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Chauvel on loan sharks

Written By: - Date published: 5:00 pm, June 17th, 2009 - 15 comments
Categories: labour, loan sharks - Tags: ,

No Right Turn has published an excellent guest post from Labour MP Charles Chauvel about his private member’s bill to stamp out loan sharks.

Ever since I became an MP, an issue that I have supported is the regulation of so called “loan sharks”. Loan sharks prey on the vulnerable with unscrupulous rates of interest and this includes many of our Pacific people. They are the scourge of our community and instead of lending a helping hand keep borrowers in poverty. It is common for payday lenders to charge interest at rates between “only” 8% and 15% per week, compounding well into four figures at a time when mainstream rates have declined. Tomorrow, I am expecting a ballot, and if successful, I hope that my Bill will make it on to the order paper.

Increasing numbers of people are pawning items like bikes and children’s toys just to meet essential expenses like their power bill. I saw an elderly man taking his weed eater into a loan shark outfit in Wellington, and it was distressing to watch first hand. One of the worst cases I discovered was a person who borrowed to buy a $3,000 car. The car was repossessed after two months and the owner ended up owing $19,000! If that was not bad enough, Loan sharks use bullying tactics to recover debts such as turning up and parking outside borrowers’ homes. I was present earlier this month at the home of a person who was on the receiving end of this kind of intimidation. The loan shark company had previously broken into this person’s house illegally and taken property that did not belong to the owner.

You can read the rest of the post over at No Right Turn.

15 comments on “Chauvel on loan sharks”

  1. Stinkmeaner II 1

    Too bad he didn’t lobby his caucus hard enough while he had the chance.

    I agree with this in principle, loan sharks are scum, however its very much a case of too little too late.

    Lets hope that the next time labour get into power, issues like this will be on the agenda, a good start lets hope it continues.

    • George D 1.1

      Too bad indeed. It was never a priority for Labour in Government, despite repeated desperate requests from community organisations.

  2. RedLogix 2

    Increasing numbers of people are pawning items like bikes and children’s toys just to meet essential expenses like their power bill.

    I’ve long thought that a certain amount of electricity should be supplied at a low fixed rate of say $25 per person per month. It’s not too hard to work out a number of kwhrs that most people need to sustain a minimum level of comfort and health. Even if it say targetted 80-90% of that level, it would go a long way towards keeping most people going.

    Anything above that amount could then be charged at a higher marginal rate (say 20-25c/unit) so that the median family would finish up with a bill in the region of $100-150 per month and at the same time provide a really strong incentive to reduce excess and wasteful usage.

  3. I don’t think we should ‘stamp out’ loan sharks, at least without substituting a proposal like RedLogix’s above.

    I explain why here, but the key reasons are that it is often rational to sacrifice future consumption for current consumption, and that it will probably just lead to actual loan sharks – ie much more violent ones that operate outside the law.

    Thinking about it, if the problem is that people are entering into contracts which aren’t in their interest, why not just force loan sharks to explain their contracts properly? Like perhaps, a quick calculation of how much interest is likely to be paid, etc. Then if they are actually as bad as Chauvel says, they will be ‘stamped out’ in any case, as people will realise what bad deals they are getting.

    • Luxated 3.1

      “Thinking about it, if the problem is that people are entering into contracts which aren’t in their interest, why not just force loan sharks to explain their contracts properly?”

      Because it would be impossible to enforce, the example Chauvel gave in his post could easily be advertised as 3.2% which is perfectly correct except that is the rate per day not per year (which would be >1000% which IMO is extortion). If the lender didn’t explain that the rate was per day then it would rely on the word of the borrower against the lender (could be considered a verbal contract), at which point the lender would argue that the borrower was obviously flustered as they were low on money for whatever and must have misheard or some such. Not a compelling defense to be certain but a smooth lawyer could probably pull it off.

      captcha: reverend creditors …

  4. I wrote quite a long comment but it appears not to have posted – perhaps caught in the spam filter? Could any admin help?

    But in essence, I don’t think we should ban loan sharks, and explain why not on my blog.

    • George D 4.1

      Surely you don’t want to protect the rights of the scum who prey on the weak?

      Yes, there is a place for short term lending, and there is a place for higher interest rates and charges to compensate for that risk. But that doesn’t mean it shouldn’t be strictly regulated. It’s part of living in a decent society.

  5. George D 5

    Better late than never from Labour, I suppose.

    Can we have some legislation from Labour on pokies?

    • Maynard J 5.1

      “Can we have some legislation from Labour on pokies?”

      So everyone uses internet gambling and the money goes to the Romanian Mafia instead of community trusts? They are bloody awful, but it would take some damn fine legislation to solve the issue. What do you suggest? Someone I know who had a problem with them saud the problem was you can easily bet $5 a spin (25 lines at 20c). Change that to 1c max and you will not be able to blow through a $20 in a minute. Does not help if you want to park up there all day though. Ban seats in front of them?

      Much like this issue, if people need the money for bills and things like a car so they can get to work – you can not ban it outright, some very careful regulation required.

      • George D 5.1.1

        I love this logic. So people should give up on malaria cause people might get cancer?

        They are bloody awful, but it would take some damn fine legislation to solve the issue. What do you suggest?

        I’m the not the person you should ask that. I can only suggest limiting the number of machines quite dramatically.

        I’m suggesting that Labour listen to problem gambling experts, and community groups, who do have ideas, and have been desperate to be listened to for years.

        • Luxated 5.1.1.1

          “I love this logic. So people should give up on malaria cause people might get cancer?”

          Different issue, curing or preventing malaria doesn’t increase the likelihood that the person will get cancer. Of course fewer people dying of malaria does increase rates of cancer in the general population however.

  6. Pat 6

    I am a mortgage broker so I am speaking from first hand experience. There is an ethnic/cultural issue at work here that allows Loan Sharks to prosper. Firstly, Pacific Islanders who are first generation NZers tend to be very trusting of anyone in a suit. If you are a crook, they are incredibly easy to rip off, because you can sell them anything and they will sign anything. We have sacked a broker before for selling a million dollar insurance policy to a PI granny.

    Secondly, they do not want to appear stupid, so they sign anything rather than asking questions. Even when they clearly do not understand what you are telling them.

    Thirdly, they have cultural family pressures which leads them to take up crippling short term debt to fund things like trips back to the islands for weddings and funerals etc.

    Fourthly, they fall prey to a silence of shame. This is what allows crooks to write them ridiculously low cheques to buy their homes from them when they have fallen behind in their mortgage payments.

    I think the answer might be for Pacific Island communities to be centred around Trusts (similar to Tamahere’s Waipararewa Trust in West Auckland) which can be the first stop for PI health, education and finance issues.

  7. Pat 7

    To expand on my last point, I think Tamahere and others have a valid point that Trusts like theirs should be the conduit for the Social Welfare payments of the people they represent. Then the particular Trust becomes the focal point of everything financial, and takes a key mentoring position in peoples lives. This means they can make unemployed youth accountable for doing something to get off the dole, otherwise their dole payments are withheld. Simarlarly with vulnerable PI families they can take a key budgeting role to ensure essentials such as electricity and food are always met, and become the first point of contact when extra funds are needed by families when there are funerals etc.

    How’s that for right wing.

  8. samuel welsh 8

    cut and reduce debt.
    cut the payments for loans and save for retirements.

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