Big lenders eager not to be caught in same net as greedy loan sharks

Mainstream lenders say New Zealanders may owe $200 million to $300 million to loan sharks charging interest rates of more than 50 per cent a year or using other unethical practices.

A position paper prepared by the Financial Services Federation for a financial summit to be held in Auckland tomorrow argues that mainstream lenders should not be caught up in new laws aimed at loan sharks who made up only 0.1 to 0.2 per cent of the $175 billion of outstanding home mortgages and consumer loans.

But Auckland City Missioner Diane Robertson, who will be the first speaker at the summit after Consumer Affairs Minister Simon Power, said $200 million to $300 million was huge for the low-income people targeted by loan sharks.

"I think it's very widespread," she said. "Seventy per cent of our clients, if not more, have debt that they can't afford to repay."

National backbencher Sam Lotu-Iiga, who proposes making all moneylenders except deposit-taking institutions put up $20,000 good behaviour bonds, said loan shark debts were significant for the people involved.

"For many of the people we are talking about, this is their biggest investment - whether it's hire-purchase for a car or a sofa," he said.

"These are not people that own their own houses, so just because the size of the whole market isn't large that doesn't belittle the need to regulate this area."

He said his bill would give a registrar power to exempt institutions that could prove they had high ethical standards.

"That is where your GE Moneys will have to make a case that they should get an exemption," he said.

"But I think in the first instance my preference is to cast the net wide, capture everyone, and then the registrar may with legitimate reason grant exemptions to businesses that are legitimate and have the ethical standards."

A Research NZ study for the Consumer Affairs Ministry in 2006 found 185 companies that it classed as "fringe lenders", defined as specialising in personal cash loans, charging higher interest than mainstream lenders, charging high fees relative to the loan, making few credit checks, and securing loans against personal property such as cars and appliances.

South Auckland-based Aotearoa Credit Union, which specialises in loans to beneficiaries and low-income earners, said some lenders charged up to $21,000 all-up for cars worth only $7000 in cash. But credit union manager Bruce Bleakley said loan sharks would simply not pay a $20,000 bond and would go underground.

His credit union claims to be the fastest growing in the world and now has 18,000 members, a majority of them beneficiaries. Its interest rates of 9 per cent for cars and 12 to 15 per cent for small personal loans are higher than the banks, but it is willing to lend to people with patchy credit histories.