Government is taking on loan sharks with new rules which limit how much they can charge. But a powerful lobby group says the changes do not go far enough - as shown by an Auckland couple's experience.
An Auckland couple who took out a number of small loans after falling on hard times ended up in nearly $100,000 of debt because of what they say was unscrupulous lending.
One lender gave them a high-cost loan despite knowing that they had defaulted on previous payments 22 times - including four times in a single day.
The couple, who asked for anonymity, arrived in New Zealand six years ago. After the man, 32, quickly found work they needed to pay immigration fees and find a place to live, which swallowed up their savings and led to them exhausting their $2000 credit card.
That forced them to seek credit - something which wasn't available in their home country and that they did not fully understand.
The first loan was for around $4500 to pay for a car, which the man needed for his work as a tradesman. They were told that the interest rate was 30 per cent, but the fine print showed that was over a period of weeks, not per annum.
That meant the annual interest rate was more than 300 per cent.
They could not keep with payments, and refinanced with another company. This began a process by which they eventually took out loans with nine companies over four years, spiralling into more debt. At no point did any company raise concerns about whether they could afford the loans.
"We just kept paying and paying but didn't get anywhere," the man said. " I worked seven days a week for two and a half years."
After he was made redundant, "it just snowballed". By February this year, they owed just over $91,000.
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Their situation could be helped by credit reforms, and by a cap on how much interest can be charged by non-bank lenders.
In reforms before Parliament , the Government has proposed limiting loans to 100 percent of the amount borrowed. That means if someone borrowed $500 they could not be made to pay back more than $1000 in total, including interest and fees.
But a powerful lobby group made up of budgeting service Fincap, churches, and unions said this needed to be accompanied by a interest rate cap to be effective.
A report by economic research company BERL found that a limit on total repayments - as the Government was proposing - incentivised lenders to charge a higher interest rate. That pushed borrowers to the limit more quickly and often forced them to take out another loan.
Commerce Minister Kris Faafoi stood by the Government's proposals, saying it struck the right balance.
"We know from the experience in the UK and Australia that interest rate caps can move people towards high-cost lenders charging this maximum interest rate and to bigger loans."
Meanwhile, the couple have started to get their payments under control with the help of a budget advisor. They accepted they were naive, but they also felt they were preyed on at a vulnerable time.
"There were days when you honestly felt like giving up," the woman, 24, said. "We were under so much stress that whenever a finance company said 'We can help you with this much' we said 'Yes please' because we can do that with the money and get someone off our backs."
• New Zealand - limit total interest and fees to 100% of amount borrowed, no cap on interest rate.
• United Kingdom - limit to interest to 100 per cent of amount borrowed, interest rate cap of 0.8 per cent per day, and NZ$30 limit on default fees.
• Australia - one-off loans for more than NZ$2100 for 15 days or less banned. For loans longer than 15 days, a fixed interest rate of 20 per cent.