Pacific Island people in Auckland mostly go to loan sharks to borrow money for everyday household expenses, a report released today says.
Most repay their loans, but they are exposed to high-cost credit and "oppressive" contracts.
The report was produced by the Ministry of Consumer Affairs as part of its monitoring of the Credit Contracts and Consumer Finance Act (CCCFA).
The ministry researched the behaviour and experience of Pacific Island people who used fringe lenders.
Among its key findings were:
* The most common reason for using the services of fringe lenders was to meet the needs of everyday household expenses.
* Purchasing large items, especially cars, was the second most common reason for borrowing.
* Meeting social and cultural obligations was the third most common reason for borrowing, usually for events that could not easily be foreseen.
* There was a fear that questioning or complaining about a credit contract would lead to an inability to borrow anything.
* For most people with "lower levels of financial literacy" concern about getting the money was more important than the terms of the contract; and
* Information considered vital by borrowers was the size of the weekly repayment rather than the total cost of a loan.
The report said the CCCFA did not appear to sufficiently protect borrowers who went to fringe lenders and stronger enforcement was necessary.
Awareness of the CCCFA was low, while small print and technical language in contracts made informed decision-making difficult.
Consumer Affairs Minister Judith Tizard released the report and said the problems had to be addressed by the Government, the business sector and the communities.
Ms Tizard said a review of the CCCFA would be completed by March next year, and it would include recommendations on ways to improve its effectiveness.
There was a need for "proactive compliance inspections" of credit providers and new ways for borrowers to work their way out of debt.
She said the Code of Financial Advertising needed reviewing so that "overly-aggressive marketing practices" could be dealt with.