Loan sharks still circling despite tougher laws

Tough new laws are reeling in the loan sharks but vulnerable borrowers are still being targeted by predatory lenders.
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Tough new laws are reeling in the loan sharks but vulnerable borrowers are still being targeted by predatory lenders.

New laws aimed at reeling in predatory loan sharks have netted several unscrupulous online lenders.

However, the Commerce Commission, tasked with cleaning up the industry, and budget advice services say people desperate for quick cash are still being targeted.

The commission is also setting its sights on mobile lenders who continue to prey on vulnerable communities.

The laws were introduced in June to give the commission greater powers to protect Kiwis when they borrowed money or bought goods on credit.

A Commerce Commission spokeswoman said the agency had investigated 80 websites to ensure they complied with new requirements to display information about interest and fees and disclosed their standard terms.

"This piece of work is ongoing, and so far we have issued 11 compliance advice letters which has resulted in two websites being taken down and a number of others being updated to include the new required information," she said.

A year-long project scrutinising the mobile trader industry also found that some of the most vulnerable members of the community were being given deceptive or confusing information when buying goods on credit from mobile traders. 

"We will be revisiting mobile traders over the next year to review the way in which they operate and we will take further action, such as civil action and or criminal charges, if they aren't complying with the law," the spokeswoman said.

Upper Hutt Budget Advisory Service co-ordinator Sue Leader said her agency was still dealing with desperate people caught up in short-term high-interest loans that had spiralled out of control.

"We haven't seen the new laws stop people from getting loans from payday lenders," she said.

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"Lenders may be giving out more information but whether their clients understand everything is a different matter."

However, the new loan shark laws had provided budget advice agencies with more power to report lenders to the Commerce Commission.

"If we get someone coming in with out of control debt, we can look at their contract and refer it to the commission if we feel it is unlawful," Leader said.

Tougher legislation was sorely needed to target and cap high interest rates, she said.

"That is where we see a gap in protecting vulnerable borrowers." 

Leader also welcomed news the Commerce Commission had its sights set on mobile traders. "You don't see them in wealthy neighbourhoods," she said.

Newtown Budgeting and Advocacy Services co-ordinator Geoff Curson said while the new legislation had good intentions, the murky world of payday lenders still harboured sharks.

"Things that were happening before are still happening with these type of lenders," he said.

Hopefully the increasing enforcement of the new laws would mean lenders complied with their obligations, Curson said.

Finance companies should also refer clients to budgeting services before giving a loan, he said. "For desperate people, loan sharks were still the only place they believed they could turn to."  

LENDING LAW CHANGES

The law is designed to bring order and transparency to the bottom tier of lenders.

The main changes include: Lenders must make the terms and costs of loans "freely and publicly" available on their websites and at their premises to enable easy shopping around.

Disclosure of all relevant information must be made before a loan is made, instead of the current "within five days".

The cooling-off period during which borrowers may cancel the contract will be increased from three to five working days.

The hated and sometimes abused "dragnet" clauses, which allow lenders to claim security over "all of your present, future and after acquired personal property", are outlawed.

Instead security is limited to individually named items agreed as security by the borrower.

Some items cannot be named including bank cards, beds and bedding, cooking equipment and stoves, medical equipment, portable heaters, washing machines and fridges, passports, and drivers licences.

A Responsible Lending Code, introduced at the same time as the new laws, aims to help lenders comply with the Responsible Lending Principles that they are legally required to follow.  

 

 - Stuff

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