People borrowing from loan sharks for everyday household expenses should first seek help from Work and Income, acting Social Development Minister Steve Maharey says.
The Consumer Affairs Ministry today issued a report showing that most Pacific Island people who used fringe lenders were doing so to help pay for everyday household expenses such as food and bills.
While most repaid their loans, they were exposed to exorbitant costs and "oppressive" contracts.
Launching the report, Consumer Affairs Minister Judith Tizard said the current legal protections appeared inadequate and the Government would overhaul the Credit Contracts and Consumer Finance Act (CCCFA).
In the meantime, Mr Maharey urged potential borrowers to approach Work and Income, even if they were not a client, to see if they were eligible for assistance with everyday costs.
A range of initiatives were available to help low income earners with accommodation, raising children, or supporting people with disabilities.
"The risks of borrowing from non-bank lenders are high and people can become trapped in a spiral of ever-increasing debt and misery which is incredibly hard to get out of.
"That is why people should check out if they are entitled to government financial assistance before taking out loans at exorbitant pay back rates."
Pacific Island Affairs Minister Phil Goff said those considering borrowing from loan sharks should use the Consumer Affairs Ministry's Truecost website available in Samoan and Tongan as well as English to calculate how much they would end up paying.
The reports other key findings included:
The report said the CCCFA did not appear to sufficiently protect borrowers who went to fringe lenders and stronger enforcement was necessary.
Ms Tizard said the review of the CCCFA would be completed by March next year.
She said the Code of Financial Advertising also needed reviewing so that "overly-aggressive marketing practices" could be dealt with. There was also a need for "proactive compliance inspections" of credit providers and new ways for borrowers to work their way out of debt. NZPA