Loans by text appal budgeting advisers

Photo / Daily Post

People desperate for money are being offered loans by text message, with the cash arriving in minutes - but repayable at interest rates topping 60 per cent.

Ferratum is offering up to $600 via cellphone, which it says will help people wanting to make on-the-spot buys without having to wait.

However, borrowers face being chased by debt-collection agencies, additional fees, bad credit ratings and even the loss of any vehicle the loan is secured against.

Ferratum, a Finland-based company that launched the offer this month, has sparked calls from budgeting services and the Opposition for tighter lending laws.

Labour's consumer affairs spokeswoman, Carol Beaumont, said the firm suggested its loans could be used to meet "urgent needs such as grocery bills".

"This reveals today's stark reality. Families are lending to feed their families. They cannot combat the rising cost of living alone."

Ms Beaumont called on the Government to legislate to combat irresponsible lending and protect vulnerable people. "We don't need more evidence of the harm loan sharks inflict on our communities. National's lax approach adds fuel to the fire and it will be families who get burned."

A spokeswoman for Consumer Affairs Minister Simon Power said he would make his stance on loan sharks clear in a speech to the Financial Literacy Conference in Wellington today.

Ferratum is offering "quick and easy" short-term loans of up to 45 days.

If unpaid after that time, the debt will be handed to a collection agency, said the company's manager for New Zealand, Richard Yoon.

He said the 45-day term was because "we don't want to waste time with those sorts of customers".

Mr Yoon said his firm's loans were "cheaper and faster" than those from banks and other loan companies.

"If the banks do not approve customers who are short of cash, who is going to help them? For example, no money to fix a car or no petrol to go to work - the bank will not approve, but you do not get those comments from me," he said.

To apply for a loan, people text Ferratum with how much they want, the loan term, their full name, driver's licence number and type, email and home addresses and bank account.

Mr Yoon said it "takes one or two minutes only" to approve the loan and to transfer the money into the customer's bank account.

Budgeting services have criticised Ferratum for charging more than 50 per cent on a loan of $600 that has to be repaid within 45 days. For a $300 loan the interest is more than 60 per cent.

"Interest doesn't matter. We are supplying a secured loan which is very short term," Mr Yoon said.

Mangere Budgeting Service chief Darryl Evans says people who cannot repay the loans will be chased by a debt-collection agency. He said it would send reminder letters at up to $150.