Editorial: Lenders need a legal wake-up call

Richard Yoon says his company, Ferratum, knows how to choose good customers. Photo / Sarah Ivey

Perhaps Richard Yoon, the director of loan company Ferratum, was hampered by the fact that English is his second language when he answered questions this week about his practice of offering unsecured short-term loans via text message.

Why else would he speak of his business conduct - which includes charging interest at up to 60 per cent per annum - in such guileless terms.

"It's clever ... I'm so happy," he said, before adding more revealingly that "legally, what we are doing is fine, but ethically - I don't know."

On that last matter, we are happy to lay Mr Yoon's doubts to rest. Ethically, most of us would find his predatory usury is indefensible and deeply offensive.

Lamentably, it is not illegal. But not a moment before time, the Government is investigating what might be done about it.

Justice Minister Simon Power has announced a financial summit in August, which will examine ways of controlling what he calls "the preying-on of vulnerable people by loan sharks".

Predictably in an election year, Labour leader Phil Goff has been agitating for action, conveniently forgetting that Labour failed to act on a 2007 report on fringe lending practices in South Auckland that recommended significant reform.

The Consumer Affairs Ministry had advised that a cap on interest rates was problematic because it could become the ruling rate and charged by ethical lenders.

Unquestionably it is a complex area, particularly when credit-card companies charge almost 20 per cent. It may be difficult simply to limit interest rates.

But there is certainly room for rigorous mandatory disclosure regimes, with heavy penalties for non-compliance, so that low-income people may easily see how high-interest credit can quickly balloon into impossible financial burden.

At the same time, stars such as actor Jay Laga'aia and league legend Stacey Jones might like to consider the human cost of spruiking such expensive credit to communities in which they are held in high esteem.

It is certainly legal, but it is no more ethical than what Mr Yoon and other lenders do.