Labour is asking the Government to put a stop to a new text message loan service.
Finnish finance company Ferratum Group is offering loans of up to $600 – via cellphone.
But Labour says the service exposes vulnerable customers to interest rates of nearly 300 percent.
Speaking on RadioLIVE this morning, Consumer Affairs spokeswoman Carol Beaumont said it’s time for the Government to crack down on such lending.
“The law allows for this service to be put in place with very high interest rates – because we have no limit on what you can charge – and no requirement to lend responsibly. I think the Government has to take responsibility for that.”
The launch of the short-term, high interest has also alarmed the Retirement Commission, who say Kiwis should investigate other options before resorting to the new scheme.
Pre-approved customers send a text message to the company with the amount they want, how many days they need the loan for, and a personal code set up when they register.
Money will then appear in customers’ accounts – in as little as four minutes.
Director and country manager of Ferratum New Zealand Richard Yoon says access to emergency cash has been “hugely beneficial” to European customers.
“If you were in a supermarket with a trolley full of groceries and your EFTPOS card was declined, literally within a couple of minutes of sending us a text you could have available funds to complete the purchase,” he says.
However the Retirement Commission, who run financial education website Sorted, say the short-term loans are concerning and New Zealanders should check out their other options.
The interest rate – in the fine print – is 292 percent per annum plus an established fee of $28, and the Retirement Commission is advising consumers to shop around for a lower interest rate, rather than relying on the convenience of the new scheme.
Retirement Commission executive director David Kneebone says “when offers are put in front of people and it’s quick and easy, not that many questions are asked”, and describes the interest rate as “extremely high”.
“We would consider anything over 9-10 percent high,” he says, “and the average credit card rate is 18 percent annum.”
He said people needing quick loans should consider all their options, including credit cards, banks and credit unions.
3 News