Predatory lenders ‘circle up’ as cost of living soars, Budget Services says
Financial mentors are seeing a ‘staggering’ rise in the number of people needing help as Covid pressures collide with the cost of living crisis.
As families decide what food to cut out at the grocery store or which bill to put off this week, Ngā Tāngata Microfinance managing director Natalie Vincent sees marketing ramping up to buy now, pay later, high cost loans, debt consolidation and crypto investing.
“The predators start circling […] sell this story of hope to terribly financially vulnerable people,” she said.
Ngā Tangata Microfinance (NTM) offers an alternative: interest-free loans to help low-income New Zealanders get out of difficult financial situations.
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Since December, self-referrals to the organization have reached 500 per month, a figure Vincent describes as “staggering”.
The referral process involves people talking to a financial mentor. Some mentors are criticized so much that they stopped taking referrals, Vincent said, the first time it happened. “That’s a huge indicator of trouble.”
“It’s fine to ask for help – but what happens when it’s at full capacity and we can’t help these people? This is a deep concern.
There has also been a change in what people need help with. NTM’s debt relief loan used to be the bulk of its loans, but now more and more people are looking for loans to cover expenses such as school uniform costs, a new phone or dental care. .
People who needed these loans may previously have been able to save or save to meet the costs, Vincent said, but now any spare change is swallowed up by electricity, food and gasoline.
“People on low incomes do not have the means to survive, let alone live in dignity and save for the future.
According to ASB, households will spend an average of $150 more per week on living expenses this year.
Jake Lilley, senior policy adviser at Fincap, said the 200 budgeting services he supports are signaling an increase in people accessing help for the first time.
Financial mentors saw people using buy-it-now programs, paying later for groceries, always paying off the week’s store when it came time to restock the pantry, and “regressing steadily.”
Over the past year, these programs — which many people don’t think of as a loan — have been heavily marketed and established themselves, he said.
“There has been a flood of financial mentors coming to tell us that we have someone who is not eligible for loans under the law. But they went to stores recently and found themselves with $900 buy-now, pay-later credit, and now they’re juggling a whole slew of unaffordable payments.
At Te Korowai Trust in Nelson, manager and budget adviser Robyn Parkes has seen the waiting list grow from a handful to dozens. Many of them work.
Some may have to wait two or three weeks. “It doesn’t seem like a lot, but it can take a long time when you need help.”
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 find themselves in. It’s difficult and I don’t see any signs of improvement.”