A Bill proposing measures to protect vulnerable people against loan sharks needs more teeth, a Dunedin budget adviser says.
Dunedin Budget Advisory Service manager Andrew Henderson made an oral submission to the Finance and Expenditure Committee on the Credit Contracts Legislation Amendment Bill in Wellington about two weeks ago.
The proposed law would ensure people never have to pay interest or fees totalling more than 100% of the amount they borrowed for a high-cost loan.
This would mean someone borrowing $500 would not have to pay back more than $1000.
“We support the Bill but we do not believe it goes far enough to prevent predatory lending or to protect vulnerable borrowers.”
Predatory lending was widespread in Dunedin, Mr Henderson said.
Dunedin Budget Advisory Service supported the 100% cap on the cost of borrowing because it would prevent people getting stuck in a debt spiral.
However, the measure would not prevent “predatory lending”.
The service wanted the Government to introduce an interest rate cap of 30%.
Mr Henderson also wanted a law limiting the amount someone could spend on a high-cost loan repayment to 10% of their net income, so, for example, if a beneficiary received $300 a week they could pay $30 a week on high-cost loans repayments.
He knew of beneficiaries who had borrowed $400 and had to make payments of up to $80 a week.
“Out of a benefit, that’s just insane.”
The introduction of the cap and the limit would put a “handbrake” on high-cost lending.
The advisory service also wanted the Commerce Commission to be given adequate resources to enforce the law, and supported a ban on mobile traders.
“We see deliberate targeting of vulnerable communities.
“Credit is given with little or no assessment for affordability. This industry needs to be stopped,” Mr Henderson said.
He told the committee the budget advisory sector had changed since he started working in it nearly a decade ago.
Once the primary objective of the service had been giving budgeting advice and skills, now it was working with people in “severe financial crisis”.
The Bill needed to go further to protect those people, he said.
The Bill passed its first reading on April 30.