Instant Finance explains what it does

Double Shot Interview: CEO Richard de Lautour explains how Instant Finance operates

15th Sep 10, 8:07am by Bernard Hickey

CEO Richard de Lautour argues Instant Finance is no loan shark and defends Stacey Jones' promotion

Last month I interviewed Instant Finance Chief Executive Richard de Lautour about how the South Auckland-based consumer finance company operates.

This followed some comments I made on Campbell Live criticising league star Stacey Jones' involvement promoting Instant Finance and the interest rates and fees it charges its customers.. Here is Instant Finance's response to that story.

I asked de Lautour about the fees and interest rates Instant Finance charges and how it makes money.

Fees charged for late payment, default and to create the loans represent around 70% of the amounts received from interest, he said.

He also denied that Instant Finance was making poor people poorer through its lending.

Instant Finance does not offer debentures to investors, but receives wholesale funding from Fortress Capital. It may return to the debenture market in future, he said.

It is owned by the Nausbaum family of Remuera.

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44 Comments

by President of P… | 15th Sep 10, 9:34am 1284500040

what these companies do, along with anyone charging massive interest or stand over tactics, is ensure payment to them is a priority over payment to landlords and the like, given that one can not charge interest on rent arrears - and hence people claim poverty when in fact they are paying the shark rather than the crew putting a roof over their heads and the heads of their children - which all ends up in tears and a visit to the tenancy tribunal.

by Donald MacRonald | 15th Sep 10, 9:49am 1284500998

i know the owners of Instant Finance from an association that stretches right back to the old days in wellington.

Nausbaum ( "sonny") Snr who is now long gone, had an established fin.co there called City Finance.

These people are focussed, reliable and know what they're doing..they stay on message!

by Wayne | 15th Sep 10, 9:58am 1284501515

Fair interview Bernard.

The CEO was careful not to give away the extent of fees but given that he noted interest was around 70% of their income, a crass and rough estimate, based on the 30% interest they charge is that the average loan would pay around 43% over and above principal. This is outrageous and not justifiable by any means. Instant may feel themselves to be more respectable and prudent than other consumer finance companies, but from my perspective they are still charging exhorbitant rates to people who can't afford the loans. In my book, I call such a company a loan shark. You can dress the business up in a fair degree of respectability, but I don't think this type of business is serving its clients at all well. That then, begs the question, where should people go if they need emergency funds? While I don't have a full answer to this, I do know that in many communities around NZ there are charitable enterprises who can offer such folk both emergency help (at much more reasonable repayment rates) and - more importantly - sound budgetry support over the long haul. The goal, after all, should be to help people get out of the debt trap, not further into it. I have no confidence that a business model will do this. Perhaps the govt agencies should think seriously about helping fund other local community organisations to develop these kinds of community banks/budget services? It would be money well spent.

by Berend de Boer | 15th Sep 10, 11:03am 1284505436

Wayne, assuming anyone can start a finance company (I suppose our socialist overlords have a whole rulebook to prevent competition), if you can deliver the same loans for less than 43%, would that not happen? I mean, it's a free market. If someone makes a bucket load of money, you will get competition.

PS: the above doesn't hold if it's not a free market, so government regulation might indeed mean that the 43% is exhorbitant.

by Wayne | 15th Sep 10, 12:32pm 1284510766

Berend

You miss my point - not everything in our society should be dictated by the "free market". And just because there is money to be made in an industry, doesn't necessarily make it right to do so. Regardless of how much the owners of Instant are making (and we have probably have no real way of knowing because I presume it is a private co) the issue is: how should we as a society best assist those who have limited or no resources. In my previous comment I state my belief: using a business model will only make their state worse - not better. This is an ethical issue for me. And its very personal - having had to pick up the pieces left over from people caught in the trap/cycle of debt. I can tell you now - that the penalty fees get very oppressive once people fall behind in their payments.

A healthy society, I believe, protects its most vulnerable - both from being taken advantage of and sometimes from themselves, as well. To me it is immoral that I can get finance for something at 6-10% interest, but the person down the road who has no reserves has to pay 43%. Where is the justice in that? You can argue the toss from a capitalist economic basis (ie they present a much higher risk in paying the money back than I do) but since when does that make moral sense?

That's why I argue for more government help in non-profit agencies that are able to at the local level express compassion but also mentor and assist people to make good financial choices and develop good fiscal habits. Understandably a business like Instant isn't going to see operating like that as in their best interests - for their best interests are generally built around providing the very best return to their shareholders. That's the system we live in. But there are many aspects of life and some sections of our society where decisions shouldn't be based on solely economic terms. I realise that my views may fly in the face of conventional economic thinking. However, one of the reasons I believe we are experiencing so much pain economically as a culture, is that we have let the free market determine virtually every area of our lives. The market is good. And efficient. But there needs to be limits to what it dictates in our individual and communal decision making. (Disclaimer: I'm a former car dealer so I'm not anti-business. I did have to grapple with the challenges in my industry and sometimes make decisions which resulted in me not maximising profit - like for example, not offering finance to people who generally couldn't afford it; not encouraging people to buy higher priced vehicles they couldn't afford etc.)

by Bernard Hickey | 15th Sep 10, 5:08pm 1284527311

Wayne

I agree there's an issue to be dealt with here.

cheers

Bernard

by David George | 15th Sep 10, 10:58am 1284505088

Did I miss something? Where was it established that In. Fin. were not loan sharks?

by Chris | 15th Sep 10, 1:24pm 1284513865

Define "loan shark".

by Christov | 15th Sep 10, 1:32pm 1284514320

loan shark

n. Informal One who lends money at exorbitant interest rates, especially one financed and supported by an organized crime network. loan shark n (Economics, Accounting & Finance / Banking & Finance) Informal a person who lends funds at illegal or exorbitant rates of interest n loan shark: a shark on loan to you or someone else.

by Chris | 15th Sep 10, 3:03pm 1284519837

Define "exhorbitant". The interest rates aren't criminal, so I'm failing to see how using emotive language like "loan shark" is acceptable here.

by Christov | 15th Sep 10, 3:22pm 1284520920

exorbitant - greatly exceeding bounds of reason or moderation; "exorbitant rent"; "extortionate prices"; "spends an outrageous amount on entertainment"; "usurious interest rate"; "unconscionable spending"

extortionate, usurious, outrageous, steep, unconscionable I did not use the word Chris......I just responded in kind to your post. I believe the original question was..define "Loan Shark" N.B. these are Dictionary definitions.

by mouse | 15th Sep 10, 1:28pm 1284514106

Instant Finance are 'Bottom Feeders' of the lowest order... Their Business model generates no Economic Value.

The fact that they (and the Ilk) are leagally able to preditorily target/exploit a less financially literate demographic should be a Ilegal.

I think the Real IRA have the appropiate "Free Market" policy response for people like the Nausbaum's...

Read this...>http://www.guardian.co.uk/uk/2010/sep/14/real-ira-targets-banks-bankers

by mouse | 15th Sep 10, 2:19pm 1284517196

Duke - I wonder how many "Customers" Instant Finance get as referals from a Budgeting service?...

My guess is about the same number of people who visit a Docter and get advised to take up smoking Tobacco...

But there again, Docters have ethical standards and are held to account against those standards by a governing body... and preditory lenders have???

by mouse | 15th Sep 10, 2:35pm 1284518158

Tui Billboard idea...

"No one is coerced into borrowing from instant finance" - Yeah Right.

by Tim | 15th Sep 10, 2:41pm 1284518460

So Duke I see you fell to throwing insults 1st so you de facto lost the argument.

I know you already know, but I'll spell it out: The reason why they are 'low' and 'predatory', is because they lend money (at usury rates) to people who are unable to budget. These people are almost guaranteed to get into difficulties in repaying the loan. Why do you think the banks refused to lend them money?

The idealistic view that it is their choice to borrow the money is naive at best.

by Wolly | 15th Sep 10, 3:05pm 1284519912

Give em hell The Duke...it's a free market and if bottom feeding scum are able to screw poor people into borrowing beyond their means to pay for stuff they don't need...let's leave it to the odd poor person to have the rellies visit the scum and repay the debt....which ever way they please.

by Christov | 15th Sep 10, 3:49pm 1284522549

Dear Duke...I have posted at the bottom a response I think is reasonable...?

by Christov | 15th Sep 10, 4:24pm 1284524689

I have not failed to realise the point you were making which is why I thought you would have posted it below my comment....but you did not...and that alone suggests that while you realise I have a valid point you lack the will to acknowledge.

don't worry Duke it's ok to know your money's a bit dirty sometimes.....it's only denial that makes it dirty all the time.

by mouse | 15th Sep 10, 4:55pm 1284526525

Duke - "instant finance's customers think instant finance is a god send, they love it."...

The condition is called 'Stockholm Syndrome'...

>>> a paradoxical psychological phenomenon wherein hostages express adulation and have positive feelings towards their captors that appear irrational in light of the danger or risk endured by the victims <<<

by Tim | 15th Sep 10, 3:08pm 1284520081

Is borrowing money a right? I think not. The ability to borrow money should be earned by demonstration of fiscal responsibility. Why do you think we have ended up with a giant credit crisis?

by mouse | 15th Sep 10, 3:47pm 1284522469

"Borrowing money from someone that is willing to lend it to you is a right"...

Duke... you might find it helpful to bone up on the concept of "Moral Hazard".

http://en.wikipedia.org/wiki/Moral_hazard

by Number 6 | 15th Sep 10, 3:55pm 1284522910

Borrowing money is no more a right than owning a car that will do 300kph is the right to drive it that fast. We have individual and collective rules in this country. It's a reality that some people have to be protected from themselves ( aren't allowed to borrow money if they can't afford it; aren't allowed to drive at 300kph if the roads aren't suitable) and the community also needs to be protected against the collective damage that both those situations can inflict.

by Jandel | 15th Sep 10, 4:31pm 1284525084

Yes these so-called 'protections' are called laws. Laws are society's views (through elected politicians) of what is right and wrong. How on earth would you mandate that some people can borrow money and some people can't? A published list?

And why would Instant Finance want to lend money to those who can't pay it back? (related party loans excepted...)

by Christov | 15th Sep 10, 3:33pm 1284521635

The complication that arises is no different to the Casino Operator knowingly allowing the gambler to continue with unsustainable means until even credit by that institution has been exhausted .

No one forced him to gamble.....but his tormentor has the means to deny access .

A finance company may have a moral obligation to vet their clients ability to repay without undue hardship....particularly when that is to persons not involved in the transaction.

Perhaps a fairer term would be Legal Loan Sharking......Morally Questionable Lending Agency.........Get It here..all care and no responsibility..and so on.

by A Banker | 15th Sep 10, 4:14pm 1284524046

It seems to me there is a real struggle from some commentors to understand the difference between ethics and law. Just because someone has a 'right' to borrow money in a free market doesn't make it right for someone to lend them that money, at least not on an ethical level.

Any lender who doesn't bother to work in the interests of their client, by ensuring that whatever borrowings are taken are servicable, is not in any way exercising any duty of care towards their client. While not necessarily breaking any law, their actions, in an ethical sense, could not be construed as 'right'.

Unless of course you truly believe that free market economic theory is the epitome of flawless perfection...

by Christov | 15th Sep 10, 4:17pm 1284524246

I did not post anything contrary to the statement you have made.......I thank you for including "duty of care"

by A Banker | 15th Sep 10, 4:23pm 1284524611

Sorry Christov, I wasn't referring to you! I agreed with your post...

by Christov | 15th Sep 10, 4:29pm 1284524978

My apologies I was jumping the gun there..... I am a bit over-excited about the Yen's intervention....

Tomorrow is going to be a day from hell for many.

by Jandel | 15th Sep 10, 4:24pm 1284524693

I have to agree with The Duke on this one. Its a free country, and ultimately you can't protect stupid people from themselves. Otherwise you end up with a nanny state in which it becomes impossible to conduct business - with barriers to entry becoming impossibly high.

Do you ban the sale of glue just because some losers out there sniff it? I think not.

by A Banker | 15th Sep 10, 4:29pm 1284524979

They banned products used to make P Jandel. There has to be a line, the tricky thing is knowing where to draw it...

by Jandel | 15th Sep 10, 4:37pm 1284525423

I agree A Banker, its very difficult to know where to draw the line, and everyone draws it in a different place. Prostitution, smoking, drink driving, smacking children, credit cards - all areas where Parliament have chosen a 'line', for better or for worse. Clearly its very difficult to satisfy all of the people all of the line, which i guess is where democracy comes into it.

Almost every industry has moral issues to deal with, so picking out high interest money-lending seems harsh. Not sure which bank you work for, but no doubt your credit cards attract fairly hefty rates of interest...

by Christov | 15th Sep 10, 4:58pm 1284526734

Jandel ...the line can be drawn at "Due Diligence" to vet the clients ability to pay in an honest and rigorous way.

Having done that I don't see the transaction between the two parties as one sided.

Sadly this is not the case in a number of financial dealings including I am sure...Instant Finance.

The company name alone does little to cater for it.

by Christov | 15th Sep 10, 4:31pm 1284525116

Well they bloody banned Orthoxicol and I love the stuff.....so that analogy needs work....and the Nanny State..bla bla is getting a little played with it,

by Sam Smith | 15th Sep 10, 5:38pm 1284529136

Agree with Jandel.

The problem is that when "stupid" people are protected by regulation, the "not so stupid" people become stupid.

Having consequences promotes thought.

by mouse | 15th Sep 10, 5:59pm 1284530340

Funny - I agree with your comment Sam, but I sense you are only thinking in one Dimensionally.

Profiteering from the vulnerable is wrong.

by Donald MacRonald | 15th Sep 10, 5:11pm 1284527496

Hmm...this has all become a sociological argument but i must agree with the Duke(unfortunately).

so what would happen to these people if there were no instant finance type co's willing to lend to them.?

they have the details spelt out to them when they borrow the money but due to their inability to budget they get back into hot water..but that's their problem, isn't it?

you can take a horse to water but etc etc.

this bridging finance provided allows them to go home to the islands for funerals , buy cars, bury rellies etc...

the low socio's have always been in hock and borderline poverty except they don't see it that way...it's been in their lives forwever so it's just a way of life to them.

Instant Finance may be a bottom dweller from your comfortable perspective but at least it's upfront about all its loan structures and is not doing anything wrong...and is ethical in it's dealings..define ethics then?

it's only our middle class values that freak us out when we see this loan activity going on. try borrowing from some of the real samoan loan sharks that glide around onehunga and s.auckland and then you'll see real ripoffs from standover merchants.

i can remember accompanying a mate in the finance game many moons ago to pick up a weekly payment form a chinese fruiterer.

he used to hide his payment in the lettuce leaves of lettuce number whatever in the pile of lettuces..we'd pretend to be shoppers and would purchase the lettuce and deal done..you see, he didn't want his wife to know he was a gambler.

but he was happy....are you?

by mouse | 15th Sep 10, 5:50pm 1284529835

@Donald Mc Ronald - "bridging finance provided allows them to go home to the islands for funerals , buy cars, bury rellies etc... " and....

"the low socio's have always been in hock and borderline poverty except they don't see it that way...it's been in their lives forwever so it's just a way of life to them."

Sorry Donald... But what I see is Instant Finance perpertrating an abuse and Profiteering from the Vulnerable.

They are Scumbags in sheeps clothing.

by Andrew in Finland | 15th Sep 10, 6:06pm 1284530760

If you legislate away Instant Finance the poor just find somebody with sharper teeth who draws more blood.

by Christov | 16th Sep 10, 9:01am 1284584482

A lot of truth there Andrew......it will go to ground at bookmaker odds.

My position was not to argue away a Company's right to operate......just to see that ..due diligence is exercised on the part of the lender in such a way that that diligence is measurable retrospectively.

If the rules surrounding conduct of lending become as grey as the lending proposal then we may as well let it go to ground.

by Learn to Socia… | 15th Sep 10, 8:08pm 1284538080

We only spend a flash of time on this planet. We are dead for an eternity before we are born and then for eternity afterwards. The fact that anybody would squander their brief moment of consciousness defrauding the helpless and the out of luck. It is sad. Reminds me of the looters who scounge around after a plane crash going through wallets and stealing wedding rings.

As far as I am concerned, Instant Finance is already in their self created Hell of unconscious mediocrity. I would rather be one of their victims than to be the perpetrators. At least the victims someday will be able to die with a clear heart..

by Donald MacRonald | 15th Sep 10, 10:48pm 1284547694

suffering is resistance to what IS.

it's attachment to things that brings us undone.

g'night

by Christov | 16th Sep 10, 9:19am 1284585589

A lovely statement Donald......scrutiny however dictates that I add.

Borrowings for a shot in the dark to save your child's life are still borrowings that can create an unfortunate outcome for both parties.

that is a real world event ...by...the... by.

And for what it is worth of course the lender has a responsibility to apprise themselves of the contract they have entered into...... or to seek advice from someone qualified to apprise them.

So I do not seek to shift responsibility.... just clarify it's measure on behalf of the borrower.

As to the Stupid people comment above....... I accept that that is the case on any number of occasions and so can see no reason why a shadow contract outlining in plain "Stupid" English./ other cannot be availed to such persons......provided the shadow contract has no conflict with the original.

In brief......Tell you what Jackie ...you borrow a grand from me today...n it's gonna cost you another grand in one year or another five in three years.......are you getting any of this Jackie..?

by teabagger - inactive | 16th Sep 10, 8:27am 1284582438

Ahhhh, what is happening, I find myself agreeing with the Duke and DonMcRon. If you take Latour's comments at face value, Instant does provide a valuable service, providing short term, low value loans to people who wouldn't have a chance of getting anything through normal channels.

The higher socios get short term finance via credit cards, and they get charged up to 24% or so, not far off Instant's 30% (though Latour was definitely cagey about the 'fees'). I wouldn't mind betting that banks make far more net profit off their credit card business than Instant does out of its clients, and am in fact quite impressed that they can make money in such a high overhead high risk business.

A 5.5% default rate indicates that they are excellent judges of character. If you aren't willing to use grevious threats to enforce collection, you cannot afford to give loans to people who would happily default, or who cannot afford the repayments. Accusing them of exploitation and encouraging indebtedness is silly. There are lots and lots of honest low income / low asset earners, of which a small percentage at any given time have an urgent (and "genuine, non-aspirational") need for short term finance. Instant would appear to service this niche well.

I need my car for work, if it breaksdown and I borrow the $1000 I need to fix it from Instant, is it a rip-off to pay $1200 back in 2 months time, which would be an annualised interest rate of 198%?

by Tim | 16th Sep 10, 9:11am 1284585090

I'd have though the PIs would have chipped in somewhere here. If IF turns up at the door demanding interest payments for a loan, then there will be no money left for the rent. :-)