Limits on loan sharks have been fast-tracked by the Government in an attempt to prevent desperate households getting over their head with crippling high-interest loans.
From today, people borrowing from high-cost lenders can't be charged interest and fees more than 100 per cent of the amount they borrowed.
And daily interest rates have been capped at 0.8 per cent.
The changes under the Credit Contracts Legislation Amendment Act were set to take effect on June 1 but Parliament fast-tracked the protections in the Covid-19 Response (Taxation and other Regulatory Urgent Measures) Bill which passed its third reading yesterday.
• Covid-19 coronavirus: Government announces $6.2b loan guarantees for SMEs
• Covid-19 coronavirus: Reserve Bank proposes to axe loan-to-value ratios
• Six-month home loan holiday: banks now ready but borrowers urged to be cautious
• ANZ offers New Zealand's lowest ever home loan rate from a major bank
Commerce and Consumer Affairs Minister Kris Faafoi said they brought forward the measures as a result of the financial concerns caused by the coronavirus crisis.
The Government was concerned vulnerable borrowers would get trapped in "spirals of debt" by turning to high-cost, short-term loans, Faafoi said.
"These are financially stressful times for many whanau and families around New Zealand."
The new law means:
• people borrowing from high-cost lenders will never have to pay back more than 100 per cent of the loan principal
• compound interest on high-cost loans will be banned
• fees for defaulting payments will be limited to $30 unless the lender can show that the higher amount reflects their costs.
Faafoi urged anyone facing financial hardship to explore all their options before taking on a loan including:
• talking to their lender about alternative repayment arrangements,
• contacting Work and Income for financial assistance,
• getting in touch with Good Shepherd about a no-interest loan,
• or calling the MoneyTalks helpline
Retirement Commissioner Jane Wrightson welcomed the measures and said "unscrupulous high-cost lenders" can trap families into cycles of debt from which they struggle to escape.
"These families are particularly vulnerable due to the effects of Covid-19, so getting these protections in place quickly will not only force lenders to be more responsible, but also encourage borrowers to beware of taking on this kind of debt."
New Zealand had been an outlier in not having an interest rate cap with 25 out of 36 OECD countries having interest rate caps on high-cost lending.
Faafoi said more credit reforms were on their way, including new affordability regulations and new requirements for lenders to meet fit and proper person thresholds. He hoped to have them in place from October 1 next year.