Commerce Minister Simon Power announces financial summit to crack down on loan sharks, make borrowers understand the true cost of debt

By Amanda Morrall

Consumer credit law in New Zealand could face a regulatory revamp under a new campaign to crack down on "loan sharks" and other irresponsible money lenders "preying'' on the country's most unwary and vulnerable citizens, Commerce Minister Simon Power says.

Speaking at a financial literacy event in Wellington, Power announced a summit to be held in August in Auckland that would look closely at ways to tackle New Zealanders' debt problem, particularly those who did not fully understand the true cost of, and implications of, borrowing.

Power, whose lengthy list of parliamentary duties includes a new mandate as Consumer Affairs Minister, said he planned to pay more than lip service to the problem.

But Labour Party Leader Phil Goff said legislation should be passed now, rather than holding "talk-fests" on the issue. Labour had introduced a Bill to Parliament last year for controling loan sharks, which was voted down by the National Party. Goff said Labour now planned to reintroduce the Bill.

Tackle those who prey

Power said while many lenders were "responsible, transparent and open" others deliberately preyed on a population that could least afford to borrow at exorbitant rates of interest.

"There are gaps in the system that allow the unscrupulous to take advantage of the unwary in these tough economic times. Preying on vulnerable people by loan sharks has to stop,'' said Power.

Power's move comes after the Government voted down Labour MP Carol Beaumont’s Credit Reforms (Responsible Lending) Bill last July which would have regulated loan sharks and capped the interest rates they charge.

Retirement Commissioner Diana Crossan, a key force in promoting financial literacy in New Zealand, welcomed Power's announcement.

Power said the upcoming summit, which would involve a cross-section of financial sector participants, was meant to achieve three objectives:

1)  the development of an “action plan” with initiatives to help vulnerable people trapped in a debt spiral caused by lack of financial literacy, consumer choice, and high compounding interest.

2)  to send a message to all financial sector providers “from the bigger and more mainstream ones to the small, third-tier ones" that they need to practice and commit to responsible lending and responsible consumer debt management.

3)  to determine a clear direction about how the Government can best contribute to improving the financial literacy of all New Zealanders.

Power said the Credits Contracts and Consumer Finance Act (known as the "triple C") could be directly affected as that piece of legislation is currently the main provision for disclosure surrounding the terms and conditions of borrowing money.

Banking ombudsman Deborah Battell, a participant at Tuesday's financial literacy conference, questioned Power about the Government's true "appetite" for tackling debt particularly as the Triple C legislation in its current form took such a long time to draft and implement.

Power dismissed any suggestions he was less than committed to making meaningful changes.

"Legislation on the lending side remains remarkably undercooked,'' he said.

"While the framework is reasonably solid, more work needs to be done in terms of real disclosure. The notion that funds might be available at 8% a day is a notion that will be lost unless skills are improved to the point where people can understand fully the terms of a contract they’re entering into.''

The upcoming summit is slated to be held Aug.11 in Auckland.

'We tried, but you voted against it'

Speaking to journalists in Parliament this morning, Labour Leader Phil Goff said Labour had looked to tackle the issue, but it's Credit Reforms Bill had been voted down last year.

“We don’t want summits, we don’t want talk-fests, we want a piece of legislation that sets a maximum [interest] rate so that loan sharks have to lend below that level, and legislation that says they can’t lend knowing that people can’t afford to repay," Goff said.

“We need legislation on this now. People are being ripped off, they’re losing their money – those that can least afford it – they’re losing their possessions, there should be protection under law. No more talking, let’s get some action,” he said.

Labour had its Bill before Parliament last year on the issue, which it would be seeking to reintroduce.

“It might not have been perfect, but it was a good basis for further discussion before the Select Committee. National voted against it," Goff said.

"I’d urge National to take the interests of low income people being ripped off by loan sharks into account and supporting the legislation to provide reasonable protection," he said.

(Updates with Phil Goff comments)