By WARREN GAMBLE



Between the discount stores, dairies and pokie palaces of Otahuhu's main street, moneylenders have sprouted like weeds.



A five-minute stroll in the South Auckland centre will take you past at least 10 businesses wanting to give you cold, hard cash. Their signs, in English and Samoan, beckon: Instant Cash, Quick Loans $20 to $1000, Use Your TV, Stereo as Security, No Credit Check, Easy Terms.



At this time of year, after the Christmas excesses, they are doing a steady trade, collecting on pre-Christmas loans or giving out new loans for people struggling to meet neglected rent and other bills.

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At one end of the main street, the woman behind the counter at Custom Credit - Money Problems, Need Help? - says the manager is not interested in talking to the Weekend Herald.



For an industry which aggressively drums up business, it is extremely publicity-shy. One senior manager of an established personal loan company, on condition of anonymity, explains: "We would rather keep our heads down. I think the better operators get tarred with the same brush as the less scrupulous ones and we would rather shut up and get on with the professional business we do."



That business is booming, judging from the numbers setting up shop in suburban centres around the country, and their advertisements in local newspapers. They are taking advantage of what one despairing budget adviser says is our addiction to credit.



The rise of fringe lenders is one slippery slope of the debt mountain that New Zealanders have been building determinedly in the want-it-now consumer age.



The Reserve Bank's latest credit card figures showed New Zealanders owed almost $3.6 billion on their cards in November last year, up from $2.7 billion two years ago. Overall household debt, with mortgages by far the biggest proportion, is more than $80 billion, compared with a mere $18.3 billion in 1990.



In the past year the growth of household debt has easily outstripped income growth, fuelled by the frenzied housing market, the relatively healthy economy and stable job market which have given people the confidence to borrow more.



The middle class can indulge themselves with credit cards, but for those on lower incomes unable to meet bank or large finance company criteria, moneylenders can be the only option.



And while banks depend on their reputation in a highly competitive market to keep customers happy, with a banking ombudsman to deal with complaints, there are few constraints and fewer comebacks on smaller cash loan companies.



Virtually anyone can set up as a moneylender and there are no limits, apart from market forces, on their charges.



Because, typically, their clients are higher risks, they generally charge higher interest than mainstream lenders, often in the high 20s compared with bank rates (for unsecured loans) in the high teens.



Some lenders quote reasonable finance rates - the full cost of the loan including interest rates and establishment fees - but neglect to include other charges such as payment protection insurance.



Economist Brian Easton argues that fringe lenders can perform a valuable social service. In South Auckland, for example, fringe lenders are often the only way Pacific Island families can afford to pay for weddings and funerals. In his Listener column last November, Easton argued that such lending "may be more worthy than some middle-class borrowings from a bank - such as financing a holiday in Samoa".



He says that, like many industries, fringe lending is messy. But rather than abuse the operators as loan sharks and discourage the honest ones, it would be better to have a clear legal framework.



Consumer advocates and budget advisers say that while some established lenders provide a fair service, some smaller operators are thinly disguised fraudsters, charging excessive interest rates, imposing exorbitant fees and requiring security out of proportion to the loan.



Announcing a still-to-be-implemented overhaul of credit laws 18 months ago, the then Minister of Consumer Affairs, Jim Anderton, highlighted a South Auckland firm which had not disclosed any financial information and did not provide any contracts. It charged one customer 82 per cent interest, but said it was charging 54 per cent. In another case, it charged $1000 for administration and research on a loan of $4000.



A Consumers Institute investigation of loan sharks last year highlighted a case in Otara where a woman borrowed $600 from a small financier. She was charged a brokerage fee of $100 (brokers often place newspaper advertisements and add 5 to 10 per cent to the loan cost), a documentation fee of $498, interest at 28.5 per cent, $30 to make a phone call, and $50 to receive a fax. She paid back the $600 in six months, but still owed $1398.



The Ministry of Consumer Affairs has had cases where lenders retain their customers' money-machine cards and pin numbers so they can get into their accounts if payments fall behind.



In Otahuhu, the local budget advice group co-ordinator, Lesley Matia, tells of one customer who was threatened with violence for cancelling a card retained by the lender.



An Otahuhu business specialising in loans to the Tongan community runs a name-and-shame page in the Taimi 'o Tonga newspaper, complete with photographs of customers behind in their payments and a caption explaining what the loan was for. Customers apparently agree to the mugshot and newspaper placement as a condition of their loan.



Matia says that when she started her budgeting job in Otahuhu five years ago, there were three cash loan companies. Now they are on nearly every corner.



She believes that the smaller operators "just prey on poor people". In her experience, many of their clients are beneficiaries caught in a downward spiral: they are getting loans to pay bills, and then cannot afford to repay the loans.



Often, she says, they do not understand that the high interest rates and other hidden costs will leave them worse off. Letters warning of arrears are sent out, adding $5-$7 to the bill, a repossession notice adds $75 more, and eventually the families lose household goods or vehicles to pay debt.



Many of the misleading or dishonest practices of moneylenders are illegal under the oppressive-conduct provisions of the existing Credit Contracts Act. But because the act is universally acknowledged as confusing and complex, and those on the wrong end of a dodgy deal are typically on low incomes, individual court cases against errant companies have been rare. No Government agency is empowered to enforce the act either, so although credit companies are one of the chief sources of complaints to the Ministry of Consumer Affairs, it can take no action.





The white knight is new legislation in the form of the Consumer Credit Bill, but it has been slow arriving.



Anderton announced it in August 2001, saying the intention was to pass it as soon as possible. But a legislative logjam and last year's snap election mean it has yet to have its first reading. It is now expected to be introduced to Parliament this year, but will not take effect until next year so institutions will have time to change their practices.



Jeanette Harris, senior adviser on consumer law at the ministry, says the aim of the new act is to make credit contracts easily understandable and fair.



It will require disclosure of all loan charges, including interest rates, fees, and often-hidden items such as payment protection insurance. All charges must be reasonable and reflect actual costs (administration fees of $1000 for a $4000 loan could not be justified).



Harris says an interest-rate cap was looked at for credit contracts, but was not included because it had not worked overseas. Lenders also reasonably argued that higher interest rates reflected high risks and associated high costs of some borrowers.



One of the major changes will be to empower the Commerce Commission to prosecute lenders who breach it. Offences would carry fines of up to $30,000 and the commission could also seek an order banning lenders.



Harris says the simplified act meant consumers should also find it easier to take cases to the low-cost Disputes Tribunal.



But the new law could not stop people from agreeing to unusual terms such as handing over their money-machine cards.



"The best we can do is make sure everything is disclosed to them about the credit so people know what they are getting into. We hope people will shop around and get the best deal."



Harris expects that mainstream lenders will find the new law quite simple to abide by, but those at the marginal end of the market could have difficulty complying.



Some smaller cash loan companies did not have adequate systems in place; some did not even have written contracts.



Consumers Institute chief executive David Russell says the growth of cash loan companies shows that "there are more people who are falling into the desperation trap".



Higher interest rates could be justified to some extent for the higher risks at the lower end of the lending market, but some charged exorbitant rates "simply because they know people are desperate".



Russell says the new law is long overdue.



Ian Conza, manager of the Mangere Budgeting Services Trust, has a wider view of the problem.



He believes the "debt is normal" mindset is being pushed by banks moving towards a cashless society which makes it easier to get credit.



Lenders of last resort give people "that final piece of rope to destroy themselves completely financially", he says, but banks with credit card interest rates of 18 to 20 per cent and retailers offering easy credit and even cash loans are also to blame.



Conza, a budget adviser for more than 20 years, acknowledges that people have to take financial responsibility, but he argues that banks and other lenders must also take more responsibility to match people's income to the credit they are given.



This week the trust's small office in the Mangere Town Centre - it relies on scarce grants to to meet its own shoestring annual budget of $60,000 for three staff and running costs - was preparing for the post-Christmas rush of people unable to cope with bills.



On moneylending row in Otahuhu, Conza's lament about people being unable to save and budget wisely is surprisingly echoed at the counter of a small finance company. A staff member, who naturally did not want to be named, says she sometimes despairs at the cycle of debt people end up in.



The company was one of the more established and did credit checks, advised on budgets, and gave people some leeway to make up arrears.



But she admitted that the job was sometimes tough to stomach, particularly when she saw children growing up thinking the loan office was an accepted way of getting money.



As she spoke, a Samoan mother with two little girls unfurled her $40 weekly loan instalment, and they chatted like old friends.



The staff member has her own solution: "I really think budgeting should be taught at school. It would be one of the most useful things you could learn."