Kiwibank's dodgy lending practices

Labour has been,quite rightly, targeting dodgy loan sharks but I think they may have missed a bigger target. Carol Beaumont Charles Chauvel and latterly Stuart Nash have targeted loan sharks. Charles Chauvel had this to say about interest rates:

He cited a Samoan family in Favona with children aged 6, 5 and 6 months who had nothing left for food out of a benefit income of $551 a week after paying $180 in rent, $75 on power, petrol and insurance and $307 repaying loans at interest rates of between 19 per cent and 52 per cent.

As I said before Labour are right in going after loan sharks but they should also look at Kiwibank which has lending practices and processes that bear all the hallmarks of dodgy loan sharks.

It was announced in 2009 that Kiwibank and GE Money were  going to collude in the loan market:

GE Money New Zealand has teamed up with Kiwibank in a new initiative to provide personal loans to New Zealand consumers.

The new strategic relationship was announced today but officially started on Tuesday.

It will see the country’s largest non-bank finance company provide Kiwibank branded loans through its Auckland sales centre, although New Zealanders will be able to take advantage of the new deal through Kiwibank’s nationwide network of branches, over the phone or online.

GE Money already provides personal loans, retail finance and insurance, but New Zealand managing director Greg White said the two organisations still brought unique core strengths to the deal.

Kwibank hides the details of this at the bottom of their personal loans page.

Kiwibank GE Money loan statement

Via the tipline I have received details of Kiwibank’s lending policies and interest rates that suggest that perhaps they should be looked at very carefully for dodgy loan shark type behaviour.

My correspondent is a parent who’s son applied to Kiwibank for a personal loan to buy a car. He is an existing customer of the bank and has been for a long time (they joined the children up when Kiwibank first opened).

They were astonished that the loan is actually through GE Money (via Kiwibank), and the annual interest rate for the loan is 34.95%.

Kiwibank Interest rates
When they looked at the documents and discovered the interest rate they refused to accept the loan.

When Kiwibank was set up by Labour and Jim Anderton it was promoted by Anderton saying

the bank was about “New Zealanders owning New Zealand assets.”

“We should have some control over our own social and economic destiny.

“We should keep in New Zealand some of the profits that are made in New Zealand.”

One thing the loan documents show is that Kiwibank has outsourced its loan book to GE Money.

GE Money is a division of GE Capital, one of the four main businesses of General Electric (GE). GE is a diversified technology, media and financial services company focused on solving some of the world’s toughest problems and dedicated to creating products that make life better. Products and services range from aircraft engines, sustainable power generation, water processing and security technology to medical imaging, business and consumer financing, media content and advanced materials

Clearly Jim Anderton’s dream of keeping profits in New Zealand and having “control over our own social and economic destiny” has waned considerably. It appears to have ben outsourced to GE Money. Not only that, if Charles Chauvel thinks dodgy loan sharks are those that charge interest rates between 19 per cent and 52 per cent then Kiwibank’s interest rate as charged by their outsourcing loan provider of  34.95% is certainly in loan shark territory.

I acknowledge that risky lending attracts higher interest rates, however I fail to see why Kiwibank has to outsource its lending to GE Money. GE  Money have an appalling record of predatory lending behaviour. Just ask anyone who has ever bought anything from Harvey Norman on tick and then suffered the bombardment of mail material from GE Money promising even more money at their extortionate rates of interest.

However the more important issue is not that these predatory companies exist but that the environment exists where people are desperate enough to go to them. There is a credit crisis in New Zealand for the poorest amongst us. They are shut out of mainstream banks, often for small and historic defaults and so they are left with the likes of Instant Finance and other pay day lenders because no one else will touch them. Baycorp and other credit reference agencies lock these people out of the mainstream and force them to go to dodgy loan sharks.

Something needs to be done, but I don’t think attacking the lenders is the whole answer. A comprehensive look at credit contracts, credit references, credit checking and the sub-residential lending market is long overdue.


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  • arnie

    Anyone on benefits or receiving low income help should be forced to have budget advice. As for Kiwi Bank com-on Anderton, you should be looking into their shady lending via GE.

    Why should anyone on $550 per week with 3 children be able to borrow enough to have to pay back over 50% of their income anyway, no matter what the interest is.

  • Ciaron

    So, the moral of the story is: if you can’t pay cash, you can’t afford it?

    • gazzaw

      You’ve got it in one Ciaron. Home purchase aside & maybe a car then you have to be a sucker if you can’t work out the advantages of a ‘cashy’ over sticking it on the ‘never never’.

      • Ciaron

        Only suckers borrow for depreciating “assets”

  • johnqpublic

    Regulating interest rates in this way will only set a new default at whatever arbitrary level Nash feels is “right”. Any contract just under that level will then be increased up to it, because they can

    • mrgradgrind

      There was a state in America that set the maximum interest rate that could be charged.

      An academic published a study of the effects of this. Almost all new loans from the fringe lenders immediately increased to the regulated maximum interest rate.

      Anecdotal evidence said that when borrowers queried the high interest rate they were told by the lender that “it is fixed by the government.”

  • jonno1

    Absolutely, cash only except for housing purchase, coupled with budgeting. These usurious interest rates are simply a supply and demand problem, with ignorance of basic arithmetic thrown in. Budgeting is the key – I’ve done some budget advising and it’s cheering sometimes, heartbreaking at other times. The worst is when some debts are paid and the remainder are on a manageable payment schedule, and you’re sent on your way . You just know it will end in tears. On the positive side, it’s absolutely amazing how little income some families can survive on without getting into debt. It helps to have a supportive environment though (I don’t mean handouts), eg extended family, friends, church, good employer.

    • gazzaw

      jonno, like you I have done (and still do) some budgeting advice. The toughest cases were those about 18 months after the GFC. Middle management or wannabe middle management people with leased Beamers, all cards maxed out,
      $50k personal loans and a home with no equity as any credit on the mortgage had been used for the family Fiji hols. It was heartbeaker stuff particularly for the children who knew nothing other than a privileged lifestyle totally financed by the banks that just threw money at their parents. Parents should have known better though.

  • jonno1

    Good point gazzaw, I dealt mainly with low income earners (but not beneficiaries). But a colleague mentioned a couple, both university lecturers, on a combined income of $200k+ (much more than he earned!) who couldn’t make ends meet. More to the point, they wouldn’t accept his very basic advice: spend less on restaurants, trips, toys etc, and chop up the credit card. Demonstrated how intelligence and wisdom can be poles apart.

  • sthnjeff

    Interesting how that with an article like this Whale, the advertising at the top of your page is for 2 “loan sharks” and kiwibank!!

  • JACK

    Well written article…I can’t believe the Government is not doing anything about this. Been helping a friend who’s innocently trusted KIWIBANK and gotten into a similar mess. She was shocked to find she was received texts and statements from GE, when the only people she went to was her “TRUSTED KIWIBANK”. Perhaps the media should expose this mess too.