Election 2011: National vows to get tough on loan sharks

Prime Minister John Key said loan sharks had become a significant problem in some areas, and caused distress to whole households. Photo / Christine Cornege

National has proposed tightening the law for loan sharks - including preventing some household goods - such as cars - being used as security for loans and striking off lenders who breach the code of ethics.

Announcing the changes yesterday, Prime Minister John Key said the changes would drive some loan sharks out of business for "preying on the vulnerable". He said loan sharks had become a significant problem in some areas, and caused distress to whole households.

The Financial Markets Authority would be able to issue formal warnings and strip lenders of their registration if they breached a new code of ethics.

Under the changes, important goods such as tools of trade, necessary household items and motor vehicles worth up to $5000 could not be used as security against a loan unless it was for the purchase of the item concerned. Mr Key said this was because of the hardship that repossession created.

Lenders would also have to refuse loans to borrowers if meeting repayments would cause substantial hardship and must be transparent in dealing with the borrower.

However, Mr Key ruled out capping interest rates as a way to ensure exorbitant rates were not charged, saying that it would become a "magnet" for lenders, and effectively a default rate.

Mr Key said if National was given a second term, it would progress the legislation "fairly rapidly". Draft legislation would be released for consultation before a bill was introduced to Parliament.

Labour leader Phil Goff said National's last-minute proposal was "pure hypocrisy" given it had voted against Labour MP Carol Beaumont's members' bill on the same issue.

"They voted against Labour's legislation which they are now proposing to pick up. This should have been done three years ago. This is pure political expediency."

Mr Key campaigned in Auckland yesterday, visiting World TV's Spring Festival to woo the Chinese vote with MPs including Melissa Lee.

He came across some competition at the festival - Labour's David Cunliffe was there filling in for Phil Goff with several Labour candidates, including Chinese candidates Raymond Huo and Susan Zhu.

Mr Key - who last week goaded Labour by saying they would have to rely on "borrowing from the Chinese" to meet their promises - praised the Chinese community in New Zealand for its contributions "to the economy and growth of our country" and asked for their vote.

Mr Cunliffe took to the stage saying Labour had not only signed the free trade agreement with China, but also had the biggest line-up of Chinese candidates of any political party. He introduced the "young, the dynamic, the beautiful" candidates but did not add that only one - Raymond Huo - had a winnable list placing.