Kris Faafoi: Putting the consumer first

Enter a quick Google search with the words "I need money now" and "New Zealand", and a proliferation of lenders pops up offering fast, hassle-free loans.

Some promise to deliver cash within nine minutes; others are offering up to $30,000. The ease with which New Zealanders can now access debt is astonishing.

But so are the interest rates that can come with it. Borrowers can be charged as much as 2 per cent a day - an annual rate of over 700 per cent for access for fast, "easy cash".

Compare that to the rates for unsecured personal loans at mainstream banks - ranging from around 13.95 per cent to 19.95 per cent per annum.

Many of the people who tap into short-term loans either can't, or don't have the ability to use cheaper lenders.

But budget advisers say those same people are being locked into a cycle of debt because of high interest rates, fees and debt that keeps rolling over every time they do pay it down.

Kris Faafoi, Labour's new Commerce and Consumer Affairs Minister, wants to boost the protection for vulnerable borrowers and give consumer watchdog the Commerce Commission more resources to police the sector.

Faafoi, who has been in power for just over 50 days, says cracking down on loan sharks is at the top of his priority list.

It's been only three years since the Credit, Contracts and Consumer Finance Act was tightened up, introducing new rules around what lenders must tell consumers.

But Faafoi says it's clear the law didn't go far enough.

"The 2014 changes were well intended but I think it is pretty clear some of the behaviour is still getting through.

"It's about vulnerable consumers we could have gone further for in 2014, it's about making sure the settings and legislation are right."

Faafoi wants to cap the interest rates on payday lenders - those offering consumers short-term loans.

"We haven't arrived at a number," he says. "We are asking the officials to make sure we get it right."

Budget advisers say it is not just the interest rates that are the issue.

Robert Choy, chief executive of Nga Tangata Microfinance, wants the number of time a loan can be rolled over to be capped. Photo/Supplied.

Robert Choy, chief executive of Nga Tangata Microfinance, which helps people break the debt cycle by refinancing their high-interest debt with no-interest loans, said he supported the Government pursuing a cap on interest rates but it was not the only problem.

"It's not just the fees but the admin charges and the charges that get added on when you default."

Budget advisers point to some lenders charging $12 for a letter, $17 for a phone call and $100 for a person to come out see the borrower.

Choy said the total cost of credit for vulnerable consumers needed to be looked at.

So did the number of times payday lenders were able to roll over a loan, which
resulted in people getting trapped in a cycle of debt, he added.

"The number of times someone has a payday loan should be limited so it stops the cycle."

Margaret Lafaiki, a budget adviser at the Papakura Budgeting Service, said she would like the Government to do a better job of enforcing the responsible lending code.

The code came into force in June 2015 and is aimed at giving guidance to lenders to ensure they give out money only to people who can afford to pay it back.

But Lafaiki says a lot of lenders have got around it.

"They will do internal budgets we will never see. They don't include all the costs. They may only have week to week costs."

She would like budget advisers like herself to be able to see how lenders work out whether a person can afford to repay a debt.

Faafoi is aware of the issue and said he has heard of one budget which did not include either rent or food in its expenses.

He said transparency was a concern.

"Are people getting information about the full cost of the loan? It is pretty clear in some instances that is not happening."

Faafoi says an options paper will be released on the issues by the middle of next year, with a law change a year on from that.

"I would like it to happen tomorrow. But it is more likely to be 18 months before the law changes."

He also wants to beef up the Commerce Commission's ability to police the industry.

"It's a resourcing issue. I think we can do better. To make sure we have the resources and boots on the ground. I think that is part of the problem."

Whether Faafoi can convince his colleagues to open the purse strings and give the commission more money is uncertain, but he is willing to give it a try.

"Whether they can re-prioritise or whether we can get more money in tight fiscal circumstances."

Faafoi wants more resources on the front line in those vulnerable communities, such as his home town of Porirua, where truck shops are a regular feature.

The Commerce Commission has been very active in taking truck shops to court in the past year.

But Faafoi is worried that won't be enough to discourage some.

"My suspicion is some of the operators might continue to think they can get away with it once the dust settles."

It's not just lenders who are under the spotlight.

Faafoi must also oversee work begun by the previous Government.

The new Government has already managed to squeeze through the first reading of the Financial Services Legislation Amendment Bill - a revamp of financial adviser law.

As well as levelling the playing field so all advisers have to put the interests of consumers first, it allows digital advice for the first time in New Zealand.

Some industry commentators remain concerned that the financial advice industry will never be cleaned up until commissions are removed.

Overseas, in countries such as Australia and the UK, moves are being made in this direction.

But Faafoi says banning commissions here would be a step too far at this point.

"But I would like to see more transparency for consumers."

Faafoi's role will also include overseeing the re-writing of the copyright law and insurance law - it's a full agenda.

"Insurance - we are still in the middle of the review. There is certainly frustration from consumers around claims and disclosure.

"Some of that law is decades old."

It's an area Consumer New Zealand chief executive Sue Chetwin is hot on.

"Unfair contract terms and dealing with disclosure. It is a very one-sided construct."

Currently, the pressure is on consumers to let their insurer know all pre-existing conditions, giving insurers a valid reason not to pay out if something isn't disclosed at the outset.

But consumers have been caught out by not disclosing even minor issues which can lead to a payout being declined.

Faafoi says where that goes in his priority list is a bit uncertain.

"But I would like to tick it off over the term."

The former TVNZ journalist is the third Commerce Minister in a short time, with predecessor Jacqui Dean holding the role for less than a year after inheriting it from Craig Foss.

Faafoi says he will make regular trips to Auckland to touch base with key business players.

But he also believes coming from a non-business background will be an advantage when it comes to getting the voice of the consumer across.

"Part of the issue is that it is complex."

Faafoi says the way financial firms interact with consumers needs to change.

"The average Kiwi doesn't seek out financial advice and I want to make sure they do. If they are getting good advice on insurance, KiwiSaver, they will invest.

"We don't want them to go buy two, three rental properties. Getting advice they understand - that is good for the country too."

KiwiSaver plans

Kris Faafoi says making sure every Kiwi is thinking about their retirement savings is a priority for the new Government.

Labour wants to make the scheme compulsory for all workers but has acknowledged the challenge of getting low income earners into it.

"The reality is, some people are living payday to payday."

Faafoi says it will be speaking to both unions and employers about how to make it possible.

He says that if the government doesn't deal with that issue now, when those people get to retirement age it is going to be a "rather large problem".

The Government also plans to increase the contribution rate from a minimum 3 per cent to 4.5 per cent, but has not said when it would do so, or how quickly.

"We are having conversations about that."

Any changes would have to go to the Cabinet for approval.

The increase to 4.5 per cent may be on both the employer and employee contribution, although that has yet to be decided.

If it goes on the employer contribution, it could create a double whammy, with employers facing both increasing KiwiSaver costs and an increase in the minimum wage.

Faafoi says he is conscious that its decision will have impacts on both employees and employers.

"Which is why we can't get ahead of ourselves."

Kris Faafoi:

• Minister of Commerce and Consumer Affairs
• Partner with three boys
• Age: 41
• Lives in Porirua
• Former TVNZ journalist