Editorial: Sights set on the sharks

20:12, May 06 2014

If you don't pay your classic loan shark what happens?

That's right. He sends round the boys.

Which raises a question about the Government's move to team up with BNZ and the Salvation Army to offer low-interest loans to people who would normally be loan-shark clientele.

You have to wonder what happens to the non-payers under that scheme.

Send around the Sallies to collect? Curious how that would work, even though they have a pretty good track record when it comes to rattling the collection box.

Agreeable though it may to dwell on that fancy for a moment, the reality would be far less Pythonesque. Particularly since the motivation behind this new community finance partnership is not to replicate the grasping practices of loan sharks and payday lenders, but to wean people off them.


It's a one-year pilot under which the bank is committing $10 million for up to five years. The recipients would be people on low incomes who are, in the words of Social Development Minister Paula Bennett, "vulnerable in their credit options".

In other words, the banks typically wouldn't want a bar of them.

The bank will provide capital - it's the Salvation Army that will manage the applications, while the Government chips in to help with operating costs and an organisation called Good Shepherd will oversee the initiative, as it has in Australia.

In case any entrepreneurs are wondering, the pilot will target people rather than small businesses.

It's a scheme to be wished well though it will face challenges, not the least of which will be the tricky distinctions to be drawn to identify people who are not quite stony-broke enough to qualify for these so-much-more-compassionate loans but might now figure they'd be better off if they were.

A more direct targeting of loan sharks is the Credit Contracts and Financial Services Law Reform Bill, which has now passed its second reading.

How effective this attempt at shark-finning will prove depends on whom you ask.

The Government points to increased consumer protections. For instance the lender must be upfront to the extent of specifically identifying what could be snatched for repossession. And some items, like medical equipment, beds and portable heaters are to be hands-off.

What the bill doesn't do, to the anger of the Opposition, is put a cap on the interest rates that loan sharks could charge.

Peter Dunne's vote would be needed to swing this amendment and the UnitedFuture leader hasn't provided it.

Labour and New Zealand First are crying U-turn, pointing to earlier indications he supported the idea, when it was raised earlier in Labour's consumer rights spokeswoman Carol Beaumont's members bill. That failed bill would also have limited the ability of lenders to recover more than they initially lent in event of a default.

Dunne insists he supported that bill to the first reading stage - as he did with other member bills - so the issue could be debated and that he regards rate caps as blunt economic instruments.

And, of course, blunt instruments have no place in the loan business.

The Southland Times