were short-term loans, so no prob­lem, right? There was hardly any time for the in­ter­est to add up?

The re­al­ity was, the Bri­tish author­i­ties found, that the payday lenders they stud­ied made half their money from blighted souls who rolled over their loans again, and again.

Payday loans weren’t as short-term as the ad­verts made them out to be. Peo­ple were get­ting trapped into high cost debt.

So, the Brits banned payday lenders from rolling a loan over more than once.

We are go­ing to get a lot more of this kind of pre­scrip­tive in­ter­ven­tions in months to come.

Word has it that com­merce min­is­ter Kris Faafoi in­tends to put hard lim­its on the prof­i­teer­ing on loans, in­clud­ing set­ting max­i­mum in­ter­est rates, and ban­ning mul­ti­ple re­pos­ses­sions.

Faafoi shares the burn­ing am­bi­tion of for­mer Na­tional Party min­is­ter Sam Lotu-Iiga, who did his best to re­form lend­ing and re­pos­ses­sion laws, to give lower-in­come fam­i­lies (in which Pa­cific Is­land and Maori fam­i­lies are over-rep­re­sented) a fairer set of lend­ing laws.

If Faafoi wanted to have a lit­tle fun while bring­ing in his new laws, and pro­mote open­ness in ad­ver­tis­ing, he could also pre­scribe that lenders have to re­veal in all ad­verts the pro­por­tion of their loan books that were in ar­rears. That’d lift the veil.

Take GEM, for ex­am­ple, which sells loans on credit cards, and is owned by Aus­tralian com­pany Lat­i­tude Fi­nan­cial Ser­vices.

It’s a vast en­ter­prise, with a big mar­ket­ing spend. Re­cently, it used Amer­i­can celebrity Alec Bald­win to front its averts.

At the end of De­cem­ber it has a stag­ger­ing $1.43bil­lion of loans in New Zealand. BNZ, one of the big four banks, only had $1.2b in credit card debt at that time.

And of the $1.43b of GEM loans, $226 mil­lion was past due, mean­ing the bor­rower was not up to date with their pay­ments.

Imag­ine that fast-talk­ing blurb at the end of the ad­vert: ‘‘Gem Visa and lend­ing cri­te­ria ap­ply. $55 es­tab­lish­ment fee, and $55 an­nual ac­count fee ap­ply. Pre­vail­ing in­ter­est rate of 29.99 per cent ap­plies af­ter in­ter­est­free pe­riod ends. Oh, and 15.8 per cent of loans are to bor­row­ers be­hind in their pay­ments.’’

Not very com­fort­ing from a mar­ket­ing per­spec­tive, but more in­for­ma­tive for the pub­lic.

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