Wild west in the suburbs

The World Bank consistently ranks New Zealand as first out of 190 countries for ease of doing business, starting a business, protecting minority investors and getting credit. That is great for businesses, but we don’t provide the same safe and fair financial environment for our low income citizens.

Unlike most of the rest of the world, in New Zealand there is no legal limit on interest rates or on the total cost of credit. Both these protections are needed because we have a ‘wild west’ predatory environment for consumer lending. Loan sharks charge ‘only’ 1% interest per day (that is 352% annually); and while truck vendors or mobile traders often charge no interest on credit, their prices are inflated to three times the norm, and administration and penalty fees will ensure they reap more than 100% profit on every transaction.

When people have low income and no option of mainstream banking (perhaps late payment of bills gives them a bad credit rating) you can guarantee that crises will often occur: the car will break down so they can’t get to work, the fridge will stop working, visiting friends empty the pantry so there is no food for school lunches, or worse: children are really sick and need to see a doctor. Once the generosity of family and friends is exhausted, such crises can force people to take the only other available option: easy-access, high cost loan sharks or mobile traders.

The good news is that there are microfinance organisations like Nga Tangata Microfinance working with Kiwibank to offer small, safe, no interest loans to low income people. Other recent microfinance providers are Wellington’s Newton Ethical Lending, and Australia’s Good Shepherd Microfinance funded by the New Zealand government and BNZ are working with the Salvation Army.

And even more good news is that the Commerce Commission is taking action against predatory lenders. On the Commerce Commission’s website are these reports from 2017, including a jail sentence to one mobile trader who took people’s money and never delivered the goods:

Rapid Loans to refund over $1 million in unreasonable fees 7 ‎March. ‏‎Internet-based Rapid Loans NZ Ltd to compensate borrowers approximately $1.4 million following a Commerce Commission investigation into unreasonable fees.

First jail sentence in Commerce Commission case 3 March. Vikram Mehta, owner of mobile trader Flexi Buy Limited (Flexi Buy), has been sentenced in the Auckland District Court to two years imprisonment after taking money from customers without intending to supply goods as promised.

Judge criticises mobile trader for targeting the vulnerable 22 February. Mobile trader Bestdeals 4 You Limited (Bestdeals) fined $47,250 in the Auckland District Court for failing to disclose key consumer information about its credit contracts and layby sales agreements.

Commission files charges against Auckland mobile trader 8 February. Commerce Commission filed 24 charges against Appenture Marketing Ltd for failing to provide consumers with key contract information and for making false and misleading representations to consumers about their rights.

Mobile trader pleads guilty to disclosure failures in contracts 25 January. Mobile trader Best Buy Limited (Best Buy) pled guilty to 16 charges relating to operation of its door-to-door sales business in Auckland and smaller North Island towns.

A major factor in child poverty is the high cost of credit inflicted on families who are poor and desperate and financially excluded. High cost credit: usury and predatory lending, traps people in poverty. It keeps food off the family table. It stops people sleeping because their home is damp and cold. It stops children seeing a doctor when they are sick. It keeps people in perpetual stress and distress.

We provide a safe, fair environment for businesses to operate. It is time we provided a safe, fair environment for low income people to access credit: we need a legal limit on the total cost of credit.