Banks blacklist truck vendors and predatory lenders. Time for the Government to act.

On 18 April, responding to Sarah Hall’s story on Newsroom about truck vendors, Kris Faafoi, the Commerce and Consumer Affairs Minister, said there would be a consumer finance review looking at predatory practices:

"At its most basic level the people that they are preying on need to know exactly what agreement they're getting into, what they're buying and what they're going to be paying back. I don't think even that basic disclosure is happening. The issue is these families are just in internal spirals of debt and cannot get out.”

Faafoi said we can expect legislation to be introduced before the end of the year which will build on 2015 changes. The initial review would include issues like high interest, debt collection practices, and high fees.

On 19 April, Kiwibank’s Group Manager Marketing, Mark Wilkshire, said:

“Denying banking services to predatory lenders will help put dodgy operators out of business. The practices and ethics of some of the payday lenders and truck shops who are preying on the most vulnerable people in our communities are exploitative. The time has come for action.”

Kiwibank is inviting others in the New Zealand banking and financial sector to join it in cutting predatory lenders off from accessing services.

Wilkshire said:

“Our stance is to not do any business with these predatory lenders. But to really make change it is crucial that other financial institutions do the same.”

The headline response the next day was Mobile shopping truck companies are being blacklisted by New Zealand's banks for their predatory consumer practices. Westpac, ANZ, BNZ and ASB joined Kiwibank in not offering banking facilities to truck shops, and disengaging if they uncover the companies operating these types of predatory businesses. While the New Zealand Bankers’ Association said it strongly supported efforts to crack down on predatory lending, obviously it could not force its members to boycott truck operators or payday lenders.

As well as denying banking services to predatory lenders, Kiwibank provides the loan capital for Ngā Tangata Microfinance’s no-interest loans that help vulnerable Kiwis escape the punishing cycle of debt caused by predatory lending practices.

Robert Choy, Ngā Tangata Microfinance’s executive officer, said:

“We need to change the whole structure around fringe lending. The stance taken by Kiwibank shows banks can be a huge part of the solution. If other banks get on board, we’re a big step closer toward putting these predators out of business for good. But law change is the ultimate goal.”

The Government has indicated it wants to change the law relating to consumer credit, with caps on interest rates on short-term loans the top priority. Recent prosecutions by the Commerce Commission show that current legislation is not protecting consumers. For example, mobile trader Mobile Shop has been fined $330k for breaching consumer laws: 12 charges under the Fair Trading Act and a further 12 under the Credit Contracts and Consumer Finance Act. The offending covered more than 5,000 contracts signed between October 2015 and September 2016 with a value of more than a million dollars. That prosecution is the 13th case taken by the Commission since its 2015 investigation of 32 traders found widespread non-compliance.

Commerce Commissioner Anna Rawlings said:

"We will continue to take appropriate enforcement action against traders which fail to meet their legal obligations to their customers."

Mobile Shop was also ordered to pay $10,800 in damages to about 50 debtors.

“Not much recompense per debtor,” says Dr Claire Dale, founder and director of Nga Tangata Microfinance and long-term member of Child Poverty Action Group.

Dale says:

“What we need is a ‘total cost of credit’ cap, so the cost of credit is controlled, and borrowers know exactly how much they have to repay. It is disgraceful that the poorest people in New Zealand have to deal with predators who can legally charge more than 500% interest. This Government has said it wants to end child poverty. Adding $10 a week to welfare benefits or tax credits is a help, certainly, but it doesn’t solve anything. The Government needs to act to create a safe and fair credit environment and end legal usury.”