When 8% is really 416%

The Dominion Post 03 September 2008

Families are borrowing money at interest rates of up to 8 per cent a week to make ends meet between paydays. Budgeting services have criticised the rates and say greater restrictions need to be placed on the amount of interest lenders are allowed to charge. But the Government has ruled out capping interest rates, saying overseas experience suggests it will do nothing to protect consumers. Super Loans, formerly known as XtraCash, is charging interest of 8 per cent a week on money lent from its three Wellington stores.

Law student Andrew Shann took out a $300 loan – signing a 14-week contract and offering up his guitar as security – as part of his research paper on consumer law. A copy of the contract shows the $300 loan accrued 8 per cent interest every week for the 14 weeks of the loan period – pushing the total amount owed to $636. The annual interest rate equals 416 per cent. Mr Shann said the interest rate was “outrageous”.

…Queensland’s government introduced legislation in July capping the amount of interest lenders can charge at 48 per cent, something Ms Fox and Mr Shann said New Zealand should adopt. Newtown budget and advocacy service adviser Jeff Drane said restrictive interest rate caps could drive lenders underground.