Moola says 30-50% interest cap would have killed payday loan market



An interest rate cap of 30 to 50 percent would have excluded the country’s largest payday lender from the short-term loan market.

Minister of Commerce Kris Faafoi has selected limit the total accumulation of interest and charges on high-cost loans to 100 percent of the original loan principal, over the life of the loan.

Payday lender Moola, which has made more than 160,000 short-term “payday” loans and employs 35 people, told the minister: “If interest and fees are capped between 30% and 50% per year, Moola would effectively be required to exit the small loan market. “

Other payday lenders, who market their loans as short-term emergency funding to help people until they get paid, would likely have followed suit, Moola said, potentially pushing desperate borrowers to underground and illegal lenders.

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Faafoi initially offered three options to cap interest and fees on high interest and short-term loans, as part of proposed changes to lending laws designed to reduce the damage caused by high-interest “predatory” lenders in low income communities.

Moola was ranked tenth on Deloitte’s 50 list of the country’s fastest growing companies in 2018, with revenue growth of 557%.

Moola directors Edward Recordon, Stephen Brooks and Erin Foley told Faafoi in their submission on the capping proposals: “If a capping option is introduced, Moola prefers option A over options B and C.”

But they wanted the Option A cap to be 200%, not the 100% suggested.

“Moola has already put in place processes that effectively implement Option A, albeit to a greater extent (200 percent vs. 100 percent as suggested in the discussion paper),” the directors said.

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The payday loan market is threatened by the cap on interest rates.

Moola argued that loan costs could come down if the government made it easier for payday lenders to collect overdue loans.

“There is a significant proportion of clients in the short-term loan market who do not repay the loans they have taken out, in fact, they do not make any payments or contact, essentially stealing the funds. Because they are unsecured and traditional court processes are prohibitive, the borrower knows they will not be sued, ”Moola said.

The result is that honest borrowers end up paying higher interest rates and fees to cover the loss of these loan amounts, he said.

“If there were a streamlined and cost-effective process for collecting delinquent loans, for example, through a streamlined process of payroll deductions through foreclosure orders, short-term lenders would be able to lower their rates. ‘interest and grant loans to more customers.

Moola isn’t the only small lender to raise the specter of a loan cap, leaving desperate borrowers to turn to illegal lenders.

Russell Birse, executive chairman of Rapid Loans NZ, which offers 39 percent lending, asked: “Has the minister investigated the ability of criminal gangs to take hold if the changes to the contract regime? Are Credit and Consumer Finance Law forcing the majority of current (“high cost”) targeted commercial lenders out of the market? “

Some lenders feel they are the scapegoats for societal failures and the issue of harm to vulnerable consumers has been raised.

There was “a tendency for consumer advocates and financial advisers to emotionally present the situation to their clients, said Birse, with” a continuing implication that these difficulties are all the fault of the lender and extend to many. many other borrowers “.

But, he disputed this, saying the “level of importance” of the complaints fell far short of what some stakeholders were suggesting.

* This article has been updated. An earlier version of this story contained outdated information. This error is regretted.

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