Dodgy loan sharks taking advantage of cash-strapped borrowers will face the axe under proposed law changes.
During a visit to Porirua's Budget Services today, Consumer Affairs Minister Chris Tremain released details of a new Credit Contracts and Consumer Finance Amendment Bill, which aims to provide better protection for finance company borrowers.
Among the proposed changes, the legislation would make it illegal to lend someone money if the loan repayments would create substantial hardship.
The new law would also extend the period during which borrowers could cancel their loan, and would allow lenders who did not comply with a new Code of Responsible Lending to be banned from the industry.
"I know there are already a lot of lenders out there who already adhere to responsible lending principles, so we don't want to unnecessarily target them,'' Mr Tremain said.
"These changes will benefit those lenders by enhancing competition in the market and ridding the industry of those who give it a bad name.''
First Union, which represents finance sector workers, noted that interest rates caps had not been included in the new laws, and secretary Andrew Cassidy said it was a clear way to target lenders who were preying on the poorest people.
"Any Government with a shred of common sense and a concern for our poorest citizens would set a maximum legal interest rate rather than trying to defend several hundred percent interest rates as acceptable,'' he said.
"You can't be a responsible lender and charge this level of interest. It should not be legal in New Zealand.''
Mr Tremain said there was concern that interest caps could prevent companies from giving small, short-term loans, meaning some people would be unable to access loans when they needed them.
"We haven't ruled it out, but at this point in time that's not in the legislation,'' he said.
In addition to the changes announced today, Mr Tremain said rules around repossession of household items would also be tightened up at a later date.
"We don't think that lenders should be able to knock on your door and take anything they want, including essentials like tools of trade, fridges, washing machines, and the likes because you defaulted on a $200 loan,'' he said.
Industry and community groups would have a chance to give their opinions about the changes over the next six weeks, with consultation meetings planned in South Auckland, Timaru, Christchurch and Porirua.
"Irresponsible lending has a big impact in some of these communities and we will be speaking with the budget advisers and community services who deal with the consequences of this on an every day basis,'' Mr Tremain said.
Submissions can be made on the Ministry of Consumer Affairs website, and are open until May 11.
Credit Contracts and Consumer Finance Amendment Bill changes:
• Making it illegal to lend money to someone whose loan repayments would be likely to result in substantial hardship
• Requiring more timely and complete disclosure of loan terms, and extending the `cooling off' period for borrowers to cancel their loan
• Obligating lenders to properly consider applications by borrowers for hardship relief, and provide reasons for their decisions
• Better controls against misleading, deceptive or confusing advertising
• Introducing a new Code of Responsible Lending and allowing for lenders to be banned from the industry for non-compliance
• Providing that borrowers won't have to pay the cost of interest or fees if their lender is not a registered financial service provider.
