The war on loan sharks

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Fringe lenders and finance companies are coming under increasing fire for preying on vulnerable people and charging eye-watering interest rates that many can’t pay back.

A report from the Commerce Commision reveals almost a fifth of lenders fail to outline their borrowing terms clearly and prominently. Increasing numbers of Kiwis have been turning to so-called third-tier lenders for personal and payday loans.

Claire Dale from Nga Tangata microfinance says the companies are trapping clients into a cycle of debt.

“Lenders are looking for a lifetime income stream - they don’t want the client to settle the debt - because then they have to go out and get another client - better to set up clients they know can never escape.”

Short-term lenders and finance companies are often referred to as third-tier lenders. Second-tier lenders are defined as building societies and credit unions. First-tier lenders are the regulated banks.

One such client of a finance company is mother-of-four Angela, from Pakuranga in Auckland. In October last year she had a $1200 top-up approved by a finance company she already owed $5309. The interest was 35.5 percent per annum and the loan was approved on the back of two payslips from a part-time job and 30 days of bank statements.

Within two months she could no longer keep up with repayments.

“I try my best but it's hard, I can't afford food for my kids. If I do pay it my kids miss out on a lot, I miss out on a lot.”

She was served with a repossession notice on her car. She says it was easy to borrow more money, she claims her bank records show she would be unable to make repayments based on her income.

“I was desperate for money - it was the easiest way to get money. When you need money it was there - it was just there.”

In a 2017 Commerce Commission survey of 217 lenders, 115 displayed interest rates clearly - of those, 17 had interest rates of more than 100 percent per annum, and a further five had interest rates advertised at more than 500 percent.

These sky-high rates are usually intended as short-term loans or for people looking for money to get them through until payday.

Forty-five other lenders had rates over and above 20 percent. This compares to the main banks, where personal loans start at around 14 percent.

The Commerce Commision has also developed a series of ‘red flags’ to help consumers identify bad practices from finance companies that may cause harm.

Adrien Gallie from the Pakuranga and Howick Budgeting Service says she has seen a spike in the numbers of finance company clients coming to her in financial stress.

“It’s really devastating for the people that are under-resourced and as I’m finding out, it’s people across all income streams because a lot of people that I see carry a $50-60,000 finance company debt, it's not uncommon.”

This subject was proposed to Newsroom by Kiwibank, and investigated and produced independently by the Newsroom editorial team. Kiwibank is a partner of Ngā Tangata Microfinance, and a foundation partner of

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