Consumer Affairs Minister Kris Faafoi hopes to protect those most at risk with the bill. Photo / 123RF
Consumer Affairs Minister Kris Faafoi hopes to protect those most at risk with the bill. Photo / 123RF
The Government is introducing two further measures to the package of proposals to combat predatory loan lending in New Zealand.
The first, a set interest rate cap of 0.8 per cent per day, and second, mobile traders selling goods on credit subjected to responsible lending and disclosure obligations.
Consumer Affairs Minister Kris Faafoi made the announcement today, adding many Kiwis felt the extreme hardship of being trapped in a cycle of debt.
"This is an unacceptable situation and the Government is taking action to address it," he said.
"At the moment, high-cost credit is too easy for people in hardship to access.
"While this type of credit can be an immediate solution to financial problems, we know that high-cost, easy credit leads to worse problems in the long run."
Kris Faafoi, the Minister for Consumer Affairs. Photo / Mark Mitchell
Called the Credit Contracts Legislation Amendment Bill, the minister expects it to pass later this year before coming into effect from March next year.
If passed into law, the legislation would mean interest and fees over the life of a loan would be limited to 100 per cent of the amount borrowed.
Following public feedback, the decision was made to include the 0.8 per cent per day cap on interest rates.
Further regulation on mobile traders, such as "truck shops", was another area where the Government decided to make a change.
Truck shops often sold goods on credit at inflated prices in low-income areas and while most traders were subject to regulation, others were not, Faafoi said.
The Government believes they should be subjected to the same levels of disclosure and responsibility around lending requirements, including affordability checks before any credit was given.
Public feedback also called on lenders to provide clients who fell behind on loan payments with information about financial support services.
The minister was aware some lenders had already referred struggling customers to financial mentoring services and hoped others would jump on board.
"I encourage other lenders to follow this example. We are changing the law so that this can become a requirement in future if needed," Faafoi said.
How the measures would work:
The 0.8 per cent per day cap:
"Tui" needs a loan to repair her car, which she uses to get to work. She can't get a credit card so would normally take out a small loan with a high-cost lender who charges 1.7 per cent per day (or 620.5 per cent per annum). By setting a cap on the daily interest and fees she has to pay, her total interest repayments would reduce by about half.
All mobile traders subjected to responsible lending and disclosure obligations:
Some truck shops structure their business so the credit they provide falls outside of the protections in the Credit Contracts and Consumer Finance Act. For example, they might not charge any interest or default fees and instead have very high prices.
The new requirements would mean all truck shops have to make sure that any credit given is suitable and affordable for each borrower, and that the borrower is helped to make an informed decision about the contract.
