National plans loan shark clampdown

Photo / Thinkstock

National will change the law to clamp down on dodgy loans by forcing lenders not to give loans to people who would face significant hardship in repaying them.

A proposed change to consumer credit laws would set up a code of ethical lending, and require lenders to be open and transparent with borrowers.

Any lenders who breached the code, such as by charging exorbitant interest, would be struck off if they did not heed warnings.

Mr Key said it would undoubtedly put some money lenders out of business. About one third of current lenders would not comply, and although some could clean up their game others would be forced out.

Mr Key said they were preying on the vulnerable.

"The aim is to ensure vulnerable people aren't exploited. There are people paying enormous interest rates."

A 'cooling off' period during which a consumer could change their mind would be extended from 3 to 5 days.

Mr Key said the government would not put a cap on interest rates, because to do so would be a "magnet" to lenders and become the default rate.

He said National would progress the bill rapidly if it regained Government.

Maungakiekie MP Sam Lotu-Iiga said loan sharks were a particular problem in South Auckland and it was important borrowers - as well as lenders - took responsibility. Mr Lotu-Iiga has a members' bill to change loan shark rules and said the government proposals addresses his main concerns.