Interest rates 'nudge 60%’

Press, 18 January 1986, Page 2

Interest rates 'nudge 60%’

PA Wellington Interest rates of nearly 60 per cent are being charged on personal loans by some finance companies, says the Consumers Institute.

However, the institute’s assistant director, Mr David Russell, said such rates, although unjustifiable, were usually legal.

Mr Russell said he was horrified, but not surprised, when told details of a loan to a Porirua family. The loan was for $3500 and the effective annual interest rate was 57.76 per cent. The family also had to pay another $875 in “overhead” costs.

The loan was secured by an extensive list of household chattels and a taxi. The loan contract included provision for forcible entry and repossession of the items listed as security if there was a default in repayments. Mr Russell said it was a typical case where the present second-hand value of the security listed was many times more than the value of the loan. This made the high interest rates most difficult to justify because there was almost no risk for the lender. However, such a contract entered willingly and knowingly was per-

fectly legal and binding, he said.

The Credit Controls Act (which requires the finance rate, or effective interest rate, to appear prominently in a loan contract) was a good idea for highly educated people, enabling them to shop round. “But it makes no recognition of people in the bottom end of the loan market who are often desperate for money,” he said. The question he said should be dealt with by the new Ministry of Consumer Affairs although the act is administered by the Justice Department.