Minister's crack-down on loan sharks a crack-up

Loan sharks profiteering from our poorest communities will be laughing out loud as they read the ineffectual restrictions included in the latest version of the Credit Contracts and Financial Services Reform Bill.

Lenders who already have good systems in place will not be affected by the changes. Loan sharks also know they will not be affected by the improved protections for borrowers, including responsible lending practices, because their clients are most unlikely to be aware of their rights or understand what 'responsible lending' means. Unscrupulous lenders know
the borrower who is desperate to get the fridge or the car fixed, or food on the table for their children, will not grasp the significance of a daily 1% - 2% interest charge.

Dr Claire Dale, spokesperson for Child Poverty Action Group and a trustee of Nga Tangata Microfinance Trust says "We are pleased to see the introduction of clearer tests for unreasonable credit fees and default fees, and more clarity around the guidelines for the Courts to reopen 'oppressive' credit contracts. However, the clients we see at Nga Tangata often come from communities where 50% to 100% interest is a comparatively 'good' rate, so what would be unreasonable?"

These borrowers are 'oppressed' by high interest loans because they may have a bad credit rating, or are nervous about being turned away by mainstream banks. Loan sharks are likely to be the only lenders in walking distance.

The Government is targeting unscrupulous lenders by putting the onus on consumers to make informed decisions and to know their rights. The consumer also has to know where to go and what to do if those rights are impinged. A person borrowing from a loan shark cannot afford legal representation to pursue their rights when their goods are
repossessed or their house is stripped when their repayments are late. This makes the increased penalties for creditors breaching credit laws an empty threat.

Dr Dale says "There is no balance of power between loan sharks and their clients, so the role for the Government is clear. To provide genuine protection for consumers, the Government needs to cap interest rates, like most of the rest of the civilised world including Australia, USA, 21 European countries, Japan and South Africa." A maximum all-inclusive
charge for interest and administration would protect the vulnerable and desperate consumer, and put an end to the cruel and enduring financial torture so many of our poorest families are suffering. "It is time to mend these huge cracks in consumer protection."

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