Frustrated at the Government's failure to crack down on buy-now-pay-later lenders, a financial charity today starts offering $500 cash loans to those who need a circuit-breaker to get out of debt trouble.
Kathleen is a single parent with five kids. The oldest is seven; the youngest just six months. Every cost bites.
"You're weighing up whether to pay gas to get your kids to school, or pay rent, or feed your children. All of that – it's a lot of pressure," the Canterbury mum says.
"I'm pretty much stopping one payment to make another payment, to catch up on another one. I've got debt from buy-now-pay-later, hire purchases, the Home Direct trucks when they were going round. The final straw was the power bill, last week."
She has tens of thousands of dollars of debt. "I''m too scared to add it all up," she says.
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So she approached financial mentors MoneyTalks, who have been advising her on dealing with loans and lenders, consolidating her debt – and also referred her to Good Shepherd NZ and its Good Loans programme.
The Good Shepherd Sisters are a Catholic order, invited to New Zealand in 1886 to look after women and girls who had fallen on hard times. More recently, their work has been focused on women who are homeless, unemployed, lack education or work skills, or suffer addiction and poverty.
They have a long history of making nil-interest loans to people in their communities, like families from refugee backgrounds.
But since 2012, they've broadened into a not-for-profit working to address critical, contemporary issues facing women, girls and families.
Their Good Loans operate in 600 locations across Australia and in New Zealand, capitalised here by a line of free credit from BNZ, and with support for their operating costs from private donors and a Ministry of Social Development contract.
Their loans are delivered through financial mentors and other community organisations on the ground. Till now, they've been for essential items, urgent services like car repairs, or debt consolidation.
But with BNZ's blessing and its $2 million-plus credit line, they're starting offering short-notice interest-free, fee-free cash loans of up to $500 – a fast-moving initiative prompted by frustration at the Government's perceived failure to crack down on buy-now-pay-later lenders.
The loans must be paid back over 16 weeks, and are accompanied by financial mentoring to help borrowers out of their debt difficulties.
"I was talking to someone today who said they had used buy-now-pay-later to buy a box of cereal. And you know, that tells us a lot about how unaffordable the cost of living is." – Natalie Vincent, Good Shepherd NZ
Last week Consumer Affairs Minister Duncan Webb confirmed buy-now-pay-later lending would be explicitly brought into the regulatory regime of the Credit Contracts and Consumer Finance Act, but without the affordability and suitability checks applied to other types of lending.
Buy-now-pay-later lenders had complained that such checks would be costly and inconvenient for them to apply, and he accepted that. Rather than "onerous" affordability assessments, the lenders would instead be required to do comprehensive credit checks.
"We were really disappointed with that," says Natalie Vincent, Good Shepherd’s head of financial wellbeing. "It was an absolute fizzer, really, so disappointing. And so we felt that we actually needed to make a response to that, and this is our response."
Vincent says the Government's proposed regulatory changes aren't enough to mitigate the harm this lending can cause for some New Zealanders. Her organisation is hearing of people using buy-now-pay-later for day-to-day costs like breakfast for their families.
"I was talking to someone today who said they had used buy-now-pay-later to buy a box of cereal. And you know, that tells us a lot about how unaffordable the cost of living is."
Half of the people who approach Good Shepherd for support already have buy-now-pay-later facilities they are unable to manage. To avoid missing payments and incurring fees, people are prioritising debt repayments over other essential family costs such as food and power.
Those with limited incomes and dealing with the high cost of living are particularly exposed to getting caught in a cycle of using buy-now-pay-later for essential day-to-day living, she says. The result is that the lending quickly becomes larger and unmanageable through default and collection fees, coupled with unsolicited increases to the amount people can spend.
"We're not saying it's bad, we're just saying that there's not enough protection around it for those who are vulnerable to harm," she explains. "If you don't make your payments on time, fees are charged. And that goes on and on, and we see them ending up at debt collectors."
In a tongue-in-cheek retort to buy-now-pay-later, Good Shepherd is calling its cash loans 'Good Now, Good Later'. They will be provided where appropriate to people who are struggling to stay afloat financially, based on recommendations from their financial mentors.
Vincent acknowledges the support of BNZ in financing the loans. "People can use a Good Now, Good Later loan to deal with their most immediate financial concern, which then let’s them get on with the important work of dealing with their longer-term financial challenges, with the support of their financial mentor."
