MONEY-LENDERS' INTEREST.

Press, Volume LXIX, Issue 20906, 13 July 1933, Page 10

MONEY-LENDERS' INTEREST.

HIGH RATES UPHELD. LOANS WITHOUT SECURITY. The interest rates of 25 per cent, for three months and 20 per cent, for one month stated to have been charged by an Auckland moneylender in a report of a court case in "The Press," are not considered by Christchurch financial agents to be by any means exorbitant judged by the everyday standards of short-term advances. It v.-as stated yesterday that interest as high as 50 or 80 per cent, was by no means uncommon for what was termed "accommodation." Short-term lending was stated to take place on a large scale in the city, and money-lenders who wire questioned on the subject admitted that there was still a large trade

to be done with the man who required temporary financial assistance. Although, owing to the nature of their business, none of those interviewed were prepared to put their names to anything for publication, it was stated frankly that high interest charges were made, but the opinion was expressed that in view of the peculiar circumstances associated with temporary advances money-lenders were justified in demanding high rates. Although it is commonly believed that the general body of moneylenders deal almost wholly with those persons without substantial means who require money for immediate purposes, it is stated that some of the largest business men in the city deal with lenders at different times. It was emphasised that the advances made were in the nature of "accommodation,"' and were not regarded in the same light as long-term loans on which, in the ordinary course, low interest would be charged with adequate security. Method of Advancing. In many instances a moneylender will make an advance on very insubstantial security, and for this reason, it is held, he is justified in protecting himself as far as possible by demanding a high charge for l?is accommodation over a short period. It is not uncommon, when a man asks for, say, £SO for five months, to receive only £4O in cash from the lender, who thus is prepaid interest at the rate of 20 per cent. The argument advanced is that for "temporary accommodation" a borrower will not cavil at paying £lO in £SO if he badly needs the £4O he will get in cash. However, it was stated that, whereas a borrower might not find it difficult to pay £lO a month to liquidate such a comparatively modest debt, he will find himself in trouble if he allows the debt to run on, for over a year such a rate of interest would represent 240 per cent. This, incidentally, was not considered exorbitant by those advancing money under these conditions.

Short-term advances, it was stated, are taken advantage of to a greater extent than might be imagined by business and professional men who found no difficulty in paying 20 per cent, on a loan wanted urgently. A professional man requiring cash might send a cheque for £4O to a lender, who would send him in return a cheque for £35. At the end of the month, the professional man's accounts would be paid, the lender would then cash his cheque, and in the meantime the borrower would have had the use of the £35. The risks attached to advancing money were stated to be full justification for the charging of high interest rates. It was pointed out by one man that a shop keeper would not hesitate to make a profit of 25 per cent, on selling a commodity over the counter. He took no risk, receiving a cash payment and ending his business with the customer as soon as the article was sold. Demand and Price. But a lender, who dealt in money, did not finish his transaction when he "sold" his commodity. He actually took a very much greater risk, for if the borrower did not reoay him. he would not make a profit at all. Then, as the price of any article must be governed by the demand for it, if persons made a market for such an expensive thing as money, they should be prepared to pay for it. It was not agreed that the two instances provided inadequate comparisons. The person who bought a kettle from an ironmonger, it was said, certainly purchased something which would endure as a serviceable article. But the man who borrowed a sum of money also secured something which was of value to him and which might be used either to increase his assets or to relieve him of embarrassment. Under the law an unlicensed money-lender, cannot charge a rate of interest higher than 10 per cent. However, a licensed money-lender can charge up to 500 per cent, if he wishes. For this privilege he pays a license fee of £1 every three years. There is a provision, however, whereby the law allows the court to reduce an interest charge provided it is shown to be entirelv out of proportion to the security offered.