The Government is fast-tracking measures to protect people in financial hardship from high-cost loans that trap them in debt.
“Changes under the Credit Contracts Legislation Amendment Act to strengthen protections for vulnerable borrowers were due to start on 1 June 2020. However, as a result of the disruption and financial concerns caused by COVID-19, the Government is bringing forward the introduction of some measures,” says Commerce and Consumer Affairs Minister Kris Faafoi.
Early introduction of some protections are part of the COVID-19 Response (Taxation and other Regulatory Urgent Measures) Bill going through Parliament today (Thursday 30 April).
The improved protections will apply from the day after the urgent legislation receives Royal Assent, and mean that:
- people borrowing from high-cost lenders will never have to pay back more than 100% of the loan principal,
- compound interest on high-cost loans will be banned, and
- fees for defaulting payments will be limited to $30 (unless the lender can show that the higher amount reflects their costs).
“COVID-19 is putting financial pressures on a lot of New Zealanders and some may have to draw on high-cost, short-term loans. The Government wants to do as much as possible to ensure vulnerable borrowers don’t get trapped in spirals of debt,” says Mr Faafoi.
“The aim is to have other consumer credit reforms, including new affordability regulations and new requirements for lenders to meet fit and proper person thresholds, in place from 1 October 2021.”
Information about support for people in financial difficulty as a result of the pandemic is available here.