Verve Article - December 2014
Christmas is a time for enjoyment. It can also be a time of financial stress.
Most families find a way through, but some struggle. Some of the worst situations occur, in this city, when people take on debt with unscrupulous pay day lenders or loan sharks.
Loans may look reasonable when advertised as “8% interest per week”. But that adds up to 416% interest per year. That means a loan on a $300 phone could cost well over $1000.
The Government is tackling this problem head-on. We are boosting funding for budgeting services by $22 million over four years – tripling funding levels since 2007/08. Budgeting services help families to increase their financial literacy and get better with money.
We have also launched the Community Finance pilot scheme, operated in parts of Auckland as a partnership between the private sector and the Ministry for Social Development. The pilot gives vulnerable families access to safe, affordable lending for important items, like a reliable car. Financial education requirements are bundled into the loan so that borrowers can learn how to manage their budget and debts. We’re going to be monitoring this pilot closely to see if it can be implemented elsewhere.
We also need to tighten up on unscrupulous lenders. The Government has already passed the Credit Contracts and Consumer Finance Amendment Act – the biggest overhaul of consumer credit laws in a decade.
These reforms are about helping everyday consumers when borrowing money. Under the Act, lenders must act responsibly, or face consequences.
A major part of these reforms is the Responsible Lending Code. As the Minister for Commerce and Consumer Affairs, I have responsibility for bringing the Act and Code in to force. The Code gives lenders guidance on how to meet the new responsible lending obligations. It looks to increase protection for people who borrow, while keeping compliance costs down for those lenders who already have good, responsible systems in place.
The draft version of the Code is currently out for consultation. We want to hear whether people think the Code provides enough protection for consumers and enough certainty for lenders.
Wishing you and your families a Merry Christmas and a Happy New Year