Interest rate cap also needed to tackle problem debt
“An interest rate cap will mean the just-announced low- and no-interest scheme, and the increased availability of budget assistance, can make a real difference.” Dr M. Claire Dale, CPAG
Child Poverty Action Group and Nga Tangata Microfinance Trust call on the Minister of Consumer Affairs to include an interest rate cap in the Credit Contracts and Financial Services Law Reform Bill.
The Bill currently relies on ‘responsible lending’ requirements to provide consumer protection. But an online or texted loan application is answered in 5 minutes, and CPAG is concerned that such lenders do not give clients the necessary information about loan terms, charges and penalties in that time.
Dr M.Claire Dale, spokesperson for CPAG and Nga Tangata Microfinance Trust said,
“No matter how carefully people budget, at 500% interest (legal in New Zealand) a small loan can rapidly grow into an insurmountable debt. For effective consumer protection, a limit on interest charges is required. This is how it is done in Australia, Japan, the US, and most of Europe. We strongly endorse the Supplementary Order Papers from Carol Beaumont (Labour Party) and Te Ururoa Flavell (Maori Party).”
Dr Dale said: “An interest rate cap will mean the just-announced low- and no-interest scheme, and the increased availability of budget assistance, can make a real difference.”
CPAG and Nga Tangata Microfinance Trust welcome the Minister of Social Development’s announcement of Government support for a low- and no-interest loan scheme. The scheme will provide a desperately needed alternative to the unscrupulous lenders currently trapping so many families in poverty.
“We are also pleased to hear that the government will allocate an extra $22 million over 4 years to Budget Services to provide financial education and budgeting advice to help clients manage their finances. But without an interest rate cap, none of these initiatives address the problem of predatory lending and problem debt.”