Low-income families' struggles with debt are not due simply to bad decisions – they are often victims of an environment filled with exploitative lenders, a report says.
The Families Commission report confirms that areas of high deprivation often have a high presence of alcohol shops, finance companies, fringe lenders, mobile truck shops, pokies and door-to-door sales.
Some credit agencies appear to target families who can least afford it, the report says.
The findings were backed yesterday by Mangere Budgeting Services Trust chief executive Darryl Evans, who said: "We've got everybody here, the loan sharks, the mobile trucks, the liquor truck, money lenders operating out of garages. They literally are operating out the back of $2 shops."
Money lenders would provide cash loans with obscene interest rates. "On a daily basis we see interest rates of 50, 60, 70 per cent, but we also see interest rates at 400, 500, 600 per cent – some of these interest rates are compounding every 24 hours.
"Many people are signing up the entire contents of their house for collateral. It's just awful. There is just this long tunnel of desperation."
Statistics from the Federation of Family Budget Services show that in 2010 the average budget advisory service user had more than $30,000 of debt – a 26 per cent increase from 2009.
Lenders driving trucks around poorer neighbourhoods were a particular concern, Mr Evans said. "A mobile truck is like a retired bread van – they kit them out, put in shelves, a counter, a till. Years ago they used to sell duvets, kids' clothing. Now they sell flatscreen TVs, food ... they do cash loans, too.
"Some will go door-to-door. They go to people's homes and they put a lot of pressure on these people. They use full-on tactics."
He welcomed proposed law changes announced in November, but said he was disappointed they did not include an interest cap.
"That's the one thing we need. It's important because, unless you cap interest rates, money lenders will just get greedier and greedier. Something has to be done to protect the vulnerable."
The Families Commission research draws on case studies from community organisations and families in Wellington, Auckland and across the Tuhoe rohe.
Commissioner Robyn Scott said families in financial hardship were often living with uncertainty and could behave in ways which appeared destructive and short-sighted.
"The commission's research has shown that, within some communities, engaging with mainstream financial institutions is very difficult, so families feel they have no choice but to turn to fringe lenders."
In November, the Government announced plans to overhaul consumer credit laws to protect vulnerable consumers from rogue lenders.
Consumer Affairs Minister Chris Tremain said some credit companies were exploiting vulnerable and low-income people.
"This is unacceptable and the Government's package of reforms will help to target these companies. Under the proposed changes it will be illegal to give a loan to someone who can't reasonably be expected to pay it back without substantial hardship.
"There will also be changes to the rules around oppressive credit contracts and hardship applications, to provide increased protection to vulnerable consumers."
The Government will release draft legislation on the changes in March.
ACCOUNTS FROM FAMILIES COMMISSION REPORT
"The interest rate at finance companies is 20 per cent-plus – shocking. It's absolutely too easy to get those loans. I can still get one – and they shouldn't give them to beneficiaries, they can't pay it back." Porirua research participant
"There are a lot of finance companies in the most poorest places that you can possibly think of. There are cash loans in liquor stores. Why? Because a lot of low-income families, they like to drink, so they go to a liquor store. If they can't pay for it, it's like, oh yea, I'll just pawn my phone off, so I can get this box and then I'll bring the money back or they keep borrowing money from a liquor store. Not only that but you've also got those ... basically pawn shops. And those are in every freakin' street – they're everywhere." South Auckland research participant
"I know these trucks and money shops don't go to the rich areas. They come here because it's easy to make money out of us." South Auckland research participant
GOODS IN MOBILE SHOPPING TRUCK FIT THE BILL
Cannons Creek resident Sagita Aleni is a regular customer at the mobile shopping truck that frequents her Porirua suburb.
The 29-year-old said she shopped at the truck every five or six weeks and found it easier than going to the mall.
She liked to buy "random stuff" and had recently bought a lounge suite from the Home Direct truck, as well as a stereo, perfume and clothing.
The truck is kitted out with electrical items, children's and adults' clothing, toiletries and bedding. Ms Aleni said it would stop by her house every so often based on how much credit she had available.
"It's easier because you can just shop and it automatically comes out of your account."
Yesterday, shopping on credit, she bought two Lynx packs (deodorant and perfume) and two sets of socks, for $110.
Home Direct said last night that it was a national retailer and did not restrict its trucks to certain areas. It always tried to keep prices as low as possible.
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