Inside Money: Why we need a better loan shark net

I once had an altercation with a loan shark that reached the peak of frenzy when he yanked my phone out of the wall. This particular shark, who happened to be my landlord, had entered the premises uninvited to 'clarify' a rental dispute.

But I was on the phone - to my mother - and declined to end my conversation to deal with this foaming-at-the-mouth intruder. I can't clearly remember what happened after he ripped the phone from its connections; there probably wasn't any actual physical contact but the undercurrent of violence was obvious.

And it's in those kind of undercurrents that loan sharks roam; the unpatrolled waters of capitalism.

So it was kind of surprising that Labour MP Carol Beaumont failed in her attempt last week to whip up cross-party support for new rules that would restrict the ability of loan sharks to feast on vulnerable prey.
It's clear from the debate that all parties agreed that society needs better safety nets to protect it from loan sharks.

For instance, National's Hekia Parata noted during the debate: "I do not think there is any disagreement between any sides of the House as to the problem we face and the concern we have about the predatory nature of fringe lending and the vulnerability of fringe borrowers."

National, however, felt it was already on top of the issue and did highlight serious flaws in the proposed bill.

Beaumont's solutions may not have been perfect but it would have been useful to see the arguments pursued further in Parliament.

The debate, as far as it went, was interesting enough (taking note, I see, of my Repo Man theme) but I would have liked to see more commercial information about the loan shark business. Lending to the destitute and desperate is a risky business - for both parties - but what sort of profit margins does the average loan shark achieve?

This is the sort of information that a properly-resourced Parliamentary investigation could uncover.

Just a few days after the defeat of Beaumont's bill the Commerce Commission announced a legal win against Budget Loans - a 'fringe' lender that bought the loan book off the now-defunct National Finance, one of the early casualties of the finance company rout.

For assuming the National Finance loans, Budget charged each debtor $15, a fact that it failed to disclose in its ironically-titled 'welcome letter'.

All up, Budget admitted to overcharging fees and interest to the tune of about $500,000 and further "voluntarily reversed or refunded an additional $571,000 to its debtors in relation to credit fees that were not the subject of the current charges".

David Chaplin