Stop deductions from benefits to payday lenders, Salvation Army says

Monday, 14 October 2019

More than 24,000 beneficiaries had 'attachment orders' made against them diverting some of their meagre incomes into the pockets of lenders, a Salvation Army report has revealed.

It's a practice that should be banned, the Salvation Army said in the Debt Collection and Repossession in Aotearoa report.

Under the proposal, if a person in significant financial hardship qualified for 'judgement-proof debtor status', they could not be forced to repay their debts using their government welfare benefits, report author Ronji Tanielu said.

'Since nearly 80 per cent of our clients have as their main source of income a government benefit, then this policy change would greatly help us support our clients facing mountain loads of problem debt.'

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'With more than 24,000 attachment orders made against beneficiaries in 2018, this new kind of policy would aid thousands of poorer New Zealanders not to fall into deeper debt traps and spirals, and hopefully to not have to go down the debt collection and insolvency pathways too quickly.'

Commerce Minister Kris Faafoi plans lending law reforms to reduce the amount of harmful lending happening in lower-income areas, including measures to prevent debts spiralling over extended periods of time such as setting legal caps on loan interest rates and limiting the total amount lenders could earn from loans.

But the Salvation Army did not believe the proposed reforms went far enough, and wanted heavier regulation of debt collectors bringing New Zealand into line with other developed countries.

'There has been a lot of good focus recently on the interest rate cap campaign,' Tanielu said.

'But the proverbial light needs to continue to be shone on other important credit contracts and financial issues such as debt collection and repossession so that they are not ignored or forgotten in these public policy discussions and developments.'

Many of the Salvation Army's clients often faced complex and drawn-out debt collection and repossession procedures adding even greater stress and hardship to their lives, he said.

Sometimes they could remain trapped by even a relatively modest debt for decades.

Tanielu gave the example of a young woman who borrowed $1000 at the age of 19 to buy a computer and printer from a door-to-door salesman in 2000, but was still being pursued by debt collectors for $1833 in 2019, despite having made over $4000 of payments to the lender.

'It seems very harsh that a 37 year old should still be paying off a debt she incurred when she was 19, especially as the goods were repossessed (which means the outstanding debt should have been crystallised at that point) and that, according to the terms of the attachment order, she is expected to repay $5853 for a debt of $1000.'

The Salvation Army also called on the government to investigate creating a legal mechanism requiring lenders to forgive debt that was effectively unrepayable.

'There should be greater investigation into the impact and feasibility of implementing a debt forgiveness, waiver or remission policy in specific cases in relation to both debts owed to the government and to private lenders,' Tanielu said.

It called for debt collection law reform requiring any actual repossession to be done in a manner that minimises any detrimental harm to the children present at the homes of borrowers.

'Our financial mentors talked about some debt collectors turning up unannounced to people's homes, contacting friends and family of the debtor, making relentless phone calls, and other intimidating behaviour,' he said.

There was even one case the Salvation Army had documented of a person being contacted by debt collectors while in hospital.

'The borrower had defaulted because of their major health concerns and issues. But the repossession agents seemed to not consider or care about this,' an unnamed Salvation Army worker was quoted as saying quoted in the report.