Indeed that would be a constraining facotr, but it would not necessarily be the case.

The purpose of the advert is to get more people in the door and getting loans – a transparent advert may still do that to such a degree as it is worthwhile.

However, it is a good point that trying to enforce certain requirements on adverts may lead to “less” information – the goal should always be to increase the information available and/or the ease of disseminating the information.

Ultimately, I think as long as the contracts have to be transparent, and we make sure that people understand what they are signing, there isn’t an issue. If those things don’t hold – then that is what we need to fix. A misleading advert is not a problem, if it doesn’t influence peoples decisions.

We may think the “pw” is inadequate, but we shouldnt lose sight of it being better than nothing. The last thing we want to do is create a law that will make things worse.

That would make us no better than the politicians!

It just means they wouldnt advertise it.

Ahhh very interesting.

“A law requiring this would mean that they need to say 5470% per year in letters at least as big as the 8% per week. If this was done, surely borrowing at these rates would go down significantly.”

If that is the case, then there is definitely a case for better information to be legislated.

“I say this as someone who is opposed to most regulation.”

Improving the transparency of information is the one place where regulation makes sense – in other cases it is a poor second cousin to other instruments (at least in my view 🙂 )

“It would be worse than just some people that need to borrow not being able to borrow because criminal gangs would enter the lending market.”

I’m not sure – people only borrow from the gangs because they want the credit. I think the gang case is actually better than the case when they can’t get any credit – although both are far worse than the case with no cap

A law requiring this would mean that they need to say 5470% per year in letters at least as big as the 8% per week. If this was done, surely borrowing at these rates would go down significantly. More people are doing it out of ignorance than out of choice.

I say this as someone who is opposed to most regulation.

A cap on interest rates is obviously silly though. It would be worse than just some people that need to borrow not being able to borrow because criminal gangs would enter the lending market.

That would explain why I had so much difficulty finding it 😉

“Goodness knows there is plenty of competition for these loans, and some are charging even higher rates (one online one I looked at charges up to 15% a week). The Standard says there are six of these places in Porirua. You would think if it could be done more cheaply someone would be doing it.”

Incredibly good point!

If you look at the commercial reality of providing these loans, the interest rate has to be high because they are usually low amounts, borrowed for short terms, from high-demand customers. For example a $50 loan over 10 weeks (the example in the Dom Post article) will generate $40 of interest which has to cover a paperwork session to set up the loan and accepting weekly cash payments for 10 weeks, as well as the expense of chasing late payments and the risk of not recovering the money at all.

No bank is going to offer $50 loans like this, their overheads are too high. They will want you to set up an overdraft or get a credit card, for which you need a good credit rating.

Goodness knows there is plenty of competition for these loans, and some are charging even higher rates (one online one I looked at charges up to 15% a week). The Standard says there are six of these places in Porirua. You would think if it could be done more cheaply someone would be doing it.

That would be my suspicion – in the Herald article (which I can’t find) one person is defending these loans, on the basis that their credit history is so bad they can’t get loans anywhere else.

However, there may be some punitive element to the current loans (as I doubt that the default rate, and the associated adverse selection risk, is high enough to justify 8-10% per week) – but that only survives in the face of poor information and education on the borrowers side.

Very good. However, the question then is – is this being enforced.

“From my own experience, even when people are presented with black and white evidence of the interest rate and how much it will cost them, they only see what they are wanting to spend the money on.

If they dont care, why should we?”

Indeed – as long as they understand the private cost of what they are doing there is no need to stop it. The only role government should have is to improve transparency so people can make these decisions.