Source: MIL-OSI Submissions
This week, on 1 June 2020, an interest rate cap on high-cost loans (over 50% interest per annum) was finally introduced in New Zealand.
The introduction of an interest rate cap will help borrowers, like Sarah Newham, who presented to Select Committee in 2019, avoid paying exorbitant amounts of interest on high-cost short term loans.
Sarah was the only borrower to directly address the Finance and Expenditure Committee last year when it considered the bill to introduce an interest rate cap.Sarah is a single mother living in Gisborne.
She borrowed a $400 high-cost loan to buy birthday presents for her children. She paid most of her payments on time, but missed some payments because of unexpected expenses resulting in her loan going from increasing significantly. Her situation became so difficult that she preferred her debt to go to a debt collection agency just so that she could have more affordable repayments.
On her next birthday, the lender she borrowed from asked her if she wanted another loan.
Her story was supported by hundreds of submissions from financial mentors/budget advisers and community workers that showed the harm that high-cost lending has been doing to whanau and communities across New Zealand.
Tim Barnett, Chief Executive of FinCap, the umbrella body for financial capability and budgeting services says, “The introduction of an interest rate cap was only possible because of a sustained campaign by community organisations including budgeting services across New Zealand.
“The campaign was backed up by research that showed the positive impact of interest rate caps overseas. FinCap would like to thank all the people that told their stories, and supported our campaign to introduce the cap. We would also like to thank the other national NGOs and local organisations that supporting the campaign.
“In Select Committee, Parliamentarians were presented with story after story about the negative impact of high interest rates on communities across the country, leading to the introduction of the interest rate cap”
FinCap will be monitoring the impact of the interest rate cap introduction over the next two years.
We will also be monitoring what happens with lending between 30% and 50% annual interest rates.
We are looking forward to the introduction of further regulation on lenders, such as the Fit and Proper person’s test and more prescriptive affordability assessments.