Loan sharks – parasites on poverty
Most of us like to think we are wise to the world and not easily shocked. I put myself in that category but was taken aback after a conversation with a Tongan acquaintance a couple of years back. He produced a copy of Taime o Tonga (The Times of Tonga) newspaper with a full page advertisement showing about 20 photographs of members of the Tongan community and a paragraph under each one.
Had these people won awards? Was it a real estate firm showing off its agents?
No. This was a photographic name and shame advertisement of people who had defaulted on loans from Funaki Enterprises, a cash loan company. Along with the photo was included the name, the amount owed and why it was borrowed in the first place. Naively I would have thought advertisements such as this would breach the Privacy Act but apparently not. The right to make public examples of defaulters outweighs the privacy rights of individuals.
Each picture represented a person under huge financial stress with impacts on their families, children and social relationships. The amounts owed were relatively small. Anything from $250 to $4000 and borrowed for family-related reasons.
Another Tongan loan company called Lelei Finance also publishes photos of loan defaulters. They offer small secured loans with an interest rate of 25% per month. Yet another company offers loans from $500 at just 16% per year. This seems more reasonable until one discovers there is a set up fee of $200 which makes the finance rate (what the person actually pays back) over 60% in a year. The same company offered a free ham for people borrowing $500 in the lead-up to Xmas. Needless to say the borrower could have bought several whole pigs by the time they paid off the loan.
So why do people borrow from loan sharks in the first place?
In its March 2005 newsletter the Ministry of Consumer Affairs reported on a survey which found that in the previous year some 15% of New Zealanders “…had borrowed for essential items such as paying for household groceries or to pay the power bill”.
If we translate that overall 15% to low-income communities the figure could be as high as 70 – 80% of families.
In this environment, where families struggle with day to day living costs, loan sharks are thriving.
Last year Research New Zealand looked into what they called “fringe lenders” who advertise cash loans. They found 185 such companies nationwide targeting low-income earners. In Christchurch they are found in Riccarton and Sydenham.
Those who borrow from loan sharks are clearly people in desperate circumstances. They might need $200 or the electricity will be cut off. They will borrow from family or friends if possible but when these options are exhausted a cash loan seems the only way out. It is typical for someone borrowing $200 to pay back $500 in the next couple of months when interest and penalty payments are added.
Looking at this in electoral terms it’s no surprise that Mangere is the lowest income electorate in the country. The third lowest is Wigram and the seventh lowest is Christchurch East.
Labour members of parliament represent eight of the ten lowest-income electorates in the country and yet no effective action has been taken to stop the appalling practices of loan sharks. They are having a field day.
They were a “one-day wonder” for Jim Anderton a few years back but he has been silent since then while these parasites on poverty have raged out of control.
The most recent legislation covering cash lending is the Credit Contracts and Consumer Finance Act (CCCFA) 2003 Act which came into effect in 1995. It regulates methods of calculating interest and spells out what a customer must be told about a loan but it has no effective controls on interest rates, penalty charges or administration fees. Neither does it have anything to say about the publication of names and photographs of defaulters.
The government said it didn’t want to put too many restrictions on cash loans because that would increase the cost of credit for people who have trouble getting money from “mainstream” financial institutions.
At face value it sounds credible but it has spawned a legion of parasites and deepened poverty levels in many thousands of families.
We need such things as simple English loan forms; maximum finance rates; finance rates required in all advertisements; maximum penalty rates and the registering of all cash loans in the same way that tenancy bonds in rental agreements are registered centrally.
Labour has quite rightly been heavily criticised for its shabby treatment of people in low-income communities. Assertive action against loan sharks would be one step forward among the many steps needed.