Instant approval. Low-income earners welcome. Money in your bank in one hour. Those are just some of the promises from the country's money lenders. Kim Dungey reports.
Michael Schouten knew he was in trouble when he used his credit card to get cash and to pay his bills.
• Beware 'dumb debt'
By the time he arrived at the Dunedin Budget Advisory Service, he owed more than $22,000. Soon after, he was declared insolvent.
Schouten's creditors include the University of Otago School of Dentistry, Motor Trade Finance and his bank, power and phone companies.
"It's scary," he says, describing how he felt as he sank further and further into debt.
"You blame yourself. You become angry with yourself. You feel like a fool.
"You become very anti-organisation because you see them as trying to either take money from you or preach to you about what you did wrong. You become isolated ... "
Like many New Zealanders, the 48-year-old ACC beneficiary has learned first-hand the dangers of debt.
But even his situation is not as bad as some others, with social agencies saying one of their biggest concerns is the so-called third-tier lenders hitting the most desperate with annual interest rates in three figures.
Such operators often lend money without ensuring borrowers can meet the repayments, they claim, then profit from the rapidly compounding interest and the subsequent seizure of assets.
Many of their customers do not meet the lending criteria set by trading banks because they have low incomes, a poor credit history or limited security.
The culprits include finance companies, payday lenders, pawn shops and mobile trucks.
Politicians share the social agencies' concern. Last year, then Labour consumer affairs spokeswoman Carol Beaumont launched a Stop Loan Sharks campaign, and last month the Government announced it would overhaul consumer credit laws to protect unwary customers being preyed on by unscrupulous credit companies.
Third-tier lenders are not as prevalent in the South as they are in places such as South Auckland, where there are 47 outlets and Mangere Budgeting Services staff recently saw a loan with an interest rate of 690%.
But several money-lenders service Otago and Instant Finance recently opened a branch in South Dunedin.
A recent survey conducted by the Ministry of Consumer Affairs estimated that in the past 24 months at least 130,580 New Zealanders had borrowed money from a third-tier lender (defined as finance companies, pawnbrokers and mobile lending trucks that provide consumer credit).
Although the number of such lenders had not changed significantly in the past five years, there had been a 60% growth in outlets, from 210 to 336.
For many of the borrowers in the study, a third-tier lender provided their only option for borrowing money to buy a car, pay for family events and cover living expenses. That meant they had little choice about taking on loans with interest rates of between 20% and 39% per annum, or up to 550% per annum in the case of payday lenders and pawnbrokers.
Many found banks inflexible and slow and saw finance companies as friendly, fast and easy.
Two-thirds were offered a further loan, a credit top-up or more credit than they initially asked for.
Shirley Woodrow, of the Dunedin Budget Advisory Service, says the organisation helps 1000 people annually, many of whom turn up early in the year struggling with post-Christmas bills and school-related expenses such as uniforms and camps.
In the past five months, the average debt has been $20,700.
The arrival of another lender in town is "just another way that people can borrow money when they can't necessarily repay it".
"People we see often spend money at Christmas because they think they've struggled all year so deserve to give their kids something at Christmas.
"They don't think about the longer-term issue of paying it back."
Woodrow cites the case of a Dunedin client who consolidated several debts with a finance company. The woman needed to borrow $46,000 but with $21,000 in interest and $6000 in costs, ended up paying $73,000.
"The monthly repayments were $1213. Her income was $432 a week, of which the loan and mortgage took all bar $24. Anybody doing the maths would know she couldn't afford [the loan] but they gave it to her anyway."
Further north, her counterpart at Mangere Budgeting and Family Support Services has seen 5800 people walk through his front door in the past year and almost 9000 calls to the trust's help-line.
Chief executive Darryl Evans says while there have long been loan shops in South Auckland, there are now mobile lenders who target pensioners and Housing New Zealand estates, payday lenders with crippling interest rates and a growing number of mobile truck operators who sell everything from duvet covers to flat screen TVs and deduct the cost automatically from benefits.
Evans says the trucks charge "exorbitant" prices - $9 for a 2-litre bottle of milk, $5 for a loaf of bread and $39 for a pack of budget nappies - but their customers have often spent up to 70% of their income on rent and have little money left for food.
Interest rates charged by third-tier lenders are often compoundable on a 24-hour basis. "So they advertise an interest rate of 8% but if you read the fine print, it's 8% per day, times the amount of days you take it out for."
But many families are desperate.
"If you need a car, you need a car. And if you've got bad credit and you can't go to the high street bank, you're a loan shark's dream because you'll agree to anything."
Financial problems are extremely stressful, he says.
"I met with a lady 18 months ago. She was in my office at 11 in the morning with a $2300 debt to her power company and by three o'clock she'd gone home and hung herself in the garage."
Richard de Lautour, of Instant Finance, is not sure why none of the company's traditional competitors is in Dunedin but believes there is a market in the city. The firm opened in South Dunedin this month and plans to eventually have staff travel to towns such as Oamaru and Balclutha.
De Lautour describes the firm as a "needs-based lender" that offers small, short-term loans, often when something has gone wrong, such as a car breaking down or a funeral in the family.
The average loan size is $3800.
He says the company's "relatively high" interest rates are necessary to cover the cost of more than 20 branches and 135 staff managing multiple, often high-risk, loans. On very small loans, the difference in dollars per week between its 29.95% and others' 18.95% is "nothing", he says.
Only a small percentage of its 26,000 customers default on payments and 75% of any goods the company repossesses are eventually returned.
"If you want to look at where the indebtedness is turning up, in fact it's not around our sort of lending. It's around aspirational lending, [particularly] credit cards and worse than that, stores offering extended interest-free periods."
He, along with several others spoken to, supports the Government's proposed changes but wants existing legislation properly enforced.
Former consumer affairs minister Simon Power says the turnover in the third-tier lending market reflects the ease of market entry in an environment where just about anyone can become a credit provider because they don't have to meet any competency or conduct standards.
Half of the third-tier lenders in the market five years ago no longer exist but in the same period, 127 new ones have set up.
Up to 40% of them are not on the Financial Service Providers Register, as they are required to be by law, and have not joined a disputes-resolution scheme.
One of the Government's proposed changes would require lenders to ensure borrowers can repay their loans without substantial hardship. Customers would not be liable for interest or fees if their lender is not on the Financial Service Providers Register and important goods, such as tools of trade, necessary household items and motor vehicles worth up to $5000, would be protected from being used as security. The reforms would also extend the cooling-off period, when a consumer has the right to cancel a credit contract, from three to five working days. A draft Bill is expected to be introduced next year.
However, Finance Minister Bill English says the Government will not regulate interest rates because it would just create a black market and rates would potentially climb much higher.
Darryl Evans thinks the proposals are a good start but interest rates should be limited to about 25%, the most someone would pay on a credit card.
"The Government says a cap would push the [industry] underground but the reality is it's already there. In Mangere, they're out the back of $2 shops and garages ... "
Agencies say they are not suggesting the poor should not have access to credit but they may have more options than they realise. Credit unions and Kiwibank were two that were mentioned. Labour wants to help develop social lending schemes.
Retirement Commissioner Diana Crosson says some people who use third-tier lenders would be eligible for bank loans but in areas such as South Auckland, the banks have moved out and that means people are not used to them.
"They're rather daunting, middle-class kinds of buildings. You don't know what to ask for ... and it feels a bit public. Whereas the payday lenders always seem friendly and always have someone on their advertisement who looks like somebody you might want to go to."
Beaumont agrees. "I'm not saying people don't have to take responsibility for their spending. But the way companies advertise is, 'Don't worry about it. It's easy to get credit.' There's a car yard that I drive past regularly which says, 'Bad debt. No worries' ... It's quite predatory."
Evans is concerned that lenders entice people with KFC and Liquorland vouchers and use celebrity endorsements, such as rugby league star Stacey Jones promoting Instant Finance.
"I can't believe people would take a loan simply on the endorsement of a celebrity but it happens a lot ... South Auckland has had some hugely successful athletes and they're treated like gods. So when they're seen to be promoting something, the average Polynesian or Maori thinks, 'It must be a good thing for our people."'
Believing education is the "way forward", his organisation teaches financial literacy in schools and workplaces.
Poor financial literacy is not confined to those on low incomes, Crosson adds. Many parents do extremely well on small amounts of money, while others with "quite a lot" have systems in place to pay the bills but don't really understand them.
Crosson says the total balance outstanding on personal credit cards in August was $5.1 billion and New Zealanders pay $650 million per year in interest on such cards.
Other consumer debt, such as hire purchase, store cards, personal loans and overdrafts, totalled $6.4 billion.
But the picture is not all doom and gloom, with New Zealanders starting to pay off debt.
"And the good thing we've learned this Christmas is that New Zealanders this year appear to be making decisions to not overspend as they have in other years."
A recent Neilsen survey showed 55% of those questioned were not intending to use a credit card, hire purchase, personal loan or overdraft to pay for Christmas.
And almost 70% planned to spend the same or less than they did last year.
Michael Schouten no longer has the flexibility to be able to buy what he wants, when he wants.
Each week, for 210 weeks, he is paying a set amount to his creditors by summary instalment order. The rest goes to Budget Advice, which pays his bills and leaves him $160 a week for food, transport and clothing.
Recently, he had to ask his budget adviser for $45 to replace worn-out socks and underwear.
"It's that whole thing of having to go cap in hand. But they're basically my saviour when it comes to that side of things," he says, adding that health problems have affected his memory and left him "useless at finances".
"It takes the stress off me ... And I know I'm doing the right thing by paying back my creditors."
Schouten got into financial difficulty buying a vehicle and spending money on others.
He sees many others making the same mistakes, especially at this time of year.
"It's all about consumerism - want, want, want. It's no longer about, 'I want this. I'll have to save for it."'
This Christmas, the Dunedin man hopes to visit his family in Auckland and to buy a present for each of his nieces and nephews, but he will not be putting himself further into debt.
"In this country, credit is a killer," he says.
"I say that because I know people who have taken their lives over it. It kills people and it kills the ability to know how to save, how to prioritise, how to budget properly and how to say no."
