Jacinda Ardern defends decision to exclude rate caps from payday lending law


Prime Minister Jacinda Ardern said the government had found a better way to restrict payday <a class=lenders than would have been possible with interest rate caps.” style=”width:100%;display:inline-block”/>


Prime Minister Jacinda Ardern said the government had found a better way to restrict payday lenders than would have been possible with interest rate caps.

Prime Minister Jacinda Ardern defended the government’s decision to exclude a specific cap on interest rates in its plan to crack down on loan sharks.

Budgeting departments and some needy aid groups have been disappointed with the lack of an interest rate cap, although the proposal limits the total interest and charges on high-cost loans to 100% of the principal. of the initial loan.

Tim Barnett, managing director of FinCap, which supports around 200 budgeting services, said that an interest rate cap would be the linchpin that keeps the other measures of the proposed legislation together, and this pin was missing.

He said there was nothing in the new law to prevent loan sharks from structuring a current damaging loan into a series of 100% loans, or multiple short-term loans. This would not mean any real change for borrowers.

* Government loan sharks bill lacks “core” interest rate caps, critics say
* Usurers can only be arrested with interest
* The cost of hardship subsidies rises sharply as the government is accused of working on the sidelines

The proposal – the bill amending the law on credit contracts – is due to pass first reading in parliament on Tuesday.

Minister of Commerce and Consumer Affairs Kris Faafoi, who is in charge of the new <a class=payday loan legislation.” style=”width:100%;display:inline-block”/>


Minister of Commerce and Consumer Affairs Kris Faafoi, who is in charge of the new payday loan legislation.

At Breakfast On Tuesday morning, Ardern said she initially thought a cap specifically on interest rates would be the way to go.

“However, as we moved forward in the drafting process of the legislation, we chose to cap the total amount to be repaid in proportion to the loan, so that it captures the fees and ensures that we do not create perverse incentives. She said.

“There are still parameters, it’s just not a cap on the rate.” It was on the total amount that people have to pay back.

She didn’t want people to have a misconception that the government didn’t put caps. “We’re just doing it in a different way,” Ardern said.

“If you take out a loan of $ 500, you will never repay more than $ 1,000. And the reason we have chosen this route is that we have looked at other countries that have opted for a specific cap on the rate instead. ‘interest.

“And what we saw there is that instead, lenders have really encouraged people to take larger loans over longer periods of time, and so these debt spirals always happen. , they just happened in a different way.

“We want to prevent that from happening, which is why we have opted for a percentage of the loan rather than a cap on an interest rate.”

She had not asked the Greens if they would support the legislation without an interest rate cap, but she would be surprised if they did not want to see a “rise in the bar, which it is.”

The decision not to have an interest rate cap had “absolutely nothing to do with the government being a coalition.” It’s just us looking at the different options available to get a result that doesn’t hurt not families, ”Ardern said.

“One of the most amazing things I remember hearing when the Auckland City Mission reported (looking at the families who interacted with the mission)… I have always seen loan sharks and loan sharks. Payday lenders as predators These families saw them as their saviors, and that shocked me.

“So we have to accept that while we try to raise the minimum wage, to increase things like the family tax credit, to reduce inequalities… to prevent people from using loan sharks and payday lenders, people still do. Doing is restraining their behavior, ”she said.

“In our mind, this is a way to stop this spiral of debt, when an interest rate cap could still allow these spirals of debt to occur.”

Ardern was also asked about the increase in hardship assistance grants paid. Figures from the Department of Social Development show that the number of grants increased from 216,960 in the March 2014 quarter to 472,217 in the first quarter of 2019.

The amount involved increased from $ 52.4 million to $ 128.5 million.

“There’s a trend there… I think what we’ve seen over the years is that they really ended up having to supplement our benefits. So they’re increasingly becoming a supplement to base over the years, ”she said. noted.

When the government was elected, it asked Work and Income to meet the needs of the people, especially in winter. “And so I always said those numbers would get worse before they get better because we have to meet the need that is there and I don’t think we have been, and we’ve seen it with the grants for the needs. specials, in particular. “


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