Usury
December 20, 2008This blog is not given to pronouncing on policy or public affairs. But yesterday I saw something that made my blood pressure rise.
I’m afraid you can’t really see it in this picture (cameraphone across the street), but the advertised interest rate is 8% per week.
If you borrow one dollar at 8% per week, and don’t pay it all year, you will owe $59 by the end of the year. Which is to say this is about 6000% pa.
This is loan sharking, plain and simple, calculated to wipe out the very little resources of our most vulnerable citizens.
Whether this operation’s clientele is genuinely desperate or simply acutely ignorant about money hardly matters—if there are enough customers around to sustain this business, our society has failed.
As an aside, I’m pretty sure it’s illegal to advertise an interest rate in anything other than annual terms. Next time I’m in the area I’m going to gather enough details to complain to the appropriate authorities.
Update: Jack points out in comments that this is a pawn operation, which in many respects makes it rather better. See below.
Che Tibby
Stephen
Frugal Me 
good on you. loan sharks are scum. and especially getting out there this time of year!!
This is extraordinary. Keep us in the loop regarding the complaint.
Years ago in Milan, after Justine and I had just moved in together and one of my clients turned out to be unable to pay me for the work of the previous two months, I was sent to an old-fashioned, honest to god loan shark by the manager of our (very reputable) bank. Quite an eye-opening experience.
Yeah that has always bothered me as well. Their office is on Adelaide Rd where they have the same 8% claim plastered everywhere. Here it is on Google street view: http://tiny.cc/EnkWF
The other one that irks me is the one on Courtenay Place, the sign saying “Need cash for a big night out? Come and see us.” or something along those lines. No doubt similar interest rates and encouraging people to borrow money just to spend on booze… seriously?
money, for booze?!
that’s outrageous.
They do mention their APR on their website – http://www.superloans.co.nz/site/index.php?q=node/2, in small print at the bottom (claimed APR of 416%). They appear to be a pawnshop style operation rather than straight up loan sharking, as they require you to bring in your collateral and leave it with them. As Perrin says, they’ve been there for a wee while (I’m sure I noticed them a few months ago). It’s a pretty fucking sad indictment that these guys are in business, and that they seem to be doing well out of it.
Actually, now I’m wondering how APR is calculated. They claim an APR of 416%, which suggests to me that if you take out a loan of $1 on Jan 1st, you will owe $4.16 on Dec 31st. Doing the math, at 8% per week, you’d actually owe somewhere around $55 (I make it slightly different from Steve, but that’s probably rounding error or summat, this is just spreadsheet-foo). In point of fact, they seem to limit loan periods to 3 months (possibly to prevent people cottoning on), but the maths should be the same – right?
Anyone got the skinny on exactly how to calculate APR? And what counts as misleading advertising here?
If they have the APR on their billboard, it’s invisibly small from the road.
I suspect the difference in our figures comes from how we work out compounding frequency. But I think we can safely say that no matter how it’s worked out, it’s an obscene amount.
On further thought, I’m somewhat less outraged by pawning.
The reason is that with pawn, there is an absolute limit to how deep in the shit you can get. It’s also easy to understand your exposure: possible loss of the item.
Whereas with a loan, you can go bankrupt as the interest continues to accrue, and people who are bad at maths often don’t realise the true cost.
Actually, thinking about it more, and looking at their materials, I don’t think that they’re necessarily going after the financially illiterate. I think they’re deliberately aiming at people with bad credit, who can’t get a loan anywhere else. Note how the FAQ on their web site has frequent mention of how you can still get a loan from them, even if you’ve defaulted on loans, even if you’ve defaulted on loans from them previously. Since they have your collateral, why would they care about your credit record? If you don’t pay, they just send your kit off to Dunbar Sloane’s and they get their cash back. So if you’ve got the sort of credit history that means you can’t obtain a loan from anywhere else, these guys are basically your only choice.
Now what I want to know is, how much effort they take to avoid being used as a fence. Think about it – if you nick an LCD TV from someone’s house and try to shift it via Cash Converters, you get put on CCTV and have to produce ID. How serious are these guys about preventing this sort of thing?