enhancing food security and physical activity for maori, pacific and ...

Enhancing Food Security and Physical Activity for Māori, Pacific and Low-income Peoplesargue that this should be a legal obligation imposed on all credit providers, includingfringe lenders. 4 In addition, the Government should support mainstream banks byproviding incentives for providing financial services for low-income communities.Furthermore, banks could learn from the marketing techniques used by fringe lendersin order to attract low-income customers to their services. 9Some commentators point out the important role of community organisations, such ascredit unions and mutual societies, in facilitating access to short-term credit for lowincomeconsumers. 4 Kempson et al suggest that ‘unbanked’ people, people withoutaccess to a bank, might benefit from banking services delivered through thesecommunity services. 6 As such, in the UK the Department of Trade and Industrysuggested that, “one way of minimising the problem of over-indebtedness is to ensurethat low-income consumers have access to affordable credit and that credit unionshave a role to play in this”. 4 Some of the mainstream banks in Australia are inpartnership with community organisations offering low interest loans, or financiallysupport no interest loan schemes. 4 Howell argues that ethical lending requirementsshould be imposed on all credit providers. 10 A number of studies suggest providingconsumer education to low-income consumers on interest rates, budgeting andfinance in general so they could manage their money more efficiently. 3 7 8National ContextIn 2006, 185 companies were identified as fringe lenders; 94 percent offered cash orpersonal loans, 43 percent vehicle loans, 26 percent debt consolidation and 24percent pawn broking services. 11 Most fringe lenders are located in lower incomecommunities, particularly in South Auckland. They publicise creatively to enticecustomers to make contact and advertise in at least one community or ethnicnewspaper. While exploring the fringe lending market in South Auckland, the Ministryof Consumer Affairs found that Pacific consumers are disproportionallydisadvantaged.The research reported that the most common reason for borrowing by Pacificconsumers was to meet everyday household expenses, followed by purchasing largeitems such as cars and thirdly, borrowing to meet social and cultural obligations. Theauthors concluded that the current credit legislation is not protecting Pacificconsumers from the detrimental effects of fringe lenders. They argued for strongerenforcement to control the operations of fringe lenders, even if it means making creditharder to get. 2According to Dale, “there is a direct relationship between low-incomes and theproliferation of high-cost lenders and pawn shops”. 12 Mobile trucks selling clothes andfood on credit circulate in low-income neighbourhoods, loan companies have becomemobile selling door to door, and finance companies advertise heavily in the media andlocate themselves around low-income neighbourhoods. Not surprisingly, the numberof fringe lenders in South Auckland outnumbers the number of banks.Williams and O’Brien argue that there is a strong link between debt and poverty. . Theirresearch highlights the role of the fringe lending market in trapping low-income peoplein debt and the impact of debt on families. 13 Valins suggests a number of policies thatNew Zealand could consider to tackle debt: legislation and/or guidelines for theconsumer credit industry; improving access to affordable credit; improved policies forprivate companies (such as credit and utility companies); education and financialliteracy strategies, and money advice services. 14Finsec’s 2008 report, Fairness in Lending, proposed reform and regulation to thefinancial sector by establishing a lending code and code of social responsibility for all45