Low family incomes and high rents are the two key sources of poverty for my legal clients. The third is huge debt associated with car purchases.
Poor families are more likely to live in cold, damp, overcrowded houses. Children, accordingly, suffer from more illnesses and a car is vital for families needing to transport them to doctors and Starship, as well as for getting to work and other family needs.
When I bought my car, I went to a fair and a friend checked over the vehicle I was planning to buy to make sure it was mechanically sound. I paid $3900 and it has been going well for nine years. Total cost of purchase: $3900.
That is completely different from the typical car-buying experience for my clients. They get ripped off when they buy the car and again with the loan they take out to finance the purchase.
I have dealt with many cases in which people have been sold unreliable cars for $15,000 to $20,000, when the vehicles might actually be worth $3000 to $5000. Because my clients cannot pay cash, they need to borrow to pay for the car.
They will not be able to get a bank loan, meaning that they are driven into the clutches of lenders who charge extremely high interest rates and fees. A family might end up paying $30,000 for a car worth only $5000.
Sometimes, the cars break down within a week of purchase. However, in law the purchase and loan contract are separate legal transactions. Even if the family has a car which doesn't go and is worthless, they still have to repay the entire loan.
Microfinance schemes have evolved to provide affordable finance to low-income families who cannot obtain bank loans. The projects charge low or no interest. As soon as the money is repaid by one family, it is lent to others.
Such schemes have been operating for more than 30 years in Australia, with Good Shepherd helping to initiate more than 700.
The projects are in their infancy here but it is very pleasing to see politicians finally taking their merits on board.
The Government announced in the 2014 Budget that it would make funding available for affordable loans schemes. In August, more details were released. Good Shepherd, the BNZ and the Salvation Army are partnering with the Government to provide the loans.
Similarly, Kiwibank came on board to help set up Nga Tangata Microfinance Trust several years ago.
The missing part of the equation is that there is still nowhere people can buy cheap, reliable cars. Low-income families need to be able to access cars like mine - affordable, and which keep going for years.
There is no reason a government could not set up car yards which sold reliable second-hand cars which had been thoroughly checked. Families would be able to access funding through a low-interest or no-interest loan scheme.
This would deal to loan sharks and car yards that exploit unsophisticated purchasers.
Unfortunately, there appears to be no enthusiasm from politicians of any party for such a scheme. However, there is no reason why it could not be initiated as a community venture.
A group of women in Timaru run a low-interest loans scheme. The lenders have partnered with a local car yard. The owner has a garage attached to his sales business. He finds cheap cars, does repairs, ensures they are mechanically sound and makes them available to the women running the loans scheme. They provide funding so low-income people can buy the cars, in particular women seeking to re-enter the workforce.
The scheme needs to be replicated around the country. Car enthusiasts who like nothing better than spending weekends at car fairs could find cheap, reliable vehicles. They could be checked over and repaired by volunteers before being sold to low-income families. The purchases would be funded through cheap loans.
Loan sharks and unscrupulous car dealers would be put out of business and many of the crippling debts that are a millstone around the necks of low-income families would be avoided.
Catriona MacLennan is a barrister and was project director for Nga Tangata Microfinance Trust.