Labour's loan shark bill defeated

The Government has killed a bill that would have regulated loan sharks and capped the interest rates they charge.

Labour MP Carol Beaumont's Credit Reforms (Responsible Lending) Bill was voted down 63-59 in Parliament last night, with National and ACT opposing it.

Ms Beaumont said New Zealand, unlike many other countries, did not put limits on interest rates and loan sharks targeted the most vulnerable people.

"Stories abound of people hurt by irresponsible lending and excessive interest rates," she said.

"I know of a Tongan family who borrowed $3200 to repair their car...they ended up with no car and still owe almost $10,000."

Ms Beaumont's bill does not specify a maximum interest rate. It would have allowed it to be set by regulation so it could be changed when necessary without amending the law.

Consumer Affairs Minister Heather Roy said the Government wasn't going to support the bill because credit law was under review and a public consultation document had been released.

She said she knew Ms Beaumont had good intentions, but this was not the time to go ahead with her bill.

"Capping interest rates could result in a decrease in available credit," she said.

"Australia is currently reviewing the effectiveness of its caps, and we will be watching the result of that review."

The bill would also have imposed obligations on loan companies, and they would have had to "reasonably believe" a borrower could repay the loan they were taking out.

Ms Roy said that could be confusing and could also make it more difficult for people to obtain credit.

Ms Beaumont's Labour colleague Charles Chauvel accused Ms Roy of "claptrap".

"Loan sharks target the most vulnerable people with obscene interest rates," he said.

"They never expect to see their loans repaid in full...we have to take action now because there has never been a better time for loan sharks -- 75 percent of people are earning less than $45,000 a year."

The Maori Party strongly supported the bill.

MP Te Ururoa Flavell said interest rates could exceed 400 percent a year and compound to 1000 percent.

Loan sharks used threats, blackmail and bullying to get their money.

National MPs said Ms Beaumont's member's bill was flawed and didn't deliver the right solutions.

They said comprehensive "proper legislation" was needed which would result from the Government's review.

Labour, the Greens, the Maori Party, United Future and the Progressive Party supported the bill.