Banking in New Zealand

New Zealand was the first country to introduce eftpos debit cards (back in 1984), cash is rarely needed and internet banking is advanced and widely used.

NZ has more debit card terminals per head of population than any other country (source) and New Zealanders use EFTPOS twice as much as any other country (source).

Banking services are excellent but costly

Nearly all bank accounts and credit cards charge monthly fees, which hasn't been the case in the UK for decades. Some current bank accounts charge a monthly fee and pay no interest on credit balances. More info on credit cards here and more info on bank accounts here.

In addition to excessive bank fees, the public also get hit with charges at the point of purchase that wouldn't happen in other countries, such as an extra charges to pay by credit card.

Freedom from regulation: a high price to pay?

Kiwis are keen on freedom from regulation, which would seem to be smart. Unfortunately, the downside of this is that many of the things NZ companies get away with were stopped in other countries many years ago.

This includes what would be called loan sharking in other countries. Companies can advertise money loans without specifying the interest rate they'll be charging. And there is no law governing the maximum interest rate which can be charged.

The problem is not just "Get Cash Here" shops that are in every city, it's high street banks advertising on national television. To an outsider, this looks like a banking cartel, with all the banks charging fees they could not get away with in other countries, because they'd either be uncompetitive or regulation would stop them.

Consumer Magazine mystery shoppers find disturbing practices

"Our two mystery shoppers—one was a Wellington-born-and-bred Pacific Islander—went undercover in Porirua as beneficiaries looking for a loan. They found lenders reluctant to give them information to take away, extremely high interest rates and fees, and advertising aimed at some of our most vulnerable citizens."

Here's what they found:

1. Lack of transparency about the costs and rates charged

Information about the loan is sometimes not provided until after the contract is signed. The payday lender Cash Converters claimed there was no fee or interest-rate information our shoppers could take away to read because "everything has to be done on our system" and the salesperson refused to write down any figures for them. Not supplying written information before the loan is signed up is legal (see below) but it makes it impossible to compare loans.

2. High rates and fees

Cash Converters told our mystery shoppers that it would charge $33-$40 for lending $100 for a month. Even at the lower figure, that's a massive 463 percent annually in fees and interest if the loan continued for a year.

3. Advertising is targeted at vulnerable people

Instant Finance used images of a former rugby-league star to draw in people. Nearly all the companies splashed statements such as "no questions asked", and "we won't check your credit history" across their advertising. Cash Converters had a billboard advertising payday loans right by a Work and Income benefit office.

Unregulated "loan shark" practices in New Zealand

Kiwi Party finance spokesperson Gordon Copeland believes that the regulation of "loan shark" practices in New Zealand is overdue (April 2009):

"Many of us have heard anecdotal evidence of people being unwittingly trapped into impossible debt situations, because they failed to understand the interest burden they were taking on when borrowing from their local 'fast loan approval' retailer," said Mr Copeland. "Such people, who are often borrowing just small amounts to tide themselves over for short periods, can find themselves financially enslaved for years to come, or bankrupt!"

"New Zealand at present has no law governing the maximum interest rate which can be charged to a customer and that may prove impractical. What we must do though is legislate to ensure that all borrowers are given accurate information about the annual simple interest rate they will have to pay and a worked example of how the interest burden may compound over time."

"This, in itself, would be a major step forward. It should, for example, be illegal to advertise the interest rate on a loan as "8% per week". What does that mean? Does it mean that the rate per annum is a simple 416% (8x52) or does it mean that the 8% rate will be compounded, at the end of each week, to give a rate of 5,370.6% per annum!"

"Just imagine borrowing $1,000 and finding yourself either $5,160 or $54,706 in hock 12 months later and you can see why a law change is urgently required!"

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