The real victims of the finance markets are the loan sharks’ prey

Can you imagine paying $7000 for a $3000 car which then gets repossessed after just two months and you end up with no car but a $19,000 bill?

This is just one of dozens of true stories related in a report on loan sharking in the Pacific Island community of South Auckland which was released 10 days ago by the Minister of Commerce, Lianne Dalziel.

It is a shocking report of legalised theft by loan sharks preying on vulnerable families in low-income communities. It records excruciating stories of family financial breakdown and enormous community suffering as a result.

The report concludes, “the realities for many are that they and their families are struggling to survive, not only physically but also mentally, emotionally, culturally and spiritually.”

The 100-page report was compiled from interviews with key community leaders, community agencies and individual families.

The main reason for borrowing is to pay for day-to-day living expenses. The interest rates on these small loans are eye-watering. Twenty-five per cent per month (compounding to more than 1000% per year) is a common figure.

The second disaster area is the purchase of cars. Urban legend has it that the main problem for Pacific Island families is borrowing to support their church. This turns out to be a significant issue for some but is not one of the main causes of the problem.

The failure of government policy comes through strongly in the report. The current legislation may be working well for middle and high-income families, but the Credit Controls and Consumer Finance Act (CCCFA) “does not provide sufficient protection to credit consumers dependent on `fringe’ lenders” (The report refers politely to those providing these loans as “fringe lenders” while the rest of us know them as “loan sharks” or “cockroach capitalists”). It goes on to say that “there can be no doubt that fringe lenders have flourished in South Auckland in the period since the CCCFA became effective and that they deliberately and aggressively target Pacific communities”.

The result of this unfettered, unscrupulous behaviour has been devastating. The report talks about “the alarming extent of exploitative lender practices” producing “an environment of continuing pressure and stress in the lives of Pacific consumers”.

Community representatives see the problems as largely preventable. Simple acts of regulation to match what’s done in other countries would be a great start – for example, setting a cap on interest rates. In New South Wales, Victoria and Canberra this rate is set at 48 per cent. In Japan the maximum rate is 18% and in Germany it is 20%. In New Zealand, the sky is the limit and vulnerable families are easy prey.

Other countries also put the onus on the lender to prove the person borrowing can pay the money back. A proper credit assessment is mandatory. Not here. Loan sharks prefer a person failing to pay back a loan because they can then heap on the charges and even take someone to court to enforce a regular $20 per week payment – for the rest of their lives in some cases. Community agencies call also for a ban on advertising, or at least for stringent controls to be placed on advertisements.

All of this has fallen on deaf ears. Instead of putting a fence at the top of the cliff, the Government prefers to survey the carnage from afar and tut-tut about people making stupid decisions. This is the typical response of the comfortable middle-class.

The report was released on a Friday afternoon because the Government wanted to bury it as quickly as possible in a dead news zone. All the Government wants from Pacific Islanders is their vote. It has no intention of acting to help these communities in a practical way as they face the most vicious financial thuggery. Instead, the Government is calling for more information, another review of the law next year, a few brochures sent around the community and bugger-all else.

It was a very different story just a few days later when Lianne Dalziel was falling over herself to express sympathy for relatively well-heeled people who lost money in the failure of Nathans Finance. Not only does this minister have comprehensive legislation in the pipeline to help protect these investors in the future, but she has called for an urgent report on any steps she can take in the meantime to restore the confidence of investors. These are the middle-class voters Labour needs to win the election.

Pity the low-income Pacific Island communities. Their problems don’t get the star treatment of “mum and dad” investors and Labour takes their vote for granted.