KEY POINTS:
When a Government minister launches a major report at 1pm on a Friday afternoon then it's a sure bet that either the report is critical of the Government or the Government wants to avoid the report's recommendations.
There was a big chunk of both last week when the Minister of Commerce, Lianne Dalziel, released a report on loan sharking in South Auckland's Pacific Island community. Labour would prefer the report sank without trace because it highlights a deeply destructive problem which the Government has ignored and for which they hope to escape blame.
The report was based on interviews with hundreds of community leaders and local families. It talks of Pacific people's inability to access cheaper credit options, leaving them increasingly exposed to high cost and exploitative credit contracts. Enter the loan shark.
It is common to borrow $200 from a loan shark to pay a power bill and then pay back $300 to $400 over the next few months with eye-popping interest rates and large default payments.
These parasites have exploded in number in recent years and the impact in Pacific communities is much greater than elsewhere because Pacific people are disproportionately represented among low-income families.
Ministry of Consumer Affairs research shows 15 per cent of families borrow at least once a year to pay for day-to-day living expenses. Translated into a low-income community this figure will be closer to 70 to 80 per cent of families borrowing on a regular basis for such things as groceries or the power bill.
The failure of government policy is spelt out clearly in the report. The present legislation may be working well for middle and high income families but the Credit Controls and Consumer Finance Act does not provide sufficient protection to credit consumers dependent on fringe lenders. (The report refers politely to those providing these loans as fringe lenders while the rest of us know them as loan sharks or cockroach capitalists)
It goes on to say that there can be no doubt that fringe lenders have flourished in South Auckland in the period since the credit control act became effective and that they deliberately and aggressively target Pacific communities
The result of this unfettered, unscrupulous behaviour has been devastating. The report talks about the alarming extent of exploitative lender practices producing an environment of continuing pressure and stress in the lives of Pacific consumers.
In a distressing conclusion, the report says the realities for many are that they and their families are struggling to survive, not only physically but also mentally, emotionally, culturally and spiritually
How could this problem have been allowed to grow and threaten vulnerable families in this way?
Earlier this year in response to the Folole Muliaga family tragedy, Prime Minister Helen Clark backed up the family saying: "I feel in these cases you've got to follow your instincts and my instincts will always be to stand alongside a low-income Pacifica family which has been treated badly. Look, I've been representing low-income Pacifica families in parliament for 26 1/2 years and I know what the right thing for a Labour Prime Minister to do in these circumstances is."
Fine words from the Prime Minister but under her leadership loan sharks are tearing the heart out of Pacific families, extended families and whole communities.
It's also important to see this comment in the context of the Ministry of Social Development report last year. That showed that the percentage of Pacific Island families suffering severe hardship almost doubled (from 16 per cent to 30 per cent) from 2000 to 2004.
So what is the Government response to this devastating report? Unbelievably there is no sign of any effective action despite the Government having refused to release this report for several months to give time to get their response organised.
The Government's reaction on Friday was all fluff and spin with no substance.
They propose to gather some more information, look at advertising rules, distribute some brochures around the community and little else.
The time for tinkering is long gone. The problem is now so huge, it must be confronted head-on.
Just how far removed the Government is from the problem was shown last year when Minister of Consumer Affairs Judith Tizard said through her press secretary that in New Zealand's light-touch buyer-beware culture, people were responsible for the decisions they made, no matter how ill-judged.
Decisions that the comfortable middle class see as stupid or ill-judged become part of weekly survival for Pacific families. Loan sharks are loving it. People do not borrow at 25 per cent per month to pay their power bill because they want to. They do it out of a mixture of desperation and hope. Desperation because the power board is coming around to cut off the power and hope that, tomorrow, things will get better.
So what would make a difference?
Two steps already in place in some Australian states would have been a good start. Firstly, the setting of maximum finance rates (the finance rate is the repayment rate which includes the interest rate and set-up fees) for all borrowing. Secondly, the requirement the lender prove that the borrower is able to pay back the loan. That would avoid cases where a person borrows from several sources and hasn't a hope of repaying the debt. Such a situation is not a problem for the loan shark, it is their ideal scenario. Other steps could include cheap loans made available through Kiwibank alongside budgeting requirements.
Pick up a copy of the Taimi o Tonga newspaper (The Times of Tonga) and you will find name and shame advertisements with photos of people who have defaulted on loans from Funaki Enterprises, a cash loan company. Along with the photo is included the name, the amount owed and why it was borrowed in the first place.
Each picture represented a person under huge financial stress with impacts on their families, children and social relationships. The amounts owed are relatively small, anything from $250 to $4000.
Another Tongan loan company also publishes photos of loan defaulters. They offer small secured loans with an interest rate of 25 per cent a month.
Yet another company offers loans from $500 at just 16 per cent a year.
This seems more reasonable until one discovers there is a set-up fee of $200 which makes the finance rate (what the person actually pays back) over 60 per cent in a year. The same company offered a free ham for people borrowing $500 in the lead-up to Xmas.
Needless to say, the borrower could have bought several whole pigs by the time they paid off the loan.
Labour members of parliament represent eight of the ten lowest-income electorates in the country and yet, after eight years, loan sharks are preying to a much greater extent than ever on the very people who so loyally vote Labour.
At the conclusion of last Friday's gathering, the Pacific Island minister giving the closing prayer said the time for words was over and that action was needed.
I wonder what Helen Clark thinks the right thing is for a Labour Prime Minister to do.
* John Minto is spokesman for Global Peace and Justice Auckland
