Plea for loan advert curbs
ROB STOCK MONEY MATTERS 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.