Cap on interest rates vital to protect vulnerable New Zealanders
Child Poverty Action Group (CPAG) says that the proposed amendments to the Credit Contracts and Consumer Finance law do not go nearly far enough to provide vulnerable New Zealanders the protection they desperately need.
FinCap, an organisation supporting budgeting and financial capability services in New Zealand, said recently that the Government's proposed law to curtail responsible lending isn't strong enough to stop loan sharks preying on the poor, and CPAG agrees.
The Credit Contracts Legislation Amendment Bill, which was due for first reading in the House of Representatives this week, includes changes to clause 22 that will impose a limit on the accumulation of interest and fees on high-cost loans to 100% of the original loan principal, over the life of the loan. This would mean that if an individual borrows $500, they will never have to pay the lender back more than $1000, including all fees and interest. The new clause would apply only to loans with an annualised interest rate of 50% or more.
FinCap was among the many of the 86 submitters who called for the amendment Bill to include a cap on interest rates.
CPAG endorsed the submission of Ngā Tangata Microfinance which called for - alongside a broad cap on the total cost of credit - a maximum interest cap of 30% per annum, which would apply to companies who lend larger sums, combined with a total cost of credit for these lenders in the range of 50% of the loan.
CPAG says that the maximum cost of credit should be different for smaller and larger borrowers. While the new law will prevent a loan at $500 from tipping past $1,0 00 in terms of the total cost of credit, it won’t protect a $5,000 loan from becoming $10,000, so there needs to be clear delineation between small and large loans and adequate protective laws for each.
Dr Claire Dale, spokesperson for CPAG says that the proposed laws will not protect low-income families from the devastating costs they face in repaying predatory lending companies.
“Huge costs of living and housing, low wages, and inadequate benefit levels mean meeting everyday costs are a daily struggle for our worst-off families and whānau, who sadly are the primary target market for such loan companies,” says Dale.
“Taking on debt to meet urgent costs is sadly becoming the norm for so many people, and as this is the case, they deserve far better protection to prevent them from falling into deeper, unrelenting poverty.”
“High interest debt rapidly becomes unmanageable. Unsustainable repayments on debt create stress among family members, take up money needed to buy essentials including food for the children, reduce any remaining assets the family might have, and diminish the wellbeing of the whole community. The consequences of unmanageable debt are an enduring and pervasive poverty trap.”
“Alongside looking at better income measures to support a reduction in poverty, the onus is on this Government to make sure adequate loan protections are in place.”
CPAG is in complete agreement with FinCap CEO Tim Barnett, who said, “This is a great opportunity with a progressive Government to include an interest rate cap in that law which effectively will get rid of the worst of these loan companies."
Poor families and their children will continue to be the prey of loan sharks until the Government provides adequate consumer protection. New Zealand needs what most of the rest of the world already has: an interest rate cap to protect the most vulnerable consumers.