Social Issues

Cut-price car leasing scheme needs a driver

A scheme to get low income families out of debt and into safe cars is being delayed because no one can agree who should stump up the money to get a pilot off the ground.

The social car leasing scheme was one of a number of practical ideas which came out of a government/industry forum in July last year aimed at breaking cycles of debt. 

It involves taking ex-fleet vehicles and renting them to low-income families for $50 a week. Importantly, that price would also cover insurance, WOF, registration, breakdown and a new set of tyres every two years.

The scheme has been flagged as a priority by Ministers Carmel Sepuloni (social development) and Kris Faafoi (consumer affairs). And it’s being supported by MBIE, MSD, the Ministry of Transport, and ACC. 

But more than a year after the Financial Inclusion Industry Forum, it’s still lacking someone to set it up and run a pilot. Or more precisely, no one can agree whose budget should fund that person.  

What’s not in doubt is that car-related debt is a huge headache for low income families. Many end up driving unsafe, unreliable cars and getting into trouble with loan sharks they have borrowed money from to either buy or fix those cars. 

Salvation Army financial mentor Damien Hazlewood works in Porirua and sees the problems first hand.

“People need a car, but can’t afford it. They often have to take out a loan to buy the car but they get a cheap car that needs things done to it, so they are taking on a liability. They can’t afford insurance, so if something happens, they lose the car.” 

Repayments can be high for car loans and there are often add-ons like credit insurance. If the car goes wrong, that’s more cost, and possibly another loan. Then there are unaffordable fines when people are caught without registration or a warrant. Oh, and there's petrol.

Hazlewood says until more details are available, like who would be eligible, or what any insurance excess might be, it’s hard to judge the impact of the proposed social car leasing scheme.

“But if $50 covers everything, it would certainly solve some problems.”

He says the average car loan he sees with his clients is more than $50 a week - some run as high as $150.

“And then there’s all the other car-related costs on top of that.” 

Lyn McMorran and Kris Faafoi both want the car leasing scheme set up as soon as possible. Photo: Supplied 

Lyn McMorran, chief executive of the Financial Services Federation, was part of the team that came up with the idea for the social car leasing scheme, and has led it so far. She says with several vehicle lending companies being members of the federation, it made sense for her to get involved. 

But she says now the government needs to take charge and put up some funding.

“We’ve worked out it’s affordable, we’ve got the support of the Ministry of Transport and Associate Minister Julie Anne Genter. Now we need a person to drive it.”

McMorran says the steering group for the project had hoped a pilot could be running by the end of this year - possibly in either Faafoi or Sepuloni’s electorates (Mana and Kelston). The ministers originally wanted pilots by the end of last year.

But even the later time frame's now looking optimistic. 

“We need a person to crunch the numbers. I don’t think it would cost heaps because I think there will be savings to ACC, to NZ Inc, from getting some of these unsafe vehicles off the road.”

One problem is that social car leasing could fall into any one of four different ministries - transport, social development, ACC and consumer protection (MBIE).

As one source said: “It’s taking time to find a home.”

A spokesman for the Ministry of Business, Innovation and Employment said its consumer protection team had recently researched the social leasing idea, including whether New Zealanders would be happy not owning their cars.

“The results are now being analysed and government, industry and consumer advocacy groups will continue working together on next steps," the spokesman said.

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