"More can be done" to better protect borrowers – FSF

The Financial Services Federation (FSF) has reacted to the government’s latest interest rate cap announcement, which was meant to better protect borrowers.

On September 3, Commerce and Consumer Affairs Minister Hon Kris Faafoi released further proposals to better protect borrowers – including a 0.8% per day cap on interest and fees.

They outlined that all truck shops and mobile traders will be required to check that credit is suitable and affordable for each customer and to help borrowers make informed decisions about whether to sign up for credit.

The FSF commented that the new proposals may be a step in the right direction – but more can still be done to target predatory lenders causing harm to consumers and tainting the sector.

"This cap equates to an effective finance rate of 292% per annum, which is still high-cost lending in anyone's terms," said Lyn McMorran, executive director at FSF.

"This sort of high-cost lending is not the market in which our members operate, so we are not trying to wriggle out of anything with our recommendations, but we do want to make sure that reforms will actually make a targeted difference where harm is being done, and will be enforced to stamp out dodgy lenders.”

Read more: FSF: Interest rate cap won’t protect vulnerable borrowers

The FSF is still firm in its stance expressed in its submission last month that the bill should go further in providing consumer protections when they’re borrowing from lenders who charge at or near the proposed cap.

It suggested that the bill should clearly define parameters for payday lending in the law, be explicit that the loans should only be a small amount and provided only for short terms or “emergency” type situations, and ensure that payday lenders are identified as such on the Financial Services Providers Register.

FSF emphasised that passing any further legislation won’t make a difference unless it’s properly enforced and the Commerce Commission is sufficiently resourced.