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A job loss as a result of her employer shutting up shop was all it took to create a loan repayment crisis for one woman

Everything was going fine, and lenders were all­ too willing to lend to Whangerei ­based Cheryl.

On her own after a separation, Cheryl (not her real name) had a job as a restaurant manager, and equity in a home, so she looked like a
good bet for a loan.

She incurred debt for dental work, a trip to Scotland funded on a credit card, and some Farmers Card debt for odds and ends of clothes.

But then the restaurant closed. She had three weeks notice to find a new job.

After nine years of struggling, hard work, late nights and juggling finances, her income stopped, and exhausted, Cheryl found herself
battling depression.

A separation, a job loss, sickness: These ingredients are all too common in the story of how people fall into a personal debt crisis.
Insolvency Service statistics tell the story, over and over again.

Take people who enter a “No Asset Procedure” (NAP) which is a kind of bankruptcy ­lite for people with no assets to speak of, but who owe
money they can’t pay back.

In the 2016 financial year, 46 per cent of those who entered NAP were on an unemployment benefit, or other non ­sickness ­related benefit.

Just 20 per cent were employed, and 10 per cent were on sickness benefit, or ACC.

Unemployment, or loss of income, was behind a quarter of self­ declared bankruptcies.

Relationship breakdown was a factor in 9 per cent of NAPs.

The amounts owed may be frighteningly modest. A quarter of all NAPs were for sums of less than $10,000.

“I didn’t realise until I stopped working how tired I was,” Cheryl says. “I was nine years keeping everything going. It had totally exhausted me.”

“Once my income had reduced, there was no way I could pay the debt off. It was never going to go away.”

Interest on credit cards is generally around 19.95 per cent. It’s 25.5 percent on a Farmers card.

The bank would not let her remortgage to consolidate her debts. She didn’t have the income to qualify for a lower interest loan. And, she says, her nine years of head ­down, hard work had left her isolated. She had dropped connections to friends and family, and felt she could not turn to them for help.

Cheryl’s story is working towards a happy ending.

A switched ­on budget adviser referred her to Nga Tangata Microfinance. It’s a charitable loan scheme, one of a number around the country including the much larger BNZ’s scheme Step Up and No Interest Loan scheme, which has now lent a million dollars to people who otherwise would have ended up with high interest loans, potentially even higher than those Cheryl found herself with. BNZ’s Frances Ronowicz estimates the 400 low income borrowers have saved half a million dollars in interest by avoiding the high interest lenders.

Cheryl believes the loan from Nga Tangata saved her home.

There’s a fresh look being taken at whether our lending laws are working to protect vulnerable borrowers. The Ministry of Business, Innovation and Employment will this year conduct an evaluation of the 2014 credit reforms to see if they are working.

The evaluation was revealed in a Parliamentary report following a petition calling for interest rate caps in New Zealand, something that other countries have to set a top limit to the total annual interest and charges lenders can levy. In Australia, for example, the cap is 48 percent.

While the MPs on the Finance and Expenditure Select Committee turned down the petition taken by the Thames Women’s Loan Fund, it revealed concern among MPs that when interest is high enough, it becomes irresponsible lending.

“We share the concerns of the Women’s Loan Fund about the high rates of interest being charged by some lenders in New Zealand,” the MPs said. “Such irresponsible lending has caused many New Zealanders to find themselves in considerable financial hardship.”

The MPs were National’s Chris Bishop, Andrew Bayly, Craig Foss, Brett Hudson, and Alastair Scott, Labour’s Clayton Cosgrove, Grant Robertson, and Michael Wood, New Zealand First’s Winston Peters , Act’s David Seymour, and the Green’s James Shaw.

That admission thrilled Cara Penney from the Thames Women’s Loan fund, and Clare Dale from Nga Tangata Microfinance, though they were disappointed the MPs declined an interest rate cap.
The Commerce Commission has also been going hard on high interest lenders breaking the law, and has waged a campaign against the “mobile trader” lenders plaguing poorer areas.

The commission is building a “Red Flag” network of informants. The past week saw it training budget advisers on the red flags to watch for
when indebted families come to them for help, so they know when to pick up the phone to one of the commission’s investigators.

Cheryl says she will never borrow to travel again, or for consumer purchases. “Simplicity is my new luxury,” she says. “I just wonder how many other people there are out there in a position like I was,” she says.

She would like to see more understanding, and less condemnation, of people struggling at the bottom of the economic ladder. “Walk a mile in my shoes. If you are in abundance, you have no idea of the effect this has on those who are not.”

Flag 1: Watch out for unregistered mobile traders, traders who do not assess whether loan repayments are affordable and borrowers who
were mislead about the total cost of borrowing.

Flag 2: High­cost, short term loans, like payday loans, where advertising is misleading, lenders don;t assess affordability, lenders
continually “refinance” the loans they make, and borrowers who default soon after taking a loan, and are not able to catch up.

Flag 3: Irresponsible lending where borrowers already in substantial hardship were given loans, guarantors didn’t understand their risks,
and unnecessary insurance was foisted on borrowers.

Flag 4: When prohibited items likes beds, fridges, heaters, passports and bank cards were taken as security.

Flag 5: Unusually high fees compared to other lenders, or appear unreasonable, such as high fees for a text message.

Flag 6: Abusive debt collection practices, including excessive debt collection fees, and collection agents misleading borrowers