Government moves to cap interest rates to protect 'vulnerable' borrowers from loan sharks

The Government is adding a 0.8 per cent per day cap on interest rates in an attempt to protect "vulnerable" borrowers from loan sharks. 

Kris Faafoi. Source: 1 NEWS

Proposed law is going through Parliament to tighten rules around high cost, short term loans. 

Consumer Affairs Minister Kris Faafoi said the loans caught people "in a cycle of debt, causing extreme hardship – and often, intergenerational poverty". 

The Government announced plans last October to crack down on loan sharks, with Mr Faafoi promising "stiff" penalties for lenders who break the rules.

Mr Faafoi said the new rules would "ensure people taking out high-cost loans never have to pay back more than twice the amount they originally borrowed". 

They are also looking to regulate mobile traders.

"We believe all mobile traders who sell goods on credit should be subject to the same levels of disclosure and responsible lending requirements – including affordability checks - before credit is given," Mr Faafoi said.

He said the law would also cover requiring lenders to provide clients who fall behind on repayments with information around financial support services. 

The bill is expected to pass in March, 2020.