A study into loan sharks that shows they are exploiting poor and desperate families provides the hard evidence needed to stop them through a law change, Consumer Affairs Minister Simon Bridges says.
Researchers at Otago University's Wellington Medical School found "unscrupulous" money lenders were targeting Maori, Pacific and low income New Zealanders to charge the extortionate rates of up to 400 per cent.
The researchers wanted the industry to be better regulated.
"Loan sharks target and thrive in low income communities because consumers are borrowing for everyday needs," said lead researcher Associate Professor Louise Signal.
"The consequences of borrowing from these unscrupulous loan sharks can be extremely costly and generate, or prolong, financial hardship for these people."
Introducing legal interventions will help protect the most vulnerable, leave them less indebted, and with more money to spend on food, shelter and "other essentials of life".
The study by the Health Promotion and Policy Research Unit said the impact of loan sharks in low income suburbs of South Auckland and other cities was affecting the health and well-being of New Zealanders through usurious levels of interest rates.
"This is an extremely serious problem for people on low incomes and benefits.
"It is negatively affecting their lives and those of their children, trapping them in a vicious cycle of debt to unscrupulous fringe lenders," said co-author Tolotea Lanumata.
The research, recently published in the Health Promotion Journal of Australia, suggested a series of recommendations to reduce the negative impacts of loan sharks.
Mr Bridges, the Tauranga MP, told the Bay of Plenty Times: "I think this study really proves to me and others on the ground that there needs to be greater protection for those who are badly affected by unfair and unscrupulous lending practices."
He found the study helpful because it provided more evidence to help him in his final drafting of the Credit Contracts and Consumer Finance Act amendment bill, which would introduce responsible lending requirements.
Mr Bridges planned to introduce the bill by the year's end and he said it would result in tougher regulations and controls for borrowers and address the "balance of power" between lenders and borrowers to bring loan sharks into line.
Mr Bridges said under the law change, the lender would have more obligations to the borrower than at present, including the lender being upfront and providing full disclosure of all credit terms before the borrower signed the credit agreement.
The Government would also make it illegal for the lender to sign someone up to a credit contract when the repayments would result in significant financial hardship for the borrower.
The changes would add greater transparency, would require more timely and complete disclosure of loan terms, as well as extending the cooling-off period for borrowers to cancel their loan from three to five days.
Mr Bridges said while the study recommended introducing a cap on interest rates at 48 per cent per annum, the feedback showed there were pros and cons to this change which still needed further discussion.
