By Gareth Vaughan
The effectiveness of the National Party-led Government's crackdown on the abuse of state, or taxpayer, funded benefits has received an endorsement from a third tier lender, whose chief executive says it's having an impact on his company's business.
Instant Finance CEO Richard de Lautour says the Government's "major inroads" into cutting benefit fraud and the ease of and manner in which benefits are made available, has been significant. Asked whether it had impacted Instant Finance, de Lautour said it had, to the extent it has affected budgets and affordability.
"But whether or not it has stopped the customers or has just reduced the amounts they can afford to borrow, I wouldn't place hand on heart and say I know exactly the answer to that," said de Lautour.
Benefits weren't "just handed out" like they used to be.
"And I think that has fed down into Housing New Zealand. We get a significant number of enquiries now every week from Housing NZ looking to get confirmation of names and addresses and who lives there and so on. So there has definitely been a much greater focus on benefit fraud and that's a good thing," de Lautour added.
"Some of them (beneficiaries) may be our customers. So it's great for you and I as taxpayers, (but) probably not so good for some of our customers perhaps."
This group of customers have had their incomes and confidence eroded, along with their ability to borrow and service loans, he says.
In the year to March 31 Instant Finance had a weighted average interest rate on its loan receivables of 29.58%. De Lautour describes Instant Finance as "lenders of need," there when something goes wrong, or when nobody else listens.
"We step in and help get the warrant on the car or fix whatever the problem is."
Meanwhile, de Lautour said banks - notably the big four - were muscling in on the personal loan market, enjoying the "significant" interest rate margins they can get on such lending. Banks are able to lure customers away from Instant Finance with bigger, unsecured loans, he added.
De Lautour said he expected this to continue until the banks' thirst is quenched.
"And I can't see that happening in the near future or until interest rates start to go up. And of course the concern always is not only do the banks offer lower interest rate loans, they offer these people a lot more money and therein lies the problem when rates start to go up and affordability comes into question," he said.
"And at that point customers are looking at a $15,000 to $20,000 debt as opposed to a $5,000 debt here (with Instant Finance). And of course at that point they start to throw their arms up and say 'can't pay' or 'don't want to pay'.
In contrast de Lautour doesn't see Reserve Bank enforced restrictions on banks' high loan-to-value ratio (LVR) residential mortgage lending as an opportunity for Instant Finance to muscle in on traditional bank turf.
"LVR restrictions are not opening any opportunities that we've noticed and I don't see why it would do. (Although) quite a large proportion of our customers are home owners, we're not seeing any opportunities to lend into that market and you can't at our rates," said de Lautour. "Mortgages are not where you go at our interest rates."
Instant Finance, which uses former rugby league star Stacey Jones in TV adverts, is predicting profit after tax for the year to March 31, 2014 to be in line with the $6.345 million profit it posted for the year to March 31, 2013.
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