Bailout lender Robert Choy wants laws preventing payday lenders from extending borrowers’ loans.
When Christmas comes, some troubled families turn to high-interest loans like credit card debt, personal loans, and even payday loans to help make the day for their families to remember.
However, Choy of Nga Tangata Microfinance, which gives Kiwibank-funded interest-free loans to people trying to get out of debt, says it is time to take steps to protect vulnerable borrowers from the previous government has prevented.
At the top of Choy’s Christmas wish list is the hope that the new administration’s consumer advocate Chris Faafoi will ban repeated ultra-high-yield, short-term payday loan transfers.
Faafoi has already committed to an interest / total cost cap for lending.
Currently, payday lenders, whose interest rates can exceed 365 percent per year, sell loans for as little as a week or two.
The high cost comes from the cost of each small loan, but Choy says the payday lenders’ dark secret is that many of the loans are not paid off and are renewed over and over, and he urged Faafoi to act.
“One of the things to look at is how many times someone can renew a payday loan. That’s what’s causing the problem,” says Choy.
“Someone with a nine or twelve month payday loan can end up paying back three times the amount borrowed,” he says.
This includes fees and penalties.
In the UK, payday loans can only be transferred once, which means lenders must be careful not to lend to anyone they think can repay the loan quickly. Australia has also cracked down on payday loans.
Predatory lenders are constantly looking for low-income borrowers, Choy says.
“You are constantly being followed by lenders.”
But payday loans are not the only loans that get people in trouble. Other forms of high-yield debt also get people into trouble.
And even modest amounts of high-interest debt are hard to get down.
A couple who refused to be named were able to obtain a Nga Tangata loan through a whangerei budgeting service to pay less than $ 3,000 in credit card debt.
Everything seemed fine for the couple until the 2011 earthquake hit Christchurch. The couple moved to Auckland, where the cost was much higher, and got into debt.
“It was hard to blumin ‘,” said the man.
Then the man developed back problems and was unable to work. Suddenly the debts were a stone around their necks that drew them under them, and their income was so low that they could not pay off more than the minimum each month.
The couple moved again north to the family’s “homestead” in rural Northland and are now, two years later, debt-free just in time because she is 65 and he is 64.
“Without the interest-free loan, I wouldn’t know where I would be today,” he said. “I’m just very grateful to you.”
Founded in 2010, Nga Tangata Microfinance is in expansion mode, with Kiwibank looking to invest more capital.
It provides its loans only through household advisory services, mainly in Auckland and the North Island.
Most of the time, the loans to settle high-interest debts are given to people who are willing to commit to intensive budgeting with the help of budgeters.
The Kiwibank does not earn any interest on its money, but it does expect the loans to be repaid. Choy said the losses are less than 2 percent, which is low for microfinance worldwide.
More capital is needed as there are worrying signs that more households are entering high-yield debt, including those higher up the income ladder, Choy said.
“We’re finding more and more middle-income people coming to us,” says Choy. “They have a decent income, but they have high expenses.”
Rents and necessity inflation have driven this coupled with low wage growth, he says.
SHOCKING FACTS ABOUT THE CASE
The briefings to the new ministers leave no doubt about the extent of the broken housing market in New Zealand.
* The home ownership rate has fallen from a high of 74 percent in 1991 to 63 percent in the 2013 census.
* 42 percent of the Māori have their own homes.
* 28 percent of tenant households spend more than 30 percent of their income on housing costs. It’s higher in Auckland.
* 94 percent of tenants who receive the apartment supplement spend more than 30 percent of their income on housing costs and 52 percent spend more than 50 percent.
* At the national level, half of potential first home buyers would spend more than 30 percent of their income on housing if they were to buy a cheap home. In Auckland it’s almost 70 percent.
* There are currently 45,000 too few apartments in Auckland, and the number is rising.