Furore over loan-sharks report

MPs on the Maori affairs select committee have slammed a Consumer Affairs report on loan sharks that they say fails to seriously address the issue.

Presented by Ministry of Consumer Affairs officials at Parliament yesterday, the report outlines how "fringe lenders" generally target low-income areas with high Pacific Island and Maori populations.

It says borrowers are generally not able to get mainstream loans and as a last resort accept offers from lenders who charge huge interest rates and fees, accompanied by severe penalties, inflexible terms and conditions and little documentation.

Research has identified more than 180 fringe lender companies, including "payday" lenders, who offer advances to financially strapped borrowers waiting for their next pay cheque but gouge huge fees in the process.

The report casts doubt on the potential effectiveness of introducing legislation to cap interest rates.

It suggests the problem of falling into debt to loan sharks is not as much of a problem for Maori as is commonly thought.

The latter comment prompted Maori Party MP Hone Harawira to question whom the report's researchers had consulted and to demand to know which Maori groups had input.

He did not accept the officials' offerings and also rubbished a comment in the report saying grants were often available through iwi programmes to assist with tangi.

"These are very broad statements and I want you to either clarify them or retract them," he told the ministry's general manager, Liz MacPherson.

Mr Harawira said it appeared the ministry was more concerned about protecting the loan sharks than the consumers they targeted.

Ms MacPherson responded: "I don't believe we are looking after the loan sharks." She said there was no suggestion loan sharking was not a problem within Maori communities.

The report said the problem was far-reaching within the Pacific Island community.

Labour MP Parekura Horomia labelled loan sharks "foul mongrels" who were pushing vulnerable people to the wall. He said he was aware of people who were being forced to mortgage homes for outstanding debts of a few thousand dollars.

National MP Hekia Parata said more reliable information was needed if robust legislation was to be put in place to tackle loan sharking. Information in the report was "very uncompelling and less than helpful".

Labour MP Charles Chauvel has drafted a new member's bill, the Credit Reforms (Responsible Lending) Bill, which proposes the ministry come down hard on loan sharks in various ways, including interest rate caps.

He said the Consumer Affairs report said some Australian states had introduced a 48 per cent interest rate cap, but such measures could lead to loan sharks using that figure as a default rate and ramping up fees to get around the legislation.

"How can you say that a cap of 48 per cent would be a problem, or would pose the danger of becoming the default rate, when you already have a default rate of between 2000 and 3000 per cent [annually] right now?" Mr Chauvel asked the officials.

Ms MacPherson said the ministry was focusing on disclosure arrangements and efforts to make consumers aware of what they faced when signing up with loan sharks.

- NZPA