Gerard Brody of the Consumer Action Law Centre travelled across the Tasman to join Kiwi consumer and debt advice organisations calling for the New Zealand Government to bring in an interest rate cap to rein in payday lenders and mobile traders.
Brody appeared before the select committee hearing submissions on the Credit Contracts Legislation Amendments bill. He urged the committee to consider “an overall cost cap on interest fees and charges for one individual loan, set at around 48 percent”.
He said New Zealand should take the opportunity to do better than Australia, which has set an interest rate cap that is “way too high” and does not facilitate responsible lending.
The political parties that make up the current coalition NZ Government campaigned in opposition for such a cap, but backed away in the legislation proposed now they are in power – opting instead for a 100 percent limit on the total costs of loans (meaning, for example, someone who took out a $500 loan would not repay more than $1000). The proposed cost cap would kick in for any loan with an annual interest rate of 50 percent or higher.
Commerce and Consumer Affairs Minister Kris Faafoi has said a cap could drive payday lenders out of business, and that some people needed them and might instead turn to a ‘black market’.
Brody joined with the other submitters in saying fears of a black market in short term lending were unjustified.
New Zealand has a particular problem with so-called “shop trucks”, which circle low income suburbs selling overpriced items on credit. The committee heard of one woman who ended up paying NZ$8000 for a simple flip phone from one such truck.