$10 million to wean people off loan sharks

May 6th, 2014 at 11:00 am by David Farrar

Stuff reports:

A Government initiative will offer interest-free and low-interest to low-income borrowers banks don’t normally lend to.

BNZ announced today it would commit $10 million to a community finance initiative in partnership with the Government, Good Shepherd NZ and The Salvation Army.

BNZ spokesperson Michelle van Gaalen said the programme, to start with a one-year pilot, was designed to help people become self-sufficient and get away from using payday lenders and loan sharks.

“BNZ wants to help all New Zealanders be good with money, including those who currently don’t have access to conventional sources of credit,” van Gaalen said.

“Traditionally banks haven’t provided loans to customers with minimal income, so those people have been using the only other option they feel they have – borrowing at extortionate rates.”

Loan sharks and payday lenders charge crippling levels of interest. Smart Cash charges 365% interest and they’re one of the cheaper ones. Ferratum goes up to 800% interest. Can’t Wait is 521%.

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77 Responses to “$10 million to wean people off loan sharks”

  1. Ryan Sproull (7,089 comments) says:

    This is a great idea, assuming it’s supplemented with educational and advice strategies.

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  2. wreck1080 (3,842 comments) says:

    I doubt many of these people have the nous to apply for legit. loans.

    Many of these loan shark loans are racked up at the point of sale – dodgy car yards and drive by vans loaded with goods.

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  3. MT_Tinman (3,089 comments) says:

    Fantastic stuff!

    Now I can waste my income on booze, drugs and rubbish and the gummint will give me more – in the form of a loan they don’t expect me to pay back.

    What a wonderful country we live in.

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  4. Ryan Sproull (7,089 comments) says:

    I doubt many of these people have the nous to apply for legit. loans.

    Many of these loan shark loans are racked up at the point of sale – dodgy car yards and drive by vans loaded with goods.

    Sure. And in practice, this will surely end up being the government buying that debt off the loan sharks. Basically an amnesty that needs to be coupled with some way to prevent it from happening again. Question is, how? Make certain people off-limits to loan sharks – placing the onus on the loan sharks to ensure they’re not lending to off-limits people?

    Education, ideally, of course, is the answer.

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  5. virtualmark (1,528 comments) says:

    I’m sure this is a well-intentioned initiative. But I can’t help thinking its going to turn into a financial disaster for the Government.

    The reason banks traditionally won’t lend to these people is because they’re a massive credit risk. Loan sharks manage that credit risk by ruthlessness. The Government is not – and cannot seen to be – ruthless.

    I’ll happily be proven wrong, but I’m just waiting for the first news story about we the taxpayer have been fleeced.

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  6. Fentex (909 comments) says:

    I’m sure this is a well-intentioned initiative. But I can’t help thinking its going to turn into a financial disaster for the Government.

    The reason banks traditionally won’t lend to these people is because they’re a massive credit risk.

    Assuming it is coupled with counselling and training this is a good concept and if well executed will be a benefit to society.

    If active intervention can succeed at pulling people away from unnecessary debt exploited and increased by unscrupulous predators, the accompanying stress and temptation for easy, criminal solutions, the money spent will be worth the investment.

    A $10 Million dollar trial is not great risk to test the idea. I applaud the ambition.

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  7. Ryan Sproull (7,089 comments) says:

    What Fentex said.

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  8. Sonny Blount (1,848 comments) says:

    Of course they charge that kind of interest. One default can kill their profit from many, many other loans. What would you need to charge to make lending someone a few hundred dollars for a few weeks? Even 20-30 bucks works out to hundreds of percent interest.

    Let private parties undercut those that charge too much. If there are no private entities doing that then that should be a big flashing red warning light. I don’t think having the government undercut industries it doesn’t like is a particularly promising way to proceed.

    If you’re personally concerned about people’s ability to get credit then find people to lend money to yourself or offer your staff advances. Don’t implement your beliefs with OPM.

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  9. Manolo (13,517 comments) says:

    Trying to protect some morons and imbeciles from……themselves. Complete waste of money.

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  10. Nuwanda (83 comments) says:

    The stupidity of this idea is almost beyond belief. High risk loans attract higher rates of interest. The function of that high rate is to reward the lender for taking the higher risk, to cover the higher rates of default, and (as an unintended but important effect) to provide a disincentive for borrowers. Loan “sharks” are providing a valuable service. High-rate loans provide an important safety mechanism in the market. Anyone with even a basic knowledge of the price system understands this.

    The housing loan crisis was created and exacerbated by exactly this type of dumb anti-conceptual thinking. People want homes -> it’s politically expedient for people to get loans -> lenders won’t lend to high risk borrowers or those that lack equity -> regulate loan conditions or force down interest rates -> risky loans are made -> risky loans fail -> lenders fail -> everyone suffers.

    But no, we have just another example of a mindset that thinks it can fool both human nature and the market.

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  11. mikenmild (11,246 comments) says:

    The report says that it is BNZ committing the $10 million to the trial. There are no details of what the government involvement is, or indeed whether any taxpayers’ funds are involved at all. It seems a good idea to trial.

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  12. Komata (1,153 comments) says:

    Sadly, loan sharks target the most needy, and are very active in certain localities where the PI population is high. After-all, if you have no money, after paying the rent, there are numerous children underfoot and there is no food in the house, what are you to do? As well, ‘cos Mum and Dad, Aunty and Uncle ‘the family (and the church) back home in the islands depend on your money, what are you to do about them? They rely on YOU – every week, and if you can’t help, then what sort of child ARE you? Loan sharks are an easy option, as they make getting money sooooo easy, and minimise the need to pay things back. The average ‘user’ of such ‘services’ has no concept of what 7500% interest means, they just know that they need money NOW, and if they have to repay the amount they borrowed at 7500% then that is a problem for another day; ‘We’ll deal with that later’

    Been there, seen the misery it causes, and, unfortunately there is really not a lot that can be done. Education is a help, but the whole ‘shark’ concept plays heavily on very-well established cultural norms, and ‘obligations’ in ways which are inexplicable to those who are on the outside looking in. To further complicate matters, it is noticeable that even when the ‘victims’ are made aware of their ‘plight’ there is a remarkable ‘unwillingness’ to face the reality, and to take action to break the hold that the ‘shark’ exercises. ‘Familiarity’ plus a natural cultural passivity, make a situation that sharks exploit to the max, and unless there is a viable alternative (which there really isn’t), things won’t change.

    And finally, what really complicates matters is that frequently the cultural ‘leaders’ are also the ‘sharks’, and so are well acquainted with knowledge about what buttons have to be pushed. The (well-trusted) fox both guards the hen house and eats the hens within. Work that one out if you can….

    In a few words; ‘It’s complicated…’

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  13. Rex Widerstrom (5,337 comments) says:

    In general, I support a free market. But there are some businesses we ban because they are repugnant or because the social harm they would cause outweighs the freedom to operate.

    I can’t buy and sell organs. I can’t import and sell machine guns or sarin gas. I can’t dig up corpses and sell them to medical schools. I can’t make methamphetamine and sell it. I can’t set up a business and sell cars I know are unsafe. I can’t run dog fights…

    And nor should the law permit me to charge 365 or 800 percent interest to desperate people.

    We don’t have to set interest rates by government decree, we can still let the market do it. We just need a law making it illegal to charge more than a certain percent above the average of the banks. And if your business isn’t profitable at that level, tough. Find another trade.

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  14. Colville (2,227 comments) says:

    along with this trial they need to take cu*ts like Stacey “instant finance” Jones out and root him as a traitor to his people.

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  15. mikenmild (11,246 comments) says:

    Yes, I finf those ads rather offensive, too. The idea of good guy Stacey helping people out by steering them to a loan shark.

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  16. RightNow (6,919 comments) says:

    This would have a better impact if coupled with a budgeting service with teeth – e.g. one that can take control of the applicant’s finances for a set period, such as until the loan is repaid. Otherwise I can’t see how it will be anything more than a band-aid.

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  17. Ed Snack (1,823 comments) says:

    Sure these instant loans look like crippling interest rates, but I’d bet that their actual returns are only moderate; the default rate must be significant. You’re also annualizing the interest rates for what are intended to be very short term loans.

    Perhaps one should also note as a related item, that the much vaunted and praised “micro-loan” schemes operating in third world countries to give small entrepreneurs access to some finance can charge similar rates when fees are taken into account.

    Running a lending business that specializes in loans to people who cannot access funds elsewhere almost certainly largely because of a poor credit record has to have significant overheads. For a start administration costs on small loans are hugely significant, and the smaller the loan the larger the % cost.

    Given all that, I don’t have a problem with attempts to add competition to the area, but I bet you’ll find that the actual interest rates paid by some borrowers from this initiative will be over 100% pa anyway. A small example, work out the interest rate on an annual basis on a $100 loan with a (derisory) $10 admin fee and no interest paid back in a week. And a realistic admin and default cover fee would probably be more like $80. But if this gets some of those out of the vicious circle of payday loans then it will help; and advice (as Ryan suggests) will be a valuable component.

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  18. redqueen (544 comments) says:

    I think there are two questions we need to answer before we start passing judgement on interest rates by ‘loan sharks':

    1) What are the default rates? If they’re facing 60% impairement rates, then higher interest rates are hardly surprising, particularly if they’ve found that the longer someone is in default, the less likely they are to ever repay… (aka, higher interest rates may provide an incentive for the people who are marginal to repay sooner, rather than later); and
    2) What are the administration costs? If I take out a $300,000 loan, the bank wants around $200 – $300 for the ‘service’, so if I take out a $500 loan, surely there remain costs (including advertising the service, having the office, blah blah blah).

    I’m not saying that I agree with what ‘loan sharks’ often do, but saying that the solution is a ‘government initiative’, even if BNZ is putting in its own money, seems to ignore the potential causes of current market practice. All we’re doing is saying ‘Wouldn’t be nice if the poor, disadvantaged, people who are “forced to use” these evil “loan sharks” could get access to money from wholesome, spirited, bankers’. Doesn’t that sound a bit odd?

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  19. Sonny Blount (1,848 comments) says:

    Rex Widerstrom (5,135 comments) says:
    May 6th, 2014 at 11:46 am
    In general, I support a free market. But there are some businesses we ban because they are repugnant or because the social harm they would cause outweighs the freedom to operate.

    I can’t buy and sell organs. I can’t import and sell machine guns or sarin gas. I can’t dig up corpses and sell them to medical schools. I can’t make methamphetamine and sell it. I can’t set up a business and sell cars I know are unsafe. I can’t run dog fights…

    And nor should the law permit me to charge 365 or 800 percent interest to desperate people.

    We don’t have to set interest rates by government decree, we can still let the market do it. We just need a law making it illegal to charge more than a certain percent above the average of the banks. And if your business isn’t profitable at that level, tough. Find another trade.

    This just tells me you can’t understand math.

    Calling an interest rate 300 or 800% may sound big and scary but that is because it is using the wrong timescale. It’s cherry picking a la climate alarmism.

    This sort of industry is no concern because all that is needed is for someone to undercut them. This should be done privately, and not merely by a big player looking for regulatory advantages elsewhere.

    Lending someone $200 and having them pay you back $220 a week later is 450% interest and it is a perfectly reasonable transaction so long as it is clear and understood by both parties.

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  20. unaha-closp (1,154 comments) says:

    And nor should the law permit me to charge 365 or 800 percent interest to desperate people.

    The only reason anyone gets charged 365% to 800 % p.a. is because there is a between 40% and 70% chance they are not going to pay it back.

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  21. igm (1,413 comments) says:

    We must realise why people go to non-mainstream institutions. They have totally mutilated their credit ratings through defaults, collections, failing to fulfil obligations and conditions, and downright arrogant behaviour. I have had instances where they have tried to lie about ownership of collateral, forged wage slips, denied existing HP commitments, changed their identities, altered birth dates to hide past records, it just goes on and on. If current lending institutions being targeted get out of the industry, the gangs will move in and God help defaulters, and interest rates, not to mention securities.

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  22. redqueen (544 comments) says:

    @ Ed Snack

    Beat me to it!

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  23. Fentex (909 comments) says:

    This would have a better impact if coupled with a budgeting service with teeth – e.g. one that can take control of the applicant’s finances for a set period, such as until the loan is repaid. Otherwise I can’t see how it will be anything more than a band-aid.

    It may be that whatever has been attached to this plan by way of counselling, education, training, budgeting aid etc may fail, it may be that the concept remains worthy but the execution falls flat.

    It may be that we find that there are some people who cannot manage their own affairs and require administration. Given how much our health system has chosen to not commit people and trying to treat the disabled in the community I should think it likely that with the best of intentions and hardest work there are those at the edges who cannot help themselves.

    It may be that this test achieves little more than learning to identify them. That alone is worth the investment if it improves our mental health care across the nation.

    It is a good idea. Exactly what we get out of it is uncertain. It is not an expense we cannot afford to learn better how to manage certain problems.

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  24. wf (410 comments) says:

    Good one Komata.

    ‘Cultural passivity’ is very obvious among the Maori culture as well. The fruits of Waitangi settlements take a mighty long time to filter down to the hoi polloi, and I have never heard a maori complain about it. It’s just the way things are . . . .

    Welfare benefits create a day-to-day existence mentality. I feel sorry for those in the PI community who feel obliged to send money back home thus reducing their ability to look after their NZ families adequately.
    It’s just the way things are . . . .

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  25. Prince (96 comments) says:

    Milkenmild says:The report says that it is BNZ committing the $10 million to the trial. There are no details of what the government involvement is, or indeed whether any taxpayers’ funds are involved at all. It seems a good idea to trial.

    Not if you’re a BNZ customer.I don’t expect my bank to operate as a second arm for social welfare (other than Kiwibank of course). I’d prefer all welfare payments are made from Govt, and are clearly visible in their accounts.

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  26. Ed Snack (1,823 comments) says:

    I want to emphasize my point, small short term loans are expensive to actually provide, the simple way is to use a credit card. But if you can’t qualify for one of those (and the criteria is pretty relaxed), and you want a small amount short term, where else CAN you go.

    All those who want to ban these services, why do you hate the people who need these services ?

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  27. mikenmild (11,246 comments) says:

    Prince
    Given the level of profits banks take out of NZ, $10 million from BNZ should not concern its customers unduly. It’s probably coming from their marketing budget anyway – ‘be good with money’

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  28. georgebolwing (722 comments) says:

    Another example of the prevailing anti-capitalist sentiment in New Zealand.

    The automatic assumptions are:

    a) the borrowers are victims;

    b) the lenders are villains

    c) this is something that has to be stopped by the government.

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  29. Rick Rowling (824 comments) says:

    Well I’d support microlending over extra welfare any day.

    Perhaps we could have a church come out and offer salvation and community acceptance without requiring a tithe, too. That would make a huge impact on some areas of hardship.

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  30. MT_Tinman (3,089 comments) says:

    Rex Widerstrom (5,136 comments) says:
    May 6th, 2014 at 11:46 am

    I can’t buy and sell organs. I can’t import and sell machine guns or sarin gas. I can’t dig up corpses and sell them to medical schools. I can’t make methamphetamine and sell it. I can’t set up a business and sell cars I know are unsafe. I can’t run dog fights…

    Of course you can.

    Many people do some or all of those things.

    The people of NZ simply say that if you are caught doing those things a penalty applies. The people who do them risk that penalty figuring that the rewards outweigh the penalties – exactly the same way a loan-shark figures his percentage.

    Putting a legal limit on interest rates won’t stop loan-sharks, it’ll simply drive them underground creating even more misery.

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  31. Ryan Sproull (7,089 comments) says:

    Another example of the prevailing anti-capitalist sentiment in New Zealand.

    The automatic assumptions are:

    a) the borrowers are victims;

    b) the lenders are villains

    c) this is something that has to be stopped by the government.

    George, in these kinds of situations, the borrowers are almost always vulnerable and the lenders predatory. It’s not so much an assumption as an induction based on historical evidence.

    Capitalism has plenty of things going for it. Championing vicious cycles of morbid debt is not one of them.

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  32. jp_1983 (201 comments) says:

    Subprime here we come.

    Will bnz lower my credit card interest rates because I don’t want to pay it?

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  33. ciaron (1,411 comments) says:

    Can’t you get some emergency-type grants/loans from winz if you’re on a low income or on a bene and say, your car shits itself?

    The other thing I’d like to know is what are the loans used for? I mean, I can understand if you’ve got an emergency and need to fly somewhere or the car breaks down etc. but if its just to upgrade to a 50″ telly and the latest xbox, then people need to learn that if you can’t afford to pay cash, you really can’t afford it.

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  34. Sonny Blount (1,848 comments) says:

    Ryan Sproull (6,697 comments) says:
    May 6th, 2014 at 12:37 pm
    Another example of the prevailing anti-capitalist sentiment in New Zealand.

    The automatic assumptions are:

    a) the borrowers are victims;

    b) the lenders are villains

    c) this is something that has to be stopped by the government.

    George, in these kinds of situations, the borrowers are almost always vulnerable and the lenders predatory. It’s not so much an assumption as an induction based on historical evidence.

    Capitalism has plenty of things going for it. Championing vicious cycles of morbid debt is not one of them.

    You confirm georgebowling’s point.

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  35. slijmbal (1,228 comments) says:

    @Ryan

    “George, in these kinds of situations, the borrowers are almost always vulnerable and the lenders predatory. It’s not so much an assumption as an induction based on historical evidence.”

    Untrue – Probably one of the few on this blog who actually grew up in a very poor area where loan sharks were prevalent. I saw pawnbroking through to getting a beating or having goods literally stolen from your house because of unpaid loans. My father even had high interest mezzanine finance to buy a house as he could only get a smaller loan from the bank.

    Some of the borrowers fit your profile, people in desperate situations making desperate choices, and some were stupid but as many just did not give a s**t. They were willing to get the money and p**s it up against the wall and figured life would be alright. I don’t believe human nature has changed.

    It would be predatory if they made enormous profits but I never saw rich pawnbrokers (who charge large fees/interests even with collateral). They did alright.

    It was common knowledge that taking loans from the wrong people was stupid or desperate. People still did that. We seem to be forgetting moral hazard here. It also applies to poor people for good reason. It encourages good behaviour.

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  36. mikenmild (11,246 comments) says:

    It seems to me that this initiative is a win/win for BNZ. For a modest investment they get good PR at a minimum and reinfore their ‘be good with money’ brand. They are unlikely to piss away all of the $10 million and may even secure some good long-term customers from this lending.

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  37. ciaron (1,411 comments) says:

    Why is it exclusively anti-capitalist? I personally (subjectively, of course) object to loan sharks on the basis that I think the practice of targeting people with the least liquidity and selling them the idea that they can borrow to a lifestyle beyond their means is morally repugnant, and slavery in all but name.

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  38. Ryan Sproull (7,089 comments) says:

    It was common knowledge that taking loans from the wrong people was stupid or desperate. People still did that. We seem to be forgetting moral hazard here. It also applies to poor people for good reason. It encourages good behaviour.

    It demonstrably isn’t encouraging it enough.

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  39. Prince (96 comments) says:

    Mikenmild…”$10 million from BNZ should not concern its customers unduly”.
    yeah ‘cos $10M is chickenfeed when it isn’t your money, and the (all together now) FOREIGN-OWNED BANKS rip us off of course, and the ravenous left wing will eventually be sated with other people’s money and cry ‘enough already, we’re done.’

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  40. Sonny Blount (1,848 comments) says:

    Imagining who you think the customer base consists of is silly and not a basis for a sound argument.

    It may be a perfectly sensible option for many people.

    I would think there would be the occasional business person who has taken loans that calculate to hundreds of percent interest.

    I’ve also done it.

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  41. mikenmild (11,246 comments) says:

    The foreign-owned banks do make enormous profits. As I said before, this is probably a tiny bit from their marketing budget. If you don’t like it; don’t bank with BNZ. It’s a free country. Freest in the world if you believe the surveys.

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  42. ciaron (1,411 comments) says:

    Imagining who you think the customer base consists of is silly and not a basis for a sound argument.

    if the lenders are engaging in questionable moral practices, those practices are questionable regardless of who makes up the client base.

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  43. Ryan Sproull (7,089 comments) says:

    Imagining who you think the customer base consists of is silly and not a basis for a sound argument.

    That’s a good point, Sonny.

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  44. unaha-closp (1,154 comments) says:

    For the BNZ to make money out of this, they’ll need to use the most vicious bunch of debt collectors in the land…

    …they’re partnering with WINZ and the IRD.

    They’ll make a killing.

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  45. RRM (9,735 comments) says:

    Presumably this will be operated in such a way that the BNZ, and therefore their sleeping partner the NZ Govt, will be making money off these loans, albeit less money than dodgy arse personal loan sharks would have been making?

    What’s the problem here?

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  46. Sonny Blount (1,848 comments) says:

    ciaron (1,174 comments) says:
    May 6th, 2014 at 1:22 pm
    Imagining who you think the customer base consists of is silly and not a basis for a sound argument.

    if the lenders are engaging in questionable moral practices, those practices are questionable regardless of who makes up the client base.

    The argument being made here is that the practise is ‘immoral’ because the customers are irrational.

    If the customers are rational and capable of making decision then it ceases to be immoral.

    Describing a voluntary exchange of goods and service as ‘predatory’ is loaded language.

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  47. Ed Snack (1,823 comments) says:

    Of course Ryan, you live amongst these borrowers and are given permission by them to (mis) represent their position ?

    Of course these people are poor down trodden victims who are being parasatized by vicious loan sharking thugs who coerce their customers into loans they don’t need and can’t afford. None of them would borrow at all if they weren’t forced to, they are in fact so unthinking that their life must be arranged and run for them…cue socialism…

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  48. Ryan Sproull (7,089 comments) says:

    Describing a voluntary exchange of goods and service as ‘predatory’ is loaded language.

    The technical volition in an exchange of goods and services does not preclude the possibility of coercion.

    If I routinely and systematically sought out financially desperate women and offered them money for sex – a voluntary exchange to which they would not normally agree – would you consider it particularly loaded to describe my behaviour as predatory?

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  49. Ryan Sproull (7,089 comments) says:

    Of course Ryan, you live amongst these borrowers and are given permission by them to (mis) represent their position ?

    No, I don’t. My understanding of the situation is second-hand.

    Of course these people are poor down trodden victims who are being parasatized by vicious loan sharking thugs who coerce their customers into loans they don’t need and can’t afford. None of them would borrow at all if they weren’t forced to, they are in fact so unthinking that their life must be arranged and run for them…cue socialism…

    Did I give you permission to (mis)represent my position at some point, or are you being ironically hypocritical?

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  50. projectman (206 comments) says:

    Maybe this isn’t for mortage payments, but…just remember the subprime mortgage crisis in the USA and it’s consequent impact on global finances. If banks won’t lend because of the high risk, guess who will keep on picking up the tab.

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  51. slijmbal (1,228 comments) says:

    @RRM

    “Presumably this will be operated in such a way that the BNZ, and therefore their sleeping partner the NZ Govt, will be making money off these loans, albeit less money than dodgy arse personal loan sharks would have been making?”

    My guess would be that to make any money off such loans they won’t be able to charge a lot less than the current lenders. They will have the benefit of cheaper capital and perhaps use the government’s ability to forcibly remove money from people but the level of defaults and the transactional costs, which appear to be the bulk of the lender’s costs, will remain the same I expect.

    My guess is BNZ are writing a chunk of the funds off via a marketing budget and of course the government has the ability to infinitely source money from us the taxpayers.

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  52. Bill (94 comments) says:

    Among the louses in this exploitation of the poor are the “Home Sales”. They sell cheap clothes and household wares on credit to poor families and charge huge weekly rates. They can hide their interest rates by inflating the sales price of the junk they sell.
    If you fall behind? you buy more crap to be allowed to extend the term.

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  53. RRM (9,735 comments) says:

    projectman…

    Fair enough, but this appears to be aimed re-financing a few little guys who have a few thou out to people who sold them mag wheels & tyres on tick at 800% – not cheap mortgage finance that millions take up and affects the whole property market…

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  54. Sonny Blount (1,848 comments) says:

    Ryan Sproull (6,703 comments) says:
    May 6th, 2014 at 1:36 pm
    Describing a voluntary exchange of goods and service as ‘predatory’ is loaded language.

    The technical volition in an exchange of goods and services does not preclude the possibility of coercion.

    If I routinely and systematically sought out financially desperate women and offered them money for sex – a voluntary exchange to which they would not normally agree – would you consider it particularly loaded to describe my behaviour as predatory?

    Ryan the puritan.

    If there is no blackmail, violence, trespassing, disturbance, or threats of then it’s not predatory. It’s perfectly legal solicitiation of prostitution.

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  55. Judith (8,526 comments) says:

    Is it not possible that this move will merely make more people dependent on Government assistance? Whilst it is an admirable policy, unless it comes with management lessons, and limitations, like many other such moves it will be open to abuse and the locking of more people into the welfare trap. Aren’t we meant to be weaning them? Could this not at least mentally provide the idea that yet again when we do something stupid and/or don’t perform well, that someone else will fix it?

    Surely a better move would have been to regulate the loan sharks?

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  56. ciaron (1,411 comments) says:

    Sonny, I think you a being a little bit more charitable to the lenders than is prudent.

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  57. Sonny Blount (1,848 comments) says:

    ciaron (1,175 comments) says:
    May 6th, 2014 at 1:56 pm
    Sonny, I think you a being a little bit more charitable to the lenders than is prudent.

    I’m sorry. Am I deficient in bigotry or excessive in respect for liberty?

    I do have first hand knowledge having completed several repayment plans with some rather pleasant ‘loan sharks’. I don’t see why my actions in choosing to do so should be made illegal.

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  58. ciaron (1,411 comments) says:

    The argument being made here is that the practise is ‘immoral’ because the customers are irrational.

    No, the argument I’m making is that the practice is ‘immoral’, when irrational customers are targeted.

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  59. slijmbal (1,228 comments) says:

    @ciaron

    “No, the argument I’m making is that the practice is ‘immoral’, when irrational customers are targeted.”

    2 words – moral hazard.

    we’re busy removing this from NZ via the welfare state and will end up poor and destitute as a nation if we don’t encourage rational and deter irrational decisions.

    Stop rewarding poor behaviour.

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  60. ciaron (1,411 comments) says:

    Sonny, I’m not saying there should be an immediate ban on second tier lenders. Just that targeting people who will become locked into a debt they have little chance of getting out of is not moral.

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  61. Sonny Blount (1,848 comments) says:

    What is targeting supposed to mean?

    What is special about targeting and how would you perform it as opposed to advertising to your customers?

    Is the real problem here that we need to restrict advertising and free speech so that some people can be protected from temptations that are only reasonably consumed by those amongst us with higher sensibilities?

    I don’t think infantilisiing the population is going to work in the long run. Eventually the infants will be making the rules.

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  62. ciaron (1,411 comments) says:

    slijmbal (1,151 comments) says:
    May 6th, 2014 at 2:09 pm
    @ciaron

    “No, the argument I’m making is that the practice is ‘immoral’, when irrational customers are targeted.”

    2 words – moral hazard.

    look, I don’t like the idea of making legislation to protect idiots. But I like less the idea that it is permissible to exploit them.

    we’re busy removing this from NZ via the welfare state and will end up poor and destitute as a nation if we don’t encourage rational and deter irrational decisions.

    Agree 100%.

    Stop rewarding poor behaviour..

    I don’t want to reward poor behaviour, but how do we move to a situation where people are not being exploited?

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  63. Ed Snack (1,823 comments) says:

    Ciaron, that’s probably fair, but why are most people assuming that the default behaviour is just that ? The assumption is that those taking out the loans have no volition and no part in the process except to be victims ? These lender, like it or not, fulfill a need because people largely voluntarily use their services.

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  64. slijmbal (1,228 comments) says:

    @Judith

    “Surely a better move would have been to regulate the loan sharks?”

    Effectively, killing their business and removing the option of such loans. The economics is such that the high interest rates represent the costs and risks involved. There’s enough competition in this area for rates to be appropriate.

    The real question, therefore, is whether we regulate such high risk/high cost loans out of existence.

    EDIT
    @ciaron

    “I don’t want to reward poor behaviour, but how do we move to a situation where people are not being exploited?”

    Assuming they are exploited then ban it – not that I’m convinced that it’s exploitation.

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  65. unaha-closp (1,154 comments) says:

    I don’t want to reward poor behaviour, but how do we move to a situation where people are not being exploited?

    Bring back debtors prisons.

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  66. wreck1080 (3,842 comments) says:

    “Sure. And in practice, this will surely end up being the government buying that debt off the loan sharks. ”

    Paying off loans early can result in punitive fees probably resulting in the lost interest being added to the value of the payment needed to repay the loan early.

    It’s the way banks work when you try to pay back certain financial instruments.

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  67. slijmbal (1,228 comments) says:

    @wreck

    “Paying off loans early can result in punitive fees probably resulting in the lost interest being added to the value of the payment needed to repay the loan early.”

    Nice spin but not what happens. You pay the interest you agreed to pay matched against the current rates. The bank has entered an agreement with a 3rd party to source funds for your fixed interest loan and will still have to pay those costs. The costs occur when interest rates have dropped and you want to get out of the agreement and they still have the money and need to loan it out at lower rates. You pay the difference not the entire interest.

    If interest rates have increased then there are no costs – I even had this happen to me. I did not get the additional profits they then made loaning that money out at increased rates. Not quite a balanced transaction but not the universal statement you made.

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  68. ciaron (1,411 comments) says:

    Sonny,
    I give up, you win. There is nothing morally wrong with lending to people who can’t really afford it. (and that’s the sector I’m talking about)

    Ed,
    I don’t think lenders are predatory in most cases, but they are in the business of selling debt, so I think they have an obligation to ensure that the borrower can reasonably meet his commitments. Yes, I know they do this already but perhaps this is where we can focus our efforts rather than limiting Sonny’s freedoms and liberty.
    And with regard to making people automatically victims, what would you call the minority who have no other alternative?

    slijmbal,
    O.k. maybe exploited was a bit strong. What term would you use for someone who finds themselves in a position where they have no other option than to go see Stacey Jones’ mates to pay for Mum’s funeral?

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  69. Jack5 (4,988 comments) says:

    We have credit unions, and still a few building societies, which have been decimated by the same philosophy that saw all but one of our savings banks amalgamated and lost. The State encouraged the elimination of savings banks, which served ordinary folk. All they had for decades was just a State guarantee, and I’m not aware of this was ever abused.

    Let’s hope the the new State lender doesn’t squeeze credit unions, which are community, self-driven organisations.

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  70. slijmbal (1,228 comments) says:

    @ciaron

    “slijmbal,
    O.k. maybe exploited was a bit strong. What term would you use for someone who finds themselves in a position where they have no other option than to go see Stacey Jones’ mates to pay for Mum’s funeral?”

    But those aren’t the people who make the profits for the high cost/high risk loans. They generally pay off and move on based on my personal experience. It’s the repeat business of the irrational.

    Nice example though, tugged the old heart strings – funeral and all that. Replace funeral with flat screen TV, Sky subscription, booze, expensive trainers for the kids, trip back to the Islands and see if it’s got the same emotional content heh? Would you support those decisions?

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  71. wreck1080 (3,842 comments) says:

    @slijmbal

    Just saying would could happen.

    They are called loan sharks for a reason.

    You can also get your knees broken — just because it didn’t happen to you does not necessarily mean it does not happen.

    I think it is good the govt is trying to do something though. Maybe it will help a few people out.

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  72. unaha-closp (1,154 comments) says:

    To be profitable the BNZ or any other state partnered lender will still need to be charging interest rates in the 200% – 250% pa range.

    This will of course be a massive improvement over the existing market and therefore better for these borrowers. It will be a positive step in reducing exploitation of the poorest members of society, in their times of need. It could be a good public policy.

    And no sane politician should ever contemplate doing it. Because the opposition and some media snot will point out that the government is cronying with a big foreign owned bank to exploit poor people charging massive 200% – 250% pa interest on short term credit.

    Never mind that every other alternative is worse in terms of deliverable result, this shit looks bad and therefore (according to the rules of journalism & politics) is bad.

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  73. Sonny Blount (1,848 comments) says:

    wreck1080 (3,559 comments) says:
    May 6th, 2014 at 3:51 pm
    @slijmbal

    Just saying would could happen.

    They are called loan sharks for a reason.

    You can also get your knees broken — just because it didn’t happen to you does not necessarily mean it does not happen.

    No you can’t.

    We have laws against it.

    Do you believe someone who disregards our laws against violence will be brought into line by more laws?

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  74. slijmbal (1,228 comments) says:

    on all of this – I bothered to look up the likes of instant finance and their rates and then thought what conditions I would loan money to a high risk individual for an unsecured loan and frankly I wouldn’t loan as cheaply as this.

    Put yourself in the position of the lender and then respond.

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  75. Ryan Sproull (7,089 comments) says:

    Ryan the puritan.

    If there is no blackmail, violence, trespassing, disturbance, or threats of then it’s not predatory. It’s perfectly legal solicitiation of prostitution.

    Okay, Sonny. I think the problem here is less about loaded language and more about different thresholds for considering something predatory. You draw the line at coercion. I also include the deliberate targeting of vulnerable people in my use of the term “predatory”. That’s less me being puritanical and more me using the word the way that almost everyone else does.

    You’re very much in the minority of English-language usage if you don’t consider it predatory to systematically seek out financially desperate women to exchange money for sex, when they otherwise would not. That’s not a problem, so long as you don’t intend to use the English language to engage in conversation with English-language speakers.

    Basically, your position is that as long as there’s no violent coercion (or threat thereof), there’s nothing wrong with predatory behaviour – it’s a voluntary exchange of goods and services.

    That said, some very good points have been made in this thread, including some by you (especially around time frames and cost to serve), and I think I’ll need to consider the issue a bit more.

    As I said earlier, I only have second-hand information about the people involved in these kinds of situations while working in South Auckland. I also watched a documentary a few years back showing how lenders in South Auckland get people to pay back their debts by becoming debt collectors, strong-arming other debtors. (Obviously stories selected for their drama, but real and saddening nevertheless.)

    Do you have any first-hand experience of poor New Zealanders getting hooked into these cycles of debt, Sonny? (As I said, I don’t.)

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  76. Ryan Sproull (7,089 comments) says:

    The only reason anyone gets charged 365% to 800 % p.a. is because there is a between 40% and 70% chance they are not going to pay it back.

    This point from Unaha-Closp I also found very compelling.

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  77. Fentex (909 comments) says:

    The only reason anyone gets charged 365% to 800 % p.a. is because there is a between 40% and 70% chance they are not going to pay it back.

    This is beside the point – no announced part of this plan is outlawing the lending. It is a plan to help those who are mismanaging their affairs and borrowing when they shouldn’t so as to minimise the risks their dangerous situation represents to society as a whole.

    By the argument these lenders charge high rates to manage their own risk they and those who support them should like a plan to remove those expected to default from their debtors.

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