Loan sharks targeted by Labour MP's bill

Labour MP Carol Beaumont is pushing a private member's bill to limit interest rates charged by fringe lenders or "loan sharks" which she says is the opening shot in a campaign against predatory lenders.

But Consumer Affairs Minister Heather Roy is sticking with advice from officials that interest rate caps have failed overseas and the Government will not support the bill.

Ms Beaumont has picked up colleague Charles Chauvel's Credit Reform (Responsible Lending) Bill, which was introduced to Parliament last August.

The bill would allow maximum interest rates to be set, a power that doesn't exist in New Zealand law. While it does not define what constitutes the type of lending it is targeting, Ms Beaumont envisages the cap would still be effective at a level that would have no influence on bank or other mainstream lending.

The bill would also require lenders to "reasonably believe" the borrower will be able to repay the loan and seeks to limit the ability of loan sharks to recover more than they initially lent in the event of a default.

The bill is due to go before the House on April 28 and Ms Beaumont said she would be writing to all MPs seeking support for it.

But Mrs Roy doubted Ms Beaumont had the support to get the bill through, and said she would not support it.

It is highly unlikely the National Party will support the bill, either.

Mrs Roy referred to a Ministry of Consumer Affairs report produced last year outlining issues around "fringe lenders" targeting low-income areas with high Pacific Island and Maori populations.

The report cast doubt on the effectiveness of laws to cap interest rates but a number of its findings, including its estimate of the numbers of Maori affected by fringe lenders, were contested by Maori Party MPs.

A Maori Party spokeswoman said her party's caucus "recognises the serious issues being posed by loan sharks" and it would discuss the bill before April 28.

The 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.

Mrs Roy also said these types of measures "tend to drive the worst of the fringe lenders underground which is a far from desirable situation because it means no one has any visibility of those lending practices".

Ms Beaumont told the Herald that should her bill fail to gain sufficient support next month she would continue her campaign against predatory lending practices, primarily by publicising the most egregious examples of exploitation.

Like Mrs Roy, she said improving financial literacy was a key issue.

PREDATORY LENDING?

Actual case studies provided by Mangere Budgeting and Family Support Services.

* A 21-year-old Samoan woman was considering suicide after incurring $43,000 in debts to a fringe lender. The money was effectively borrowed by her family but she signed the documentation which she did not fully understand, which made her liable. Her family has since moved to Brisbane.
* A loan for a $3000 car saw a large Tongan family end up with no car and a $10,000 debt.
* A Tongan mother with four children lost all her furniture and other possessions which were security on a $13,000 loan to go to Tonga to bury her father. She now owes nearly $24,000.