Trapped by debt with no way out

By THERESA GARNER

It started with a loan to fix the family car. After borrowing $5000 in March 2000, Mele Tonga has paid back $12,770. But she still owes $4799.43.

The mother of three has set aside her embarrassment at discussing personal problems to talk about her experience with Richelieu Investments.

Richelieu Investments operates out of a Papatoetoe house with a discreet sign at the gate. Mrs Tonga went to the loan company in March 2000 to borrow money to fix her car.

There she met Beverly Jean Monk, 54, who she thought was "an angel".

"I thought, 'All my problems are solved'," she said.

The daughter of Tongan migrant factory workers, Mrs Tonga left school at 16 without qualifications and worked in a factory until she had children.

She was 21 when she accepted the loan from Ms Monk and said she simply did not understand the contract.

The principal was $7500, including a brokerage fee of $1000, administration fee of $300 and documentation fee of $1200.

The interest rate was 28.5 per cent, and the penalty interest 34.5 per cent.

If she defaulted, a letter to Mrs Tonga would cost her $50, a phone call $30, and a home visit $100. The overall cost of the credit was 48.6 per cent a year.

To top it off, a caveat was put on her Manukau home.

"I might as well have signed my life away," Mrs Tonga said. "When we signed the contract we were rushed right through it."

For nearly three years she struggled to make the repayments, originally set at $517 a month. Once she came home to find a "For sale" sign up outside her house.

"The saddest part is the numerous times Beverly has threatened me with being homeless in front of my children," she said.

On a beneficiary's weekly income of $496, Mrs Tonga stopped paying in January when she received a letter saying she had to pay at least $300 a week "unless you want a mortgagee sale".

"I tried to negotiate with her but she would not take less than that."

Now Ms Monk has taken legal action against Mrs Tonga's separated husband, a party to the loan, telling the court she has made "many attempts" to address the issue without success.

Mrs Tonga said she has been told to ask her family for the money or to sell her house, and that she was lucky to have a roof over her head.

She said Ms Monk once told her she hoped the Tonga children would grow up to go to university. But those same children have had to go without as Mrs Tonga struggled to meet the repayments. "Forget taro - we are hardcore rice-eaters. It's cheap."

The nice clothes in Mrs Tonga's wardrobe belong to her grandmother and she is grateful she fits them. The others are cast-offs.

Mrs Tonga showed off the carpet she retrieved from an inorganic rubbish collection and laid in the dining room, and the photo frames from the $2 shop.

She scours fairs and garage sales for reading material, especially Reader's Digest. "I didn't have much of an education but I'm really into books."

Despite her debt, Mrs Tonga considers herself lucky. "If I don't have any bread or milk after the bills are paid I can ring my family," she said.

Other members of her family have also used Ms Monk's services - her mother withdrew half her superannuation to pay a loan after a real estate sign was put on her fence.

"She [Ms Monk] preys on Pacific Islanders because we're just the little people," Mrs Tonga said. "I think there are quite a few of us gullible people out there."

She does not have a lawyer, but in February she finally received a copy of her contract after a lawyer she found in the phone book dictated her a letter to send which detailed her rights.

Another lawyer asked her if she knew she was dealing with a loan shark.

"Well, I'm Tongan - I eat shark," she said in a display of bravado. "I'm not going to take it any more. This whole thing with Bev has made me a stronger person."

Through her lawyers, Wilson McKay Solicitors, Ms Monk said the loan details were explained carefully to the Tongas, and she was legally entitled to lodge the caveat. The fees she charged were standard.

When she was asked if she considered herself a loan shark, lawyer John Higgins responded that Ms Monk "provides financial services to people who need those services".

Ms Monk denied placing "For sale" signs on the property, but said when the sign went up "Mrs Tonga continued to ignore the seriousness of the situation".

Asked if it was normal practice to threaten a mother with homelessness in front of her children, Mr Higgins replied: "Mrs Tonga knew that her home was in jeopardy.

"Our client was entitled to put it up for mortgagee sale 2 1/2 years ago, but instead continued giving Mrs Tonga and the other parties to the loan agreement the opportunity to address the issue of their repayment arrears."

After the letter seeking $300 a week was sent, Mrs Tonga was given the opportunity to make smaller repayments of $100, Mr Higgins said. "Our client does not prey on Pacific Islanders."

And he said if Mrs Tonga had asked for her loan contract earlier, she would have been given it.

The Consumers Institute says exorbitant interest rates, complicated contracts and punitive terms are the basic tools of trade for loan sharks.

But spokesman David Russell stressed that such operations were not illegal.

"It is the way they go about their business that is distressing. I would hope as a society we could operate at a higher ethical level," he said.

"They prey upon people who are desperate and haven't got a very good grasp of the financial system.All we can be is vigilant and keep these sorts of cases before the public."

Mrs Tonga's court hearing is looming and she has no money to pay the debt.

She looked over the sunny deck, with the constant noise of the nearby motorway and overhead planes: "This is the best area I could think of for me and my kids. The school is nearby.

"My father said to me before he died, 'That house is an investment for your children, for your future'."

Later she asked: "Are there any other people out there like me?"

The Consumer Credit Bill designed to protect consumers by making contracts easily understandable and fair had its first reading in Parliament in February.

Consumer Affairs Minister Judith Tizard said that people needed to make informed choices so they could play a role in the growth of the economy. "Low-income, high-risk borrowers, notably Pacific people, have been particularly harmed."

Beating loan sharks

Try mainstream lenders before going to a cash loan company.

Get financial advice from Budget Advice Service or Citizens Advice Bureau.

Before you sign anything, make sure you understand it. If necessary, take loan documents to a Community Law Centre, which offers free advice.

Make sure you get a copy of your contract. It's the law.

If you get into trouble or think you are being ripped off, seek advice as soon as you can.

Do not simply stop paying, as this will make things worse.

The Credit Contracts Act allows courts and Disputes Tribunals to overturn credit contracts that are "oppressive".

Source: Consumers Institute

LET US KNOW: Have you had a similar experience? Phone (09) 373-6400 extn 8239, or email Theresa Garner