The perennial problem of loan sharking is back on the agenda. Submissions on the Credit Contracts and Financial Services Law Reform Bill are now before the Commerce Select Committee. Despite reforms to our credit laws in 1981 and 2003, we’re still grappling with the problems caused by borrowers who are often desperate transacting with all-too-willing lenders.

The latest “reforms” contain some long-overdue improvements. There will be a set of responsible lending principles and a responsible lending code, which all lenders must meet. Disclosure of standard terms and fees, and the interest rate for the loan, must be disclosed before the loan is entered into not within a certain number of days after signing up – which is what currently happens.

Under the Bill, repossession agents must be licensed and the Commerce Commission will have a monitoring role over the activities of lenders and their repossession agents. Security over possessions will be much more specific and drag-net clauses allowing the repossession of any property or possessions will be outlawed. Essential household items will not be able to be repossessed.

The devil as usual will be in the details. The responsible lending code has yet to be developed: the Bill allows a two-year window for that to happen. So-called mainstream lenders are likely to argue for special treatment. We’d like to see a code with real bite that applies equally to all lenders and which has enough force to bring about positive changes in lender behaviour.

What’s missing from the Bill is any way borrowers can easily work out whether a particular lender’s fees and interest rate are reasonable or not. Since Annual Finance Rates (AFRs) were abandoned, there’s been no obvious way of running up a warning flag about the total cost of a loan.

One suggestion from the Ministry of Consumer Affairs’ Consumer Credit Law Review in 2000 was for a central independent agency to collect information from lenders about their credit products (similar to our Powerswitch site). Consumers could use this site to shop for credit – including being able to compare the effective “real” interest rate for loans. In the internet age, perhaps it’s time to revisit this proposal.

About the author:

David Naulls is Consumer's deputy CEO and the editor of Consumer magazine.

David works closely with the research and testing team to ensure the quality of all articles published by Consumer NZ. He has previously been a research writer and contract books writer at Consumer. Before returning as Content Editor, he was a freelance writer and editor for 25 years. David has post-graduate qualifications in journalism and political philosophy.