Law change needed over loan sharks - Goff

A summit to tackle unscrupulous loan sharks has been slammed as a "talk-fest", with Labour leader Phil Goff saying a law change is needed to stop credit companies preying on vulnerable consumers.

Consumer Affairs Minister Simon Power today announced a summit in August would look at tackling gaps in the system that allowed companies to take advantage of people in tough economic times.

Mr Power said there could be changes to the Credit Contracts and Consumer Finance Act, which covers the disclosure of credit information to consumers, but added that voluntary industry initiatives could also be an option.

The minister said it was too easy for unwary consumers to agree to something they did not fully understand and become trapped beyond their means.

"We need to do something about that -- and we will. The preying on of vulnerable people by loan sharks has to stop," Mr Power said.

The announcement comes a day after questions were raised over loan company Ferratum New Zealand offering loans of up to $600 via mobile phone, at interest rates of almost 300 percent per annum.

Mr Goff said the summit would not go far enough to tackle loan sharks and a law change was needed.

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

"We need legislation on this now ... no more talking -- let's get some action."

When Labour MP Carol Beaumont last year introduced a private member's bill to tackle the issue -- the Credit Reforms (Responsible Lending) Bill -- the Government voted against it.

National MP Sam Lotu-Iiga last month introduced his own member's bill -- the Moneylenders (Licensing and Regulation) Bill -- which would register and licence lenders.

Mr Goff said Labour would reintroduce its bill and he expected the Government to support it.

"There are people out there ripping off the most vulnerable in our community. They know they're doing it, they know the loans can't be repaid, that low income people will lose their money, lose the possessions they were buying, and they're doing it out of pure greed.

"That's got to stop, and legislation should be introduced to stop it."

Mr Power said he was not ruling out an interest rate cap, but government could not regulate or legislate over risk.

"If people willingly get into a contract that they understand the terms and conditions of, that is a matter for them, but where those terms and conditions and the true cost of credit are not made clear and that disclosure is not made available, that is an area for regulators."
More financial literacy was part of the solution, he said.

"But also we need to take this opportunity to talk with communities that are exposed to these types of practices which might be regarded as undesirable, and ask the hard questions."

The summit would bring together representatives from the financial sector and community groups.

Mr Power said it would not be a "talk-fest" and he wanted it to come up with an action plan including initiatives to help vulnerable people.

Asked about Ferratum's mobile phone loans, Mr Power said there was an issue with access to funds where disclosure was not immediate and accessible.

"I don't want to comment specifically on that case, other than to say I find it difficult to understand how you could fully appreciate the nature of the contract you were getting into by a text."

 

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