Govt clamps down on interest rate cap, truck shops

updated By Piripi Taylor

An interest rate cap for loan sharks and regulations for truck shops are on the cards to minimise irresponsible lending practices on vulnerable consumers, many of whom are Māori and Pasifika. 

Commerce & Consumer Affairs Minister Kris Faafoi announced these as additional protections to be included in the Credit Contracts Legislation Amendment Bill. 

An interest rate cap of 0.8 percent on payday loans will aim to crack down on the predatory behaviour of loan sharks who target the vulnerable.

Minister Faafoi made the announcement today at the head office of Christians Against Poverty in Penrose.

"This will limit the accumulation of interest fees where a borrower defaults or needs to reduce repayments because of unforeseen hardship," he says. It can help them avoid what can be a never ending spiral of debt."

More robust checks will also be required by mobile traders to ensure borrowers can afford paying back credit and are well informed before signing up.

"I'm not the kind of politician that says they want to take anything out of the market," says Faafoi. What I want to do is take (out) the sharpest of those who have been preying on vulnerable New Zealander's in this market for some time."

Proposed legislation currently before parliament will include these additions as a response to criticism received from public consultation that the reforms introduced in April didn't go far enough. 

"We're please that the government has listened to the recommendations of Christians Against Poverty and others to tighten the legislation," says CE Aimee Mai.

On the ground, the cap is viewed as a step in the right direction, but many believe the government could still go even further.

Louise Darroch, who works for Christians Against Poverty out of the Māngere Baptist Church, says the cap doesn't go far enough.

"292% pa is still very high for low-income earners. So 0.8% per day? No, it's not enough."

Thomas Henry of the Otāhuhu Budgeting Services believes that loan sharks should be banned altogether and agrees if there is a reluctance by the government to do that, there should be a restriction on the number of loan sharks in low socio-economic communities. Henry believes this could be achieved with the $4mil allocated by the government to educate. 

"Less whānau going to loan sharks, more whānau getting knowledge about a way forward. Well, $4mil, it's a start and we appreciate that."

The government hopes the reforms will become law by the end of the year with the interest rate cap kicking in around June next year.

A proposed review will follow after three years.