Caps can become targets

The Herald reports:

New measures to stamp out loan sharks could include caps on interest rates and fees, and increased penalties for irresponsible lending.

They are part of a raft of measures recommended to Commerce Minister Kris Faafoi, in an MBIE discussion paper reviewing the Credit Contracts and Consumer Finance Act.

The recommendations include increased licensing for lenders, and introducing “more prescriptive” requirements for affordability assessments.

Faafoi said it was becoming clear the 2015 amendments to consumer finance laws didn’t go far enough, and it was now time to “finish the job” to protect the most vulnerable.

He said the recommendation to cap interest at 100 per cent of the amount they originally borrowed, seemed common sense.

I am no fan of these predatory companies. In fact I stopped patronising a cafe that had one of them based in the cafe.

But good intentions can backfire. A 100% cap on interest may end up increasing interest rates for some borrowers.

At present interest rates will vary from say 30% to 300%. Now if you bring in a cap of 100%, what may happen is all these payday type lenders will charge 100%. Some people may be better off, but a lot may be worse off.