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.
Go get those sharks!
Im sorry – they were silly enough to enter into the loan – who’s fault is it? Not the ’sharks’ – he did not force them to borrow of him.
If they didnt have other debts etc they could have got a ‘normal’ loan – but one assumes they have bad credit. Who’s fault is that – again it lies with the family.
So why not the higher rates for the higher risk?
You cap rates – they simply wont be able to get loans at all.
Why repair this car for $3,200 when it’s a dog….you can buy a whole car for that.
http://www.trademe.co.nz/Trade-Me-Motors/Cars/Toyota/Estima/auction-277009180.htm
There is an easy way to stop loan sharks.
Stop using them.
“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. This family has 5 children under the age of 13″.
Enough said.
It is not a politician’s job to legislate against stupidity.
And you can’t tell me he’s only pulling that when he’s got 5 kids and Labour introduced welfare for families.
CK
Watch out for Sharks they have teeth and bite, just ask the girl in the south island who attacked a shark with a boogie board.
I recall many programs about loan sharks on TVOne TV3 Close up Fair go and Campbell live during the reign of the Labour Government. Nothing was done in nine years why the sudden concern?
Oh please, no one put a gun to their head and forced them o sign
This idea = epic fail
I wonder how much of their weekly income this family tithe to their church each week? I understand this is widespread in the Pacific Island community, and it seems to me the money would be better spent at home and the church should raise funds in other ways. The taxpayer is effectively funding churches. And I agree with CK, living within one’s means, as we should all be doing in this day and age, includes having only the number of children you can support, extraordinary circumstances aside, without outside assistance. That is true sustainability.
Good luck Carol .
They need to be stopped.
@Cactus Kate.
That by the looks of it is take home pay not WFF. Go to the WFF website to find what that would be for them. It doesn’t seem to get added on. Unless your comparing it to benefits. On benefit it gets added on then compared to wages without Wff added on. Gives an unfair comparison but seems to be the only time its added on.
If this family earns $598 with Five children Working for families would be approx $411 Dollars making a weekly income of $1009 Not what I would call poor.
quick look at the WFF website – gives them another $400 tax payer dollars per week. So his total income is $1000 per week.
10 to 1 he gets accommodation as well.
Again – tell me why this person needs a loan shark. Making laws isnt going to help him – this person is still going to make unwise decisions.
If the numbers that Carol don’t include WFF then she is misleading everyone.
Just a guess, but no one here is trying to raise 5 children on $50,000 a year. There would be a tight budget.
Sure it was silly to pay that much to fix up an old car, worth little more than the repair cost. They could have sold the old one to someone who does them up and flicks them on (the labour adds value to them but generates no income tax liability) – and used the money as a deposit to buy a car (from a dealer who would provide more reasonable finance).
The advantage from denying these people finance – placing a limit on the amount that can be charged will do that, is that they will then avoid the deals that desperate people make and the all too often quite tragic consequences. For that reason alone the proposal has merit and should be enacted.
The financial sector is under-regulated (and undertaxed). Any action to remedy that is welcome.
I fail to see how she is misleading the public. She said take home pay.
I considered going to a loan shark to pay for childcare this year so I could go full time since Paula Bennett distorted figures by adding on child care subs and the outcry that benefits were just as high as wages. No one bothered then to add WFF onto the wages to compare then, even though they were already added onto benefits and childcare subs didn’t go into their bank and they they had to pay the rest. Why change the rules now?
You don’t know their rent costs and 5 children are not cheap. It won’t go far. I think the blog is more about loan sharks. Not the amount the family earns.
Glad I didn’t either but didn’t really look into it. Just a 5min thought. Yes the TIA covered childcare, TIA should be reinstated. Student loan doesn’t cover $100 a week childcare.
Part time until the my children both start school, then full time for me and no loan sharks
A Mother
This blog is about Carol grandstanding and in the process using an unsuspecting family to do so. She’s mislead the facts by not adding in welfare for families payments and thus misrepresented the family poverty. Sure they are poor, but not every poor family is dumb enough to run up debts so they have to run off to a loan shark. You’ve proved that yourself.
“Just a guess, but no one here is trying to raise 5 children on $50,000 a year. There would be a tight budget”. No SPC, I doubt any of us are, but that’s the point really – few readers of this blog would be silly enough to expect the taxpayer to pay for excessive breeding in their poverty and in the process protect them from their own stupidity of running up debts. While most readers of this blog take personal responsibility it seems repugnant to them to expect it of others.
It’s a concept the left just don’t seem to understand – personal responsibility.
why am I not surprisd that Whaleoil’s post is illiterate? and CK’s insensitive? and what sort of idiot thinks they are entitled to judge others when they don’t even know all the circs?
Loan sharks do NOT explain the real interest rates to their victims. People take out loans thinking they can make the repayments then shit happens and they can’t. Anyone who thinks raising 5 kids is easy wants their head felt.
Meanwhile, what about credit unions? In the UK my local LP worked to help set one up and it stopped many people from going to sharks.
Well that speaks to the whole financial sector does it not?
The lack of regulation and or accountability is the issue around the planet at the moment. And of course the under-taxation, there is some obvious need for this sector to provide out of their profits the means to rescue them again if that is required again.
Why should the world’s taxpayers be exploited in bailing out this sector again?
The financial desperation of the poor is akin to the dependence of an addict and people with such problems are exploited. Denying them the opportunity to be exploited will then allow them to find what will be better options.
Awesome work Carol. You know you’ve done a great job when all of the right wing nasties have to take the time to come post (not including the bloggers who have placed more rational/ reasoned comments).
Punish the rip offs not the ripped off!
Poor financial decisions are regularly made by both the business and the residential sector. Moral judgments made on the financial assistance that either sector might attract are unproductive. No meaningful conclusions can be drawn with regards to this family’s past actions, but there is obviously a need for curbing the excesses of loan sharks to prevent the take home pay of individuals in similar desperate circumstances being lost to the economy
Looks like a bit of political grandstanding. Logic says stupid people will do stupid things no matter what you put into law. Let’s not become a nanny state. Teach people – improve disclosure by all means – but at the end of the day it’s is the individuals choice or the individuals situation that limits their choice……a limit on rates WILL force this business to the gangs for those with limited choice – The Gangs are smiling and just waiting to take over. We all know people will still borrow. Let them do so above ground. If the Gangs rule the public health system will then take the financial hit…..a lot of people who use fringe lenders do so because of their past financial miss steps or current financial balance sheet – no main stream bank will touch them for good reason. Ask your self why rates are where they are – looks like lots of competition….if someone could come in with a lower rate to serve the market – they would right……but they can’t so they don’t.
Think very hard about the implications of this bill – be very careful what you wish for.
Irrelevant. Clare
I hate loans sharks – they are parasites who feed off the most vulunerable and low income workers. However regulation of interest rates is not the answer – the loan sharks will smply move underground. This family could do a few things to improve their lot in life
For starters they simply should not have had children they could not afford to raise
The mother should find part time work (of course WFF stuffs this up because of the 90% marginal tax rate)
They should have looked at other options for transport
They should have (maybe they did) have a “rainy day fund” for large expenses – can be difficult but so necessary
I hope to hell they are not members of Tamaki’s Cash cult – if so they need to join a church which does not rob the poor to fund Tamaki’s $500,000 boat.
People in life make stupid decisions – and have to pay the price. There is nothing that can be done to regulate against stupidity. People have to take responsibility for their lives and if that means learnign the hard way so be it.
Yes they are parasites. I do believe they need to be pulled into line. I hope this campaign is successful.
Companies which loan money to anyone do it to make a profit. That’s whether they’re high street banks or back street loan sharks.
The rates available to credit worthy people include in their calculation the risk to the lender that the borrower will default, and if that happens whether they’re likely to get any of their cash back.
Unfortunately the rates availabe to those who are uncreditworth include the same considerations.
If Labour wants to help those who are victims of loan sharks they should be encouraging people to live within their means, however unpleasant that may be. Don’t go for consumer goods you can’t afford. That’s the way that people in the past kept out of spiralling debt.
Having excessively large numbers of children often also seems to play a role in people getting into unservicable debt. Perhaps the party should also be active encouraging people to only have the children they can afford to look after. Seems to work well for most of society.
perhaps we should encourage the banks to live within their means? they get bail-outs, the poor get blame. As to having too many children, if you know of a foolproof method of contraception that never fails and has no unpleasant side effects for some users, let us know!
Dorothy – for a decent method of contraception to fail a couple once is unfortunate. For it to fail the same people half a dozen times seems irresponsible.
And, apart from a tasty sound bite, what do you mean by banks living within their means? Only lending (mortgages / personal loans / credit cards) to those who are at least A- risks? Like used to be the case in the old days?
How about guaranteeing the loans taken out by poor people (taking them over and only asking a lower rate of interest with the repayments) – after all we did for savings with financial institutions at much higher amounts.
Or do we only protect institutions and their profit making and not people?
As for claiming the lending will only go underground if there is regulation – oh my gosh all these right-wingers are effectively arguing for legalising drugs – same argument.
Carol Beaumont said…
I launched my Stop Loan Sharks campaign.
Carol, haven’t you got better things to do? It’s called personal responsibility. If people are stupid (as Cactus Kate) stated above, then you can’t legislate against that.
How about you should launch a campaign to make people in South Auckland to abandon church/belief and turn atheist, since religion is a major factor that pushes people to turn to loan sharks. I have a deep knowledge of this issue, since I have some relatives in South Auckland who are suffering from church donation fatigue, which they frequently turned to loan sharks for help to get them through till the next paycheck arrives.
So, you should stop trying to cover for people’s stupidity, because people will never learn.
Hmmmm Usury (sp)? Doesnt the credit contracts act control this kind of thing?
George, I know we are over simplifying but no one makes the banks lend beyond a safety limit. Yet they did, and they got bailed out, all oer the world. Some, in the US are back already making a good old fashioned profit. “We” the great and ignorant unwashed guaranteed deposits to $250k to help out institutions who were reckless.
Has this just started happening recently? ’cause i dont recall a campaign like this when labour were in power…
“Loan sharks” fill a niche – and one has to be careful regarding who would fill that gap if they were legislated out of existence.
Strange that “Cactus Kate” should be pro money lenders – she hates Mark Weldon and other bankers for no other reason than she doesn’t like the cut of their Gib.Her views are full of contradictions.
Tracey:
How much has the NZ government spent bailing out banks?
Do you think that the banks provide a useful service to society?
Do think that it is wrong for a bank to make a profit?
@George
Until you have tried to raise a family on below the poverty line, you just don’t appreciate how desperate you can get.
Even a person on the absolute minimum wage with 5 kids would be getting $798 a week including WFF. I can only assume that his total take home pay is waht he gets from his job. Therefore through WFF, this family should be getting $1000 per week.
George
“How much has the NZ government spent bailing out banks?” – Got guarantee is a form of subsidy insofar as it gave people confidence to continue to deposit etc. Other than that I am not aware of NZ Govt bailouts, which must mean under a Labour government and previous governments conditions were stable for our Banks compared to overseas.
“Do you think that the banks provide a useful service to society?” Yes and no but in theory absolutely yes.-
Do think that it is wrong for a bank to make a profit? No
If a bank cannot charge 25 – 500% a loan shark ought not be able to.
slightlyrighty
using those figures for our 5 child family, in Auckland, say.
Rent?
Water?
Power?
Insurances (if they have any) if not, they have to pay ful for any problems or wait on public health etc
Clothes (assuming hand-me-downs)
Food
I would think these would be pretty high?
I can’t believe how narrow minded some people can be. We have networked with many organisations in our area including budget services and we all agree these loan sharks are geared at low income people who they suck in. You just have to see some of their ads. No credit checks should be illegal for a start and the interest needs to be reined in. Go Carol.
Tracey – you hit the nail on the head when you say that the government guarantees banks because it gives people confidence to continue to deposit. Without that confidence our economy is a basket case. And these government guarantees are covering sound institutions, so the notional cost of the guarantee scheme is minimal.
It’s entirely different to guaranteeing the loans of a sector of society which is, statistically speaking, a credit risk.
If there were not huge risks associated with lending to these people then they’d have mainstream commercial lenders falling over themselves to offer their services.
Would you risk your own money in a loan to someone who has half a dozen children, no job and doesn’t appear to be coping? If your answer is yes then I bet you’d be broke pretty quickly.
Please don’t interpret my posts as being callous. I accept this is a huge problem, but other than subsidising these people further from the public purse, what can be done?
– You can’t force mainstream lenders to lend to these people.
– You can’t make these people appear to be a better risk.
– And if you can close down loan sharks (and that would probably be as easy as stopping prostitution) what are the needy to do?
I know it sounds hard, but a bit of tough love, constantly trying to get over the message that however unpleasant it is the best thing to do is to live within your means, is always going to be the most effective solution.
I accept that some people will get into difficulties because of extreme and unexpected events. But how many victims of loan sharks have been the architects of their own problems?
Gary – of course these sharks are aimed at the lower paid. Who would use their ’services’ if they had any other option whatsoever.
IF it is possible to get rid of them, what would you put in their place (assuming that those who aren’t credit worthy will still need/wish to borrow money)?
No credit checks should be illegal for a start. Not sure what this would achieve other than confirm that some people don’t qualify for a loan under any circumstances apart from those offered by the sharks?
Tracey says:
March 14, 2010 at 10:29 am
slightlyrighty
using those figures for our 5 child family, in Auckland, say.
Rent?
Water?
Power?
Insurances (if they have any) if not, they have to pay ful for any problems or wait on public health etc
Clothes (assuming hand-me-downs)
Food
I would think these would be pretty high?
Well Tracey, All I can say is that it would be nice to have all the information so that we can have an informed discussion.
One look at the WFF website would appear to indicate that when Carol Beaumont wrote;
“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.”
we were not getting all the information regarding total household income.
Granted, $1000 a week may not seem like a lot of money, but it is a great deal more than Carol would lead us to believe.
slightlyrighty – agreed, we almost always need more information to discuss genuinely, and the media and politicians dont always give that to us. That’s why we have metaphoric spades
So “loan sharks” are not covered by the Credit Contracts Act because they are not advancing the money in order for the lcient to buy goods “from them”? I am asking, not stating?
I’m wondering why a new bill is needed when CCA could be a vehicle with ammendments. Bring Loan Sharking under the auspices of the CCA and therefore Loan Sharks suffer the consequences under the Legislation.
John Key was pretty annoyed at Banks last year when he suggested in April Banks were ‘taking advantage’ of their customers, by raising money at 6-7 % and lending it out to their customers at 21 or 22 %, with no desire for prompt repayment. “It’s a pretty lucrative business.” he said. It would seem odd therefore, if he didnt swing in behind this move??
Blowhole, Peyote, Kiwi(felloffthe)Bike, et al, just because you cry “personal responsibility!” as loudly and as often as you can doesn’t make it mean anything. Nor does it make the actual day to day realities of people who are no where near as fortunate as you are any less real. Stop dreaming and get in touch with the real world – the facts are clear; loan sharks are preying on poor people in poor communities here just as they do in others elsewhere. It is grossly incompetent of us (society as a whole) to pretend otherwise and shrug and shout when someone tries to do something about it.
But then again I can’t say I’m surprised – your ideology is premised entirely on the idea that these people choose to be poor, so it’s impossible to get you to see the real world when you’re off with the fairies believing tripe like that.
Sam, no-one chooses to be poor but having a large family is a choice – there is no excuse for having more children than one can afford to provide a decent home and upbringing for. What quality of life and opportunity for improvement do these kids have? They are who I feel the most sympathy for.
Sam – I hear what you say about the day to day realities of some people. But what is your suggestion for how to solve this problem?
If you stop the loan sharks (and I for one would be very pleased if they disappeared off the face of the earth) what would go in their place? Who will lend money to those who aren’t credit worthy? No one seems to have an answer to that question.
As a customer who has a record streching back more than 30 years of borrowing and repaying without default the banks will lend me money at a reasonable rate. And if that lending is secured (as in a mortgage) the rate will be even better. Currently I could get a mortgage on hundreds of thousands at less than 6%. It’s clear that rates of 500% are unacceptable, but what do people think would be a reasonable rate for unsecured lending to a poor credit risk?
Sam – sad to see when you cannot put a reasonable argument together you just go with the insults “Kiwi(felloffthe)Bike”.
Again – they guy has $1000 per week coming in – 40% of it from the tax payer.
Im guessing taxpayer funded housing also.
The guy (unless he is a fool – as a fool and his money are soon parted) – should easily be able to get a loan from his bank – the only reason he would be declined is that he has a history of defaulting.
And that is his fault. So now you are looking to take away the last place where people with poor history can borrow money?
Or are you going to legislate that banks “have” to loan money to poor people with a poor history of paying back?
George
If credit checks were done then maybe loans wouldnt be given willy nilly to people who it would be very clear they couldn’t afford the payments. If i go to my bank they will only give me an overdraft if they kniow I can afford it. Commonsense really. I advise people to go to Work & Income and budget services to check their entitlements first.
Gary – I understand the first assumption (i.e. that people who aren’t creditworthy wouldn’t pass the test and therefore wouldn’t get a loan). But it’s what happens next that’s the problem.
I presume that in order to go to a loan shark in the first place, as they do at present, these people are desperate. Failing a credit check doesn’t take away that desperation, so instead of going to the High Street loan shark (if such a thing exists – I’m not really up to speed on how these things work) would they not go to an under-the-counter back-street one. With either the same or even worse results?
I’ve got not problem with calling for credit checks. I just don’t see how they’ll have much effect.
I agree with George these people dont care about credit checks they are charging high rates because they know the person is desparate, they will do what they must to get their money back.