Interest rates on personal loans may be capped - Power

Capping interest rates and fees on personal loans has not been ruled out by Commerce Minister Simon Power.

In a speech to the financial summit being held in Auckland today, Mr Power said it was clear to him that the fast growing industry of third-tier lenders, fuelled by advertising aimed at people on low incomes and beneficiaries, was a recipe for if not disaster, then danger.

“Add in the fact that sole lenders are not complying with regulations and do not belong to a dispute resolution scheme and you know we have a lot of work to do,” Mr Power told the summit.

The fundamental question that needed to be answered, Mr Power said, was what to do with the main piece of legislation in this area, the Credit Contracts and Consumer Finance Act, to provide more protection for consumers, and the extent to which it was possible to leverage off financial sector reforms that had already been introduced.

There were specific ideas that Mr Power wanted people at the summit to give an opinion on.

One of these was capping interest rates and fees, while another involved requiring credit providers to have additional registration requirements that they lend responsibility – over and above the basic requirements of the Financial Service Providers (Registration and Dispute Resolution) Act.

Mr Power also wanted to know whether it was worthwhile extending the voluntary, responsible lending guidelines to more widely apply across the lending industry, or putting in the legislation a requirement that credit providers establish that a credit contract was suitable for the proposed borrower.

Information gleaned from the one-day summit will help shape future legislation and practice related to the credit industry, Mr Power said.

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