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.
A few random thoughts:
No-one made that family have 5 children. They could have sold the car instead of spending $3,200 to get it repaired.
Suggestion to Tongan family: sell the car and buy two or three bikes that are much cheaper to maintain. That’s much “greener” than running a gas-guzzling, Gaia-killing CO2-spewing automobile.
Loan sharks play an important function. They encourage people to save rather than borrowing and racking up huge debt.
I agree with the suggestion that credit unions would help to reduce the interest rates for high-default-risk people wanting loans.
Why don’t the Tongan churches help set up a credit union for their parishioners? They could undercut the loan sharks by charging, say, 20% interest.
Just remember, you heard it here first ~:)
I don’t agree with “The Bill allows for maximum interest rates to be set”. Government interference in interest rates is unwarranted.
But I do agree with a consumer campaign against loansharks. Their behaviour around poorer areas is plain unethical. Naive and desperate people do get locked into a vicious cycle that they can’t get out of.
Education is needed, starting with better financial education in schools. And better disclosure laws are warranted, along with improved advertising standards.
One problem appears to be the ability to continue to charge interest/claim a continuing debt even after possessing the goods that the loan was borrowed against.
One option is a law change to allow any borrower in this position to declare bankruptcy and so not have to pay the debt back or otherwise. Simpler would be to define where the lender takes possession of the good, or is offered the good in settlement of the debt, this renders that debt null and void.
That and setting a maximum level of interest – why not set a rate at the credit card rate – would soleve most of the problem. Establishing credit unions in and for the community would assist this.
As for illegal loan sharking – simply bring such activity into the proceeds of crimes act and loan shark the loan sharks (confiscate their assets).
Bea
“Education is needed, starting with better financial education in schools.” It’s already in the curriculum so this is underway…
Richard McGrath said…
Why don’t the Tongan churches help set up a credit union for their parishioners?
Nope! Tongan churches view running a business (even if it is to help their own members) as something heathen or as a sort of contradiction of their biblical beliefs, so they won’t do it.
@Richard McGrath – perhaps because access to contraception is not equal across across income? Poorer people tend to be more often religiously affiliated which again often restricts access and use of contraception. Poorer families are more likely to be larger, more fragmented, and started earlier (teen pregnancies), perhaps this is an indicator of poverty rather than a rational choice as your are trying to make it out to be?
I see a lot of advocating for the market to incentivise but not a lot of using one’s brain to see that the market is producing unwanted social results. Irresponsible is the word that comes to mind.
over the years, i have seen many of my people go to loan sharks and ask for a loan, and get ripped off. my opinion is, the loan sharks should be at fault. Why? most elderly people who brought up in the islands come to NZ in search of a better future for thier families. unfortunaley, when they need help, they go to the loan sharks. but they cant understand the law nor speak the language. the repayments are either too high, and/or the interest rat charges puts the loan through the roof! so, the loan sharks are at fault simple as that
Website link doesnt seem to be working…the text of the link is write, but it’s linked wrong.
Malo-its not just an issue for Tongan families but for all kiwis-the problem is these loan shark agencies pray on their victims and forget to mention the fine print to their clients. Maybe a solution around this is getting interpretors to translate as there is a lot of jargon in there to contend with in the first place…the numbers stand out though..how universal!Kamsamida.