Foreign lenders circling ‘payday’ loans market
‘Rising inequality in New Zealand is a real problem and this type of predatory lending is both a result of inequality and it exacerbates it.’
A BRITISH firm trying to cash in on the rapidly growing ‘‘payday loans’’ market is charging the equivalent of 730 per cent a year.
And Labour politicians are again calling for a cap on the rates lenders can charge, as Britain, Australia and the United States have all done this year.
Payday loans are expensive short-term loans of anywhere from $50 to $1000, with interest rates sometimes as high as 2 per cent a day, designed to be a cash stopgap for borrowers until they next get paid.
The number of businesses offer- ing payday loans is booming because they mostly operate online, in some cases with the pledge that loan applications will be accepted or declined within minutes.
The online delivery of loans straight into borrowers’ bank accounts means open slather for foreign lenders wanting a piece of the New Zealand market. Others are based in Sweden, Finland, Estonia and Australia.
The latest seeking to cash in is Britain’s 247Moneybox. Despite its interest rates of 2 per cent a day, adding up to 730 per cent a year, it claims it ‘‘brings both classleading analytics and technology and a commitment to responsible
Green Party MP Julie Anne Genter lending to the consumer finance space in New Zealand’’.
Family Budgeting Services chief executive Raewyn Fox said the theory with these loans was that they were paid back within a week or two, but they were usually lent to people who could not afford to repay them.
‘‘If they really were desperate and couldn’t pay for stuff this week, then next week, they’ve still got lots of stuff to pay for and the loan repayments, so it does tend to complicate the situation.’’
Carole Beaumont, Labour’s spokeswoman for consumer rights and standards, wanted interest rates capped and said the lack of such restrictions in the Credit Contracts and Financial Services Law Reform Bill was a weakness.
‘‘We are talking about vulnerable consumers and we need to lift financial literacy.The US, UK, Australia all this year have put in place interest-rate restrictions. ’’
Consumer Affairs Minister Craig Foss said the danger of putting caps on credit was that it could make short-term credit unavailable for those who needed it and could drive ‘‘loan sharks underground, where they will not be regulated’’.
‘‘The Credit Contracts and Finance Services Law Reform Bill has responsible lending provisions that will stop the abuse of this type of lending.
‘‘These provisions make it illegal for credit companies to lend without making adequate checks that repaying the loan will not lead to substantial hardship for the borrower.’’
Green Party MP Julie Anne Genter said the bill, submitted in April, still had not had its first reading. ‘‘Rising inequality in New Zealand is a real problem and this type of predatory lending is both a result of inequality and it exacerbates it. It can certainly put families in extreme financial hardship.’’