Power vows to drag loan sharks into the light

Consumer Affairs Minister Simon Power is on a crusade to stop loan sharks taking advantage of unwary borrowers in tough economic times. Photo / Sarah Ivey

The Consumer Affairs Minister has vowed to drag loan sharks into the sunlight to stop them taking advantage of unwary borrowers in tough economic times.

Speaking at the Financial Summit in Auckland today, Simon Power said he would take a set of policy recommendations to cabinet before the end of the year, which would likely include the introduction of a mandatory code of conduct for money lenders.

The announcement follows Government research which identified and examined third-tier lender, companies other than banks, building societies and credit unions that offer personal non-mortgage loans.

It found between 35 and 40 per cent of the lenders were not registered as financial service providers, as required by law.

"I don't think it's acceptable that people are lending money, unregistered, in contravention of the law to unwary borrowers. The Government is going to have to look very closely at that," Mr Power said.

"Those individuals need to be dragged into the sunlight."

The minister also had a warning for people, including celebrities, who promoted companies which were misleading borrowers: "Be very careful if you're endorsing a product that you're not misleading or deceiving a member of the public about that investment.

"Any individual who makes a misleading statement about a particular product or a particular investment needs to be held to account."

It was vital that lenders provided precise, accurate information in simple language about what borrowers were getting themselves into when taking out a loan, he said.

"We also need to be sure lenders understand the borrowers' circumstances before they shove credit down their throat.

"I'm also particularly keen on doing something around a responsible lending code, something mandatory.

"I like the idea of having one standard, including for the banks, which can...keep the others' standards up rather than us creating a separate standard for third tier lenders."

Earlier today the minister spoke of a case in which a South Island woman borrowed $250 from an internet pay lender and ended up having to pay back $1500 three months later because of an interest rate of more than 700 per cent.

"It is clear to me that this fast-growing industry - fuelled by advertising focused on ease, speed and normality of third-tier loans, all aimed at those low income beneficiaries - is a recipe for, if not disaster, then danger."

Mr Power said he would also explore the possibility of putting a cap on interest rates, although this was a complex proposition which could have unintended consequences.

The research found the total number of lenders had increased by 18 per cent in the last five years, with a total of 218 operating this year compared with 185 in 2006.

Labour consumer affairs spokeswoman Carol Beaumont said today's summit had once again put the spotlight on the immense harm caused by loan sharks, and she hoped the Government would take swift action to deal with the issues raised.

"There is no doubt that change to current law is necessary to stop predatory lenders in their tracks," Ms Beaumont said.

"But there is also a role for non-legislative change, for example, greater support for social lending initiatives and improving financial literacy."

Labour was willing to work alongside the Government, Ms Beaumont said.

"But after three summits in five years, and a delayed review of the Credit Contracts and Consumer Finance Act, decisive action must be taken now. This issue cannot be side-lined again."

- NZPA