Commerce and Consumer Affairs Minister Kris Faafoi, says "an end is in sight" for high-cost lenders and truck shops who trap vulnerable people in debt.
This follows changes that have come into effect this week, having been earlier signalled extensively by the Government.
Key changes include:
- Mobile traders and truck shops must adhere to responsible lending requirements
- Interest rate cap on high-cost loans
- Lenders prohibited from offering further credit to an applicant who has taken two high-cost loans in the past 90 days
“Predatory lending causes severe financial hardship in communities across New Zealand,” Faafoi said.
“The economic impacts of COVID-19 have only exacerbated the need to take a harder line to protect vulnerable whānau from problem debt.
Faafoi said the Government was committed to protecting the interests of consumers and "keeping vulnerable borrowers out of harm’s way".
As of June 1, mobile-traders and truck shops are now covered by the responsible lending protections in the Credit Contracts and Consumer Finance Act. This means that all mobile-traders must meet requirements such as assessing affordability, before agreeing to sell any goods on credit.
“For Kiwis with limited access to shops and personal transport options, or for whom credit is essential for buying goods, mobile traders can be an attractive option. These changes will protect those borrowers when they buy from truck shops."
The Government's also imposing an interest rate cap on high-cost loans. Where, previously, some lenders were charging more than 600% per annum interest, interest and fees are now capped at a maximum of 0.8% per day.
“Cracking down on predatory lending and truck shops which prey on vulnerable communities has been a priority for this Government. Earlier this year, we fast-tracked protections against the financial impacts of high-cost loans, including limiting total cost of credit to 100% of the principal – so your debt cannot grow indefinitely – and banning compound interest. We also limited default fees on high-cost loans to $30.
“The measures that took effect this week build on those changes to further protect vulnerable borrowers and whanau from predatory lenders,” Faafoi said.
These reforms would also contribute to the Government’s child poverty reduction agenda by preventing families from getting trapped in spirals of unaffordable debt, he said.
"I know many New Zealanders are financially stretched at this time. If you are in financial difficulty, please seek advice before taking out a new loan. You can talk with your lender about alternative repayment arrangements, contact Work and Income for financial assistance, get in touch with Good Shepherd about a no-interest loan, or call the MoneyTalks helpline," Faafoi said.
He indicated that further rules governing mobile lenders would take effect in October 2021, such as requiring directors and senior managers of these lending entities to be certified as ‘fit and proper’ persons and requiring all mobile traders to be registered on the Financial Service Providers register, even if they don’t charge interest.
More information about changes to consumer credit law are available at: https://www.mbie.govt.nz/