Clampdown on loan sharks

Jacinda Ardern promised in September last year that she would clamp down on loan sharks, and yesterday, it was announced that this is now going to happen. RNZ reports: quote:

The government is bringing in tougher measures to clamp down on loan sharks and truck shops.

Ms Ardern made the announcement today after a review of the Credit, Contracts and Consumer Finance Act, including the changes made in 2015.

Interest and fees on such loans will be limited to 100 percent of the amount borrowed. end quote.

On the face of it, this may seem like a good thing. After all, loan sharks are evil, preying on people with low incomes and forcing them into ridiculously high-interest rates. It is probably time to take a big stick to these people. I don’t entirely disagree with that.

If you are going to do it though, why not do a decent job?

First of all, why wait until 2020? Why not put a lot of people out of their misery and do it now?

Secondly – capped at 100%? So you can borrow $500 from a loan shark and pay back $1000? A lot of these loans are very short term, remember. They are often referred to as ‘payday loans’. So now the rate for a loan of $500 for one week can be as high as 100%? There is nothing in the article – or in the proposal that I can see – that would stop that (although correct me if I am wrong).

Can we also please have a very clear definition of the term ‘loan shark’? This is necessary because there are a few well-established institutions that will fall foul of these criteria if the rules are applied across the board.

How about the Ministry of Justice, where a $30 parking fee can end up being $160 if it is not paid on time?

How about interest and penalties on Child Support payments, that are often way too high for struggling parents?

What about the IRD charging a 10% extra charge per month, on top of normal interest and penalty charges, on unpaid PAYE, that can double the liability in a relatively short time? I have seen employers driven out of business, not because of the original amount owed, but because of all the interest and penalty charges on top of the original debt. Are they going to cap those at 100% of the original amount? That would give a lot of employers the chance to actually deal with the debt, rather than watch it just spiral out of control very quickly.

You may think these debts are not the same at all, but why not? If IRD debts were capped at no more than 100% of the original amount, that would make a lot of difference to people who have struggled to pay their taxes on time in the past, but could possibly deal with the problem once things improved but they are always struggling to keep up with current payments and deal with the overdue payments that keep incurring penalties and interest at the same time.

IRD will tell you they have discretion over penalties, but they do not use that discretion often enough. All too often, it is too hard for a taxpayer to catch up, and they end up either liquidating or carrying a burgeoning debt that stops them from taking the business forward in a good direction.

I think something should be done about loan sharks, but leaving the changes until 2020 is nothing more than electioneering. If you really want to help people who are struggling with expensive short-term debt, then do something now. Don’t wait until the election campaign is underway, hoping that people will remember the ‘kindness’.

While you are at it, take a look closer to home. See if you can do something about the ridiculously high rates of government penalties, that can crucify individuals and small businesses without a second thought from anyone.


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