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Let’s campaign to stop predatory lenders

Soraiya Daud
Communications Adviser
National Building Financial Capability Trustsoraiya-daud-1

The economic conditions that we live in mean that borrowing money has become part and parcel of making ends meet, whatever our incomes.

It is rare to find someone who has never had to borrow money. We borrow to provide secure shelter for our families. We borrow to be able to buy a car to get to work. We borrow to pay for the groceries (whether it’s a credit card, a payday loan or a truck shop).

To get us out of this continual trap of paying off loans and debt we need to have some big conversations about the nature of our economy.

In the meantime, loans can help us manage our finances. They can help us deal with emergencies and avert crisis.

But there is a point where lenders and loans become extremely harmful. Where people pay extraordinary amounts of money for small amounts of borrowing, where the pressure of paying off loans mean that families have very little to spend on their basic needs like rent, groceries, school lunches and transport. Where harassment by lenders mean that families are in a constant state of stress and worry.

Concern about predatory lending particularly in poor communities has been around for a long time.

In 2010 Carol Beaumont, the then spokesperson for the Labour Party on Commerce, campaigned to improve the law on lending, including introducing caps on interest rates and rules around responsible lending.

Her campaign focused on the lenders operating in poor communities through truck shops or offering pay day loans at extremely high interest rates. The bill didn’t make it past the first reading but raised awareness about the harm caused by predatory lenders and the potential for change.

In 2014 the National Government introduced amendments to Credit Contracts and Consumer Finance Act 2003 (CCCFA).

The amendments to the CCCFA aimed to reduce consumer harm by improving disclosure requirements and introducing responsible lending principles.

Lenders are meant to make sure that borrowers can afford the loans they take and support borrowers in hardship. (for more information on the current law visit the Commerce Commission website http://www.comcom.govt.nz/consumer-credit/).

Budgeting services report a different story.

They tell us that there are far too many third-tier lenders in low income areas and that it is too easy for people to borrow money. Lenders are not adhering to the Responsible Lending Code and are still lending money to people who do not have the money or ability to pay back their loans.

Pay day loans continue to be an issue. They are too easy to obtain. They are commonly defaulted on and too hard to understand. Interest rates are high, and the total cost of borrowing is hard for people to understand.

Truck shops continue to operate in low income communities, charging prices well above standard retail prices despite the recent crackdown by the Commerce Commission.

The law is not working. Lenders are not operating according to the law and borrowers do not know their rights. It all seems a bit of a mess.

Thankfully this year the Government is reviewing the amendments that were made to the CCCFA in 2014.

The Minister of Commerce, Kris Faafoi, has indicated an interest in capping interest rates and improving disclosure requirements.

The review could result in simply adding in what the Minister has suggested and tinkering around the edges of the law.

On the one hand, we could write submissions talking about the technical aspects of the law that aren’t working well.

Alternatively, the review could be an opportunity for a grassroot community campaign, that involves the communities most effected by predatory lenders.

We are advocating for the later approach. How we do this is still a work a progress. But in principle we envision a campaign that allows people to lead campaigns in their own community.

For example, say you are a community worker in a suburb or town that has many truck shops and pay day lenders operating. You notice the impact on your family and friends. You also know that your local shops and employers would benefit from people spending money in their shops over truck shops.

A local organisation linked into a larger nationwide campaign talks about the campaign to change the law in a community meeting or at the local library. They give you some resources and you then go out and get submissions to the bill from your neighbourhood. The submissions to the bill are powerful because they reflect the stories of real people in the communities most effected by predatory lenders.

The review of the CCCFA provides an opportunity for a powerful campaign where digital tools support grassroots offline campaigning. Right across the country there are people in communities passionate about the harm done by predatory lenders. They know the impact on the ground. All they need is the support to raise their voices, activate their communities and share their successes with the rest of us.

This blog has been contributed by a member of the ComVoices network

ComVoices is a Wellington based network of national community and voluntary sector organisations. It was established so that sector organisations would have a more powerful voice at Government level and in the community.

Click here for our website:  http://comvoices.org.nz/