The Government’s proposed law to curtail responsible lending isn’t strong enough to stop loan sharks preying on the poor, a budgeting group says.
FinCap, which represents budgeting and financial capability organisations, said the Credit Contracts and Consumer Finance Amendment Bill’s lack of an interest cap is a huge let down.
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“The new law is overly complex and full of loopholes and the strong expert consensus is that an interest rate cap is a bottom line to make this legislation work,” chief executive Tim Barnett said in a statement.
Barnett said the groups he represents see families missing out on the basics like food, warm clothing or electricity because they’re paying huge interest on loans from predatory lending companies.
He told Newshub the new law is a missed chance.
“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.”
Commerce and Consumer Affairs Minister Kris Faafoi said in June 2018 the Government was considering a cap on fees and interest for lenders.
“If you look at the options, what runs through all those options is to make sure that you can cap the amount of interest and the fees at 100 percent of the principle of the loan,” he told Newshub Nation.
“So in plain English, if you borrow $1000 then the interest that you pay can’t go over $1000, and I think that will prevent a lot of the situations where we’re seeing a relatively small loan spiralling out of control.”
He told Newsroom in March going further could leave people out of pocket.
“The Government didn’t propose an interest rate cap in addition to a total interest and fee cap as we don’t think there are enough safe credit lenders in the sector to meet the immediate needs of some consumers who unfortunately do need access to credit quickly,” he said.
FinCap disagrees, and Barnett told The AM Show if loan sharks weren’t in the picture, people would find a way to manage.
“When high interest loans are banned, people get money in other legal ways or they actually find new ways of dealing with a problem they’ve got or they come to a budget service to get the advice they need.
“So we’re going to keep voicing that and we’ll just see how the debate rolls out.”