Government fast-tracks new protections against loan sharks due to COVID-19
The Government is fast-tracking measures to protect people in financial hardship from high-cost loans that trap them in debt.
“Changes under the Credit Contracts Legislation Amendment Act to strengthen protections for vulnerable borrowers were due to start on 1 June 2020. However, as a result of the disruption and financial concerns caused by COVID-19, the Government is bringing forward the introduction of some measures,” Commerce and Consumer Affairs Minister Kris Faafoi said.
Early introduction of some protections are part of the COVID-19 Response (Taxation and other Regulatory Urgent Measures) Bill going through Parliament today.
The improved protections will apply from the day after the urgent legislation receives Royal Assent, and mean that:
- people borrowing from high-cost lenders will never have to pay back more than 100 per cent of the loan principal,
- compound interest on high-cost loans will be banned, and
- fees for defaulting payments will be limited to $30 (unless the lender can show that the higher amount reflects their costs).
“These are financially stressful times for many whanau and families around New Zealand. I urge anyone facing financial difficulties to explore other options before taking on any new loans. They can talk with their lender about alternative repayment arrangements, contact Work and Income for financial assistance, get in touch with Good Shepherd about a no-interest loan, or call the MoneyTalks helpline.
“COVID-19 is putting financial pressures on a lot of New Zealanders and some may have to draw on high-cost, short-term loans. The Government wants to do as much as possible to ensure vulnerable borrowers don’t get trapped in spirals of debt.
“The aim is to have other consumer credit reforms, including new affordability regulations and new requirements for lenders to meet fit and proper person thresholds, in place from 1 October 2021,” Kris Faafoi said.
Information about support for people in financial difficulty as a result of the pandemic is available at: https://covid19.govt.nz/individuals-and-households/financial-support/