Loan sharks are exploiting poor and desperate families by charging interest rates of up to 400 per cent a year, according to a new study, prompting calls for the Government to introduce a maximum interest cap.
Researchers at Otago University's Wellington Medical School found that "unscrupulous" money lenders were targeting Maori, Pacific and low income New Zealanders to charge the extortionate rates.
Now, the researchers are leading to call for the industry to be better regulated.
"Loan sharks target and thrive in low income communities because consumers are borrowing for everyday needs," says lead researcher Associate Professor Louise Signal.
"The consequences of borrowing from these unscrupulous loan sharks can be extremely costly and generate, or prolong, financial hardship for these people."
Introducing legal interventions will help protect the most vulnerable, leave them less indebted, and with more money to spend on food, shelter and "other essentials of life".
The study by the Health Promotion and Policy Research Unit said the impact of loan sharks in low income suburbs of South Auckland and other cities was affecting the health and well-being of New Zealanders through usurious levels of interest rates.
"This is an extremely serious problem for people on low incomes and benefits. It is negatively affecting their lives and those of their children, trapping them in a vicious cycle of debt to unscrupulous fringe lenders," says co-author Tolotea Lanumata.
The research, recently published in the Health Promotion Journal of Australia, suggests a series of recommendations to reduce the negative impacts of loan sharks.
This is at the same time as the Minister of Consumer Affairs, Simon Bridges, is looking at amendments to the Credit Contracts and Consumer Finance Act which would further control the activities of loan sharks by introducing responsible lending requirements.
The study recommends several key changes such as tighter regulation including a cap on interest rates at 48 per cent per annum, and introduction of responsible lending requirements.