Predatory lenders ‘circle’ as cost of living soars, budget services say

Financial mentors are seeing a “staggering” increase in people needing help as Covid pressures collide with the cost of living crisis.

As families decide what food they’ll cut from the grocery shop or what bill they’ll delay this week, Ngā Tāngata Microfinance chief executive Natalie Vincent is seeing marketing ramp up for buy now, pay later schemes, high-cost lending, debt consolidation and crypto investment.

The predators start to circle […] selling this story of hope to people who are terribly financially vulnerable,” she said.

Ngā Tāngata Microfinance (NTM) offers an alternative: interest-free loans to help low-income New Zealanders out of tight financial situations.

Since December, self-referrals to the organisation have hit 500 a month, a figure Vincent describes as “staggering”.

People in financially vulnerable positions are targeted by predatory lenders.
People in financially vulnerable positions are targeted by predatory lenders.

The referral process involves people talking to a financial mentor. Some mentors are so slammed they’ve stopped taking referrals, Vincent said, the first time that’s happened. “That’s a huge indicator of problems.”

“It’s all very well to say reach out for support – but what happens when that’s at capacity and we can’t help these people? That’s a deep concern.”

There’s been a change, too, in what people need help with. NTM’s debt relief loan used to make up the bulk of its lending, but now more people are looking for loans to cover things such as school uniform costs, a new phone or dental work.

The people requiring these loans might have previously been in a position to save or scrimp to meet the costs, Vincent said, but now any spare change is eaten up by power, food and petrol.

“Those on low incomes can’t afford to survive, let alone live with dignity and save for the future.”

According to ASB, households will spend an extra $150 per week, on average, on their living costs this year.

Families are struggling to pay bills and put food on the table as the cost of living soars. (File photo)

Jake Lilley, senior policy advisor at Fincap, said the 200 budgeting services it supports were reporting an increase in people accessing help for the first time.

Financial mentors were seeing people using buy now, pay later schemes to buy groceries, still paying off one week’s shop when it came time to stock the pantry again and “solidly going backwards”.

In the last year, these schemes – which many people don’t see as a loan – have been heavily marketed and become established, he said.

“There’s been the flow on effect of financial mentors coming to us saying we’ve got a person who isn’t eligible for loans under the law. But they went to shops recently and ended up with $900 worth of credit from buy now pay later, and now they’re juggling a whole load of unaffordable payments.”

At Te Korowai Trust in Nelson, manager and budget advisor Robyn Parkes has seen the waitlist balloon from a handful of people to dozens. A lot of those are working.

Some might have to wait two or three weeks. “That doesn’t sound like much, but that can be a long time when you’re needing some support.”

The April 1 benefit increase will help people, Parkes said, “but it won’t help enough.”

“It doesn’t get them out of the situation they’re in. It’s tough, and I don’t see any signs of it getting better.”

↯↯↯Read More On The Topic On TDPel Media ↯↯↯