“We can’t regulate for stupidity or greed,” said Commerce Minister Lianne Dalziel last week as she announced a revamp of regulations for the financial sector but avoided tough regulations on loan sharking.
But she is wrong on both counts, which is why we have legislation against drink-driving and why the Securities Commission was able to extract $20 million from Michael Fay and David Richwhite last week.
Alongside the Minister of Consumer Affairs, Judith Tizard, Dalziel announced that “all financial service providers, including fringe lenders, known as loan sharks, will have to register and meet `negative assurance’ checks to confirm they have no relevant criminal convictions, are not undischarged bankrupts, and are not subject to a director/manager banning order. In addition to these checks they will have to be a member of a dispute-resolution scheme.”
These steps are headed in the right direction but on their own will make no discernible difference to loan sharks, which have become the scourge of families in low-income communities. The breadth of the problem was further revealed in The Press a week ago with revelations that loan sharks are now operating at the Christchurch Casino. Further allegations have since been made of similar practices at the Auckland casino and Green MP Sue Bradford has reported allegations that young women in debt are being required to work in brothels to pay back usurious loans.
Yes, it’s important to register these cockroach capitalists and have their backgrounds checked as suggested. It is also useful that they are required to belong to a dispute-resolution scheme. However, if the Government stops here their stated intention to “net” these loan sharks will be lost. In fact the very dispute resolution process which is presumably intended to assist people struggling to pay back loans could become nothing more than a debt collection agency for the parasites themselves.
Just how far removed the Government is from the problem was revealed last year when Judith Tizard said through her press secretary that “in New Zealand’s light-touch `buyer beware’ culture, people are responsible for the decisions they make, no matter how ill- judged”. Alongside this, Dalziel’s suggestion that people borrowing from loan sharks are stupid is deeply insulting.
At the heart of the problem is poverty, and as a former official of the Service and Food Workers’ Union, which represents low-paid workers, Dalziel should know better than most.
Government figures show that 15 per cent of families borrow for basic living costs such as the electricity bill or to pay for the groceries.
People do not borrow at 25% per month to pay their power bill because they want to, but out of a mixture of desperation and hope. Desperation because the power board is coming around to cut off the power, and hope that tomorrow things will get better. Decisions that the comfortable middle class see as stupid become part of weekly survival. Loan sharks are loving it.
So what would make a difference?
Two steps, already in place in some Australian states, would be a good start. First, the setting of maximum interest rates. This could be done by putting a ceiling on the finance rate (the finance rate is the repayment rate which includes the interest rate and set-up fees) for all borrowing.
Second, the requirement that the lender show that the borrower is able to pay back the loan.
This would avoid cases where a person borrows from several institutions and hasn’t a hope of repaying the debt.
A person earning just $400 a week can typically be making repayments to loan sharks of $200 every payday. Such a situation is not a problem for the loan shark, it is their ideal scenario.
In Britain, some loan schemes are required to carry warnings. Why not here? Banning the “name and shame” advertisements of loan defaulters run in community newspapers here is also a must. Cheap loans made available through Kiwibank alongside budgeting requirements would also help.
The Government knows how huge this problem is and it knows the groups which are targeted by unscrupulous lenders. Right now, Judith Tizard is sitting on a substantial government report on the devastating effects of loan sharking in low-income Pacific Island communities.
It’s time for her to release the report and accept the Government’s unqualified failure over eight years to protect Pacific Island families in the way that middle class families are supported by regulations under the Credit Controls and Consumer Finance Act.
A few more half-hearted regulations are not what we need. Last week, Lianne Dalziel praised the “guts and gumption” of the Securities Commission in tackling two vulture capitalists and protecting the interests of shareholders.
Let’s see some of the same courage from the minister herself to tackle the cockroach capitalists who prey with devastating effect on far more vulnerable New Zealanders.