The FinCap world is focussed on those in financial hardship. 70,000 people visit Aotearoa New Zealand’s 200 local, free financial capability and budgeting services each year to work with a Financial Mentor to build a financial plan of action for themselves and their family. Both they and their whānau are often at breaking point, arriving with debts (average total $10,000) and often struggling with addictions, other health concerns, and the sheer stigma of indebtedness. For them, and for the Financial Mentors they work with, getting the law right is incredibly important. Good law helps reduce the gross imbalance of power between them and lenders, it helps control the worst excesses of loan companies and, done right, it should draw and police the line between morality and immorality in the world of financial services.
We asked Tim Barnett, Chief Executive of FinCap, to provide an overview of FinCap’s advocacy work around pay day lenders, a collaboration that led to substantial success.
“New Zealand’s law around consumer credit and debt collection is weak, still caught in the neoliberal, minimal regulation mindset. With the arrival of the Coalition Government in 2017, we thought that the shift away from that had finally come. We looked forward to being enthusiastic cheerleaders of reform. And so, we welcomed the new Government announcing, very early in its life, that they would be moving against pay day lenders (aka loan sharks). Those lenders are literally defined, so far as the public are concerned, by the massive interest rates they charge – almost certainly over 100%, ranging up to near 1000%.
We assumed, looking at the evidence around what other countries did, and even the past positions taken by the new Minister [of Commerce and Consumer Affairs], that a cap on interest rates was a done deal. From January to August 2018, we engaged in two extensive consultation processes run by the Ministry for Business, Innovation and Employment. Interest rate caps were at the heart of that conversation, and the view from the Financial Mentors at the grassroots was crystal clear.
But come August 2018, an ominous silence descended over the conversation, and only in October did the news come through that there would be no interest rate cap in the [Credit Contracts Legislation Amendment] Bill, merely a limit so that no-one would pay back more than twice what they had borrowed in a high interest loan. That is Cash Converters policy already, and it fails to prevent people being stung by those massive rates being applied to originally small loans. Confusingly that limit on the amount paid back was labelled as an interest rate cap by the Ministry, but slowly it dawned on all of us that interest rates in the high hundreds of percent would still be possible, and that an historic opportunity to make good law was slipping away from our grasp.
FinCap made the decision to fight, and – crucially – to focus on the voice of Financial Mentors dealing each year with literally thousands of people wounded by high cost loans.”
The campaign was comprehensive. Tim provided a summary on the approach:
“We formed an early and relaxed grouping of like-minded national agencies, including the Iwi Chairs Forum and The Salvation Army, and made our lobby targets aware of the depth and width of that arrangement. That collaboration spread to joint media and approaches to politicians. With the local network of budgeting services, we encouraged engagement – well over half played some role in the whole process, supplying data and voice.”
“We obtained Borrin Foundation funding for legal research and education, which helped us build up the first collection of New Zealand-focussed research in this area. We also recruited an academic team, which will have long term benefit as this work flows through over the years.”
“Attempting to change clearly stated government policy always involves some risk. We ensured that the funds used for the campaign weren’t taken from our government grant, and we made sure that the policy disagreement never got personal. The biggest risk was that we failed in our aim.”
“The voice of Financial Mentors was loud in the campaign. The voice of consumers of high cost loans was largely channelled through them. One consumer made it to Select Committee and made a huge impact. It would have been two, but the flight never took off!
Sarah was a client of the Gisborne Budget Service who had accessed pay day loans and came to Wellington to talk to the Select Committee in September 2019. You can hear Sarah talk about her reasons for being involved here.
We received funding from the J R McKenzie Trust to upskill and enable grassroots agencies (local financial capability and budgeting services) to capture the voices of people who have been directly harmed by loan company activity. Hearing from those with lived experience was invaluable.”
“The media – and public opinion, in our non-scientific view – were strongly behind our campaign. Our focus was to get a variety of voices saying, fundamentally, the same thing. This was backed up by an online petition and leveraged into social media moments that were promoted to decision makers and the influential people around them.”
Kanohi ki te kanohi
“Good old fashioned direct, private conversations with MPs from across the spectrum was at the heart of our political engagement. That was a really positive experience, and when combined with engagement by one of their local financial capability and budgeting services, seemed to have a fundamental impact.”
“There were very many issues covered by this Bill which we would have liked to see handled in a much more muscular way, but our campaign was centred on a matter of principle – the interest rate cap. We had to resist the massive temptation to divert to other matters and by keeping our ask simple. That was the right approach.
The new law is now well through its Parliamentary process. Its complicated stuff, and the regulations are being debated line by line. It could all have been a lot better, but we would call a win and also label this good law.”