Issue 423 September 15, 2019
Commerce and Consumer Affairs Minister Kris Faafoi has done well in introducing to Parliament ‘The Credit Contracts Legislation Amendment Bill.’ The proposed Legislation passed its First Reading on April 30, 2019 and is currently being scrutinised by the Parliamentary Select Committee on Finance and Expenditure of which Dr Russell is the Chairman.
As Dr Russell writes in this issue (Businesslink), some irresponsible lenders target our poorest and most marginalised citizens, with some families borrowing to pay for the essentials.
Many are trapped in a cycle of debt, causing extreme hardship.
Intergenerational Poverty
Stories of victims of predatory lenders, typically low-income minority families, single mothers and the old, are awful to read and hear.
People are persuaded to take loans priced way beyond their means, usually secured on their homes; eviction is often the price of default.
We have heard reports of even elderly people thrown out of their homes and of people caught in a debt trap of $10,000 on an initial loan of $1000.
As with pornography, consumer activists and legislators say they know predatory lending when they see it. In fact it is tricky, some say impossible, to define particular types of lending as predatory.
Most of it is sub-prime, meaning to people with bad or non-existent credit records. The loans carry a higher rate of interest than do prime loans, to compensate for the higher credit risk.
Experts believe that the new Legislation could be a deterrent against loan sharking practices, enabling consumers to lodge complaints against lending companies, even if they are not signatories to the guidelines.
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