Yesterday at Mangere I launched my Stop Loan Sharks campaign. Along with Sua William Sio, Len Brown Mayor of Manukau (and prospective Mayor of Auckland), Darryl Evans Mangere Budgeting and Family Support Services and Andrew Shann a long time campaigner against loan sharks (not pictured) I described elements of this exploitative practice and possible solutions.
I have been impressed by the level of support and interest in the lead up to the launch and in the 24 hours since. The issue is well understood to be a significant problem within low income, Maori and Pacific communities but even so people are shocked by the details.
One story I told yesterday was of a Tongan family who needed $3,200.00 to repair their car. This family has 5 children under the age of 13. Husband works as a Store man at an airport based company and the wife is a stay at home mother. His total take home pay is $598.00 per week. They took out a loan with a company in Otahuhu and put up their car (valued at $4,500 as well as two cultural mats which had been in their family for over 80 years. The loan was for $3,500.00, interest charged was 55%over 24 months, which meant they had to repay $1,925.00 in interest or in total: $5,425.00. They defaulted on the payment in the 3rd month when default payments were established. Some 9 months later this family have had the car repossessed by this company and they also had to pay for the towage and storage of the vehicle. At today’s date they owe just under $9,800.00 and the case is still not resolved. The family want their mats returned but the company refuse until such time the debt is paid off in full. They have no car and still owe almost $10,000.
This is not an isolated story. Hard economic times are good news for loan sharks. For many New Zealanders struggling to make ends meet loan sharks end up being their only alternative. There are a range of issues that make this the case – people struggling on completely inadequate incomes – low wages or benefits; people unable to get credit from mainstream banks; ease of credit from some providers coupled with low levels of financial literacy. Whatever the reason people end up paying obscene interest rates and in a far worse financial position than they started.
I want to acknowledge the work of community law centres, budgeting services and Citizens Advice Bureau who seek to help people struggling to make ends meet, unfortunately usually when they have become trapped in a spiralling cycle of debt. Their work is extroadinary especially when the real limits of their resourcing is considered.
The Stop Loan Sharks campaign aims to shine the light on this unacceptable situation and build support for action. I will be encouraging people to share their stories and putting the heat on the Government to do something concrete to end this exploitation. The campaign includes building support for my members bill the ‘Credit Reforms (Responsible Lending) Bill. Initially submitted by Charles Chauvel , who remains along with Andrew Shann a keen advocate for legal reform in this area, the Bill will have its First Reading at the end of April.
The Bill allows for maximum interest rates to be set; a power that doesn’t currently exist in New Zealand law. It also requires the lender to reasonably believe the borrower will be able to repay the loan and limits the ability of loan sharks to recover more than they initially lent in the event of a default. Finally, it allows registered pawnbrokers to charge administration fees, thereby removing the need for higher interest rates.
The capping of interest rates, despite what the Minister of Consumer Affairs says, is not radical or unusual – many countries have such provisions eg Australia, Japan and Canada for example. Barrack Obama is currently in the process of capping interest rates in the USA.
I believe this Bill should be supported by all parties to Select Committee to be thoroughly scrutinised and debated. It is a genuine attempt to deal with a real problem. I will be seeking the support of politicians across the House although Heather Roy has already rejected the Bill on ACT’s behalf.
Whatever happens to the Bill I intend to continue campaigning on this issue. Next week a website www.stoploansharks.co.nz goes live. It wll provide you with ideas and updates on how to help stop loan sharks.