17 August 2007

Pacific consumers and fringe lending

The experiences and behaviour of Pacific consumers when they are borrowing money from ‘fringe’ credit providers is the subject of a research report released today.

The qualitative research Pacific Consumers’ Behaviour and Experience in Credit Markets, with Particular Reference to the ‘Fringe Lending’ Market was undertaken by the Ministry of Consumer Affairs as part if its routine monitoring of consumer legislation.

Key people from community organisations based in South Auckland and Pacific consumers were interviewed for the research to provide a snapshot of the South Auckland fringe credit market as experienced by those interviewed.

"The research found that common reasons for borrowing included household expenses, cars and other large items, and for social and cultural obligations," says Consumer Affairs Minister Judith Tizard.

"This is an area where the potential for exploitative lender practices was noted in the research."

"While most loans are repaid, Pacific consumers’ need for easily accessed cash loans, and their inability to access cheaper credit options, leaves them exposed to high cost and, potentially oppressive credit contracts."

The issues identified by the research are complex, requiring a concerted response over time by government, business and the community.

The government has identified a range of work priorities in response to the issues raised in the report, including:

• Improving enforcement of the Credit Contracts and Consumer Finance Act by the Commerce Commission by strengthening relationships with community groups and undertaking proactive compliance inspections of credit providers. As a result of its proactive approach, the Commerce Commission has recently completed a number of successful investigations.
• Providing a means by which consumers can work their way out of debt through new insolvency provisions.
• Information and capability building to address consumers’ lack of access to information about rights and redress, such as the TrueCost pilot public awareness campaign.
• Addressing overly-aggressive marketing practices by requesting a review of the Code of Financial Advertising.
• Working with government, community and business to develop potential solutions to the problems by holding a Consumer Credit Summit.
• Completing the review of the Credit Contracts and Consumer Finance Act 2003, which will include consideration of ways to improve its effectiveness, including focussing on disclosure provisions.

Over the next few months more work will be done to address the issues raised in this report.

The research was undertaken as part of the Ministry’s routine monitoring of the operation and implementation of the Credit Contracts and Consumer Finance Act.

"The Ministry's review of the Act, to be completed in March 2008, will include recommendations on possible amendments to improve its effectiveness," says Judith Tizard.

A copy of the research report and the Government’s response strategy is available on the Ministry of Consumer Affairs website along with a 2006 Ministry report - Fringe lenders in New Zealand.