The law is supposed to protect the most vulnerable in our community from exploitation.
What, then, are we to make of a law which allows the poorest people in New Zealand to be charged interest rates of 50 per cent, 100 per cent, 500 per cent or more when they borrow money?
And how are we to judge successive governments which refuse to pass a very simple law which would put an end to this exploitation?
Over the past 15 years, both Labour- and National-led Governments have sought to provide better protection for borrowers.
Law reform has been accompanied by promises to "crack down on unscrupulous lenders", "get tough on loan sharks" and "protect vulnerable consumers".
Labour's attempt was the 2003 Credit Contracts and Consumer Finance Act.
However, even before it took effect, it was clear the law would not be effective in stamping out shonky lending practices.
Now, National is having its turn. The Credit Contracts and Financial Services Law Reform Bill had its second reading in Parliament on April 10 and will pass into law before the general election.
Unfortunately, what both pieces of legislation lack is an upper limit on interest rates to prevent excessive interest from being charged.
At present there are no caps on interest rates in this country. Creditors are free to charge whatever they want and they continue to do so, secure in the knowledge that there are no legal protections for borrowers to prevent such exploitation.
In fact, New Zealand is lagging shamefully behind other countries in failing to take steps to cap interest rates.
Canada, Mexico, Japan, Singapore, most South American countries, most African countries, and most European countries have interest rate caps. In 2013 Finland introduced a law providing that the interest to be paid on one-month loans of 100 is 4 per cent.
Japan five years ago lowered its maximum interest rate for consumer lending to 20 per cent, while South Africa acted in 2007 to limit the monthly interest rate for short-term loans to a maximum of 5 per cent.
In July 2013, a new law took effect in Australia capping interest rates at a maximum of 48 per cent.
The lending of sums between US$100 and US$4000 for short terms at high interest rates is regulated in 37 American states. In South Carolina, for example, the maximum consumer interest rate is 18 per cent, while in Washington state it is 25 per cent. Payday lending is either illegal or impractical in 13 other states.
Why then do New Zealand governments refuse to follow suit?
The need for interest rate caps in this country has been well documented in research over the past decade.
Research from 2011 showed just how toothless the 2003 law was, revealing that between 2006 and 2011:
• There had been a 60 per cent growth in the number of third-tier lending outlets
• Up to 40 per cent of them were flouting the law by not registering as financial service providers
• 127 new lenders had entered the market.
Both Labour and National have argued that interest rate caps will, in practice, raise interest rates by making the maximum limit set by law the de facto rate charged.
However, there are two easy ways around that. The upper limit set by law should be a modest one, only a few points above prevailing bank rates.
And, secondly, swift and decisive action should be taken to enforce the new law, so creditors know they cannot continue their exploitative behaviour.
The Credit Contracts and Financial Services Law Reform Bill will shortly return to the House for its committee stage debate. There is, therefore, still time to insert an interest cap in the new law.
Let's see MPs across Parliament work together to provide proper protection to our most vulnerable borrowers.
Catriona MacLennan is an Auckland barrister.