Tizard Judith: Consumer Credit Bill — Second Reading 
Tizard Judith: Consumer Credit Bill — Second Reading 
[Volume:610;Page:8008] 
Hon JUDITH TIZARD (Minister of Consumer Affairs) 
: 
 I move  
That the Consumer Credit Bill be now read a second time 
. I would like to thank the Commerce Committee—in particular the chair Mark Peck—for its thorough and timely consideration of this bill. I would like to thank the submitters for their efforts in preparing very thorough submissions that have led to numerous technical enhancements of the bill and as well the officials who worked so hard to get this bill back to the committee and back to the House in time. 
This bill overhauls the credit law framework by replacing outdated statutes—the Credit Contracts Act of 1981 and the Hire Purchase Act of 1971—with innovative state-of-the-art legislation designed to protect consumers in a modern finance market. The benefit of this new legislation will be tough enforcement against creditors who flout the law and exploit consumers. In particular the legislation empowers the Commerce Commission to take action in response to breaches. The bill provides better-quality and more relevant information for consumers about the terms and costs of credit and provides flexible but fair rules relating to fees and interest charges on credit contracts. It reduces compliance costs for providers of commercial credit and simplifies the law so as to meet the needs of both creditors and consumers. 
The Commerce Committee considered this bill and the submissions on it and reported back to the House recommending that the bill be passed with some amendments. I would also like to acknowledge the strong support the bill received from both creditor and consumer interests. 
I particularly want to draw attention to two aspects of the bill as reported back. The first is the amendment concerning property buy-back schemes. I wish to draw the attention of the House to that as it was one of the key issues considered by the select committee and has resulted in a significant amendment to the bill. The Government recently placed eight companies participating in buy-back schemes into statutory management. A large number of consumers are affected by those schemes and have lost or may lose their homes. Without the new measures now in the bill there was the potential for further detriment and that is a matter that every member of Parliament every homeowner and everybody in New Zealand should be aware of. 
A property buy-back scheme involves a consumer selling his or her home to a company or an individual in return for the right to occupy the home for a fixed term with the option of repurchasing the home at the end of that term. The sale proceeds are often used to repay existing debts owed by the consumer. However the transactions are often structured so that the consumer cannot usually afford to repurchase the home. They often involve exorbitant establishment fees. I am aware of schemes in which consumers have paid between $20000 and $55000 in establishment fees. Many of the consumers involved in those schemes do not realise that they have sold their homes until they are notified of the commencement of mortgagee sale proceedings. In most cases the transactions do not meet the definition of a credit contract under the Credit Contracts Act and until now would not have met that definition under this bill. That is because the consumer does not necessarily incur a debt under the transaction. Buy-back schemes have only become prevalent as a form of consumer financing since the late 1990s which is one reason that they have slipped around the Credit Contracts Act and the bill as it was originally drafted. 
The select committee recommended amendments to the bill that will protect consumers against future losses from buy-backs as well as provide remedies for consumers already involved in buy-back schemes. The bill will require disclosure of information about buy-backs and it will also require the provision of independent legal advice to consumers entering into buy-backs and certification by solicitors that that advice has been given. The bill will prevent the transfer of property without the court’s permission when initial disclosure has not been made or when independent legal advice has not been provided. It will also ensure that the remedies against oppressive conduct in Part 5 of the bill apply to buy-back schemes. I am confident that those measures will reduce the attractiveness of buy-back schemes to financiers while enhancing the ability of consumers to understand the nature and risks of those transactions. I predict that that combination is likely to see that form of finance scheme leave the market. 
Another significant amendment made by the select committee is the inclusion of a hardship provision. Submitters from voluntary welfare and consumer groups sought the inclusion of a hardship provision in the bill equivalent to that contained in Australian legislation. The committee wrote to all submitters seeking their views on that. The Australian provision enables debtors to seek changes to credit contracts on specified grounds of unforeseen hardship such as the loss of employment or the end of a relationship that are considered to be good causes to allow debtors to apply for relief under a credit contract. If the creditor does not agree to the changes sought the debtor can apply for a court order. Most creditor submitters argued that the provision was unnecessary because responsible creditors following an approach from a consumer in unforeseen hardship would make the changes contemplated by the bill anyway. While I accept that I believe that the practice of responsible creditors should be made the standard for the whole of the credit market. 
Less reputable creditors are too quick to promote unnecessary and expensive refinancings rather than a simple variation to the original contract. The hardship provision is aimed at that sector of the market. The committee has ensured that the hardship provision has been carefully drafted to avoid abuse by debtors seeking to frustrate legitimate enforcement proceedings. For example debtors already in default on their payments cannot invoke the provisions in order to buy time. I am pleased that the committee has effectively balanced the concerns of consumers and creditors in its recommendations. 
Once again I thank all members of the select committee for the work they have put into this bill. It is a very timely bill that represents a worthy step towards improving the effectiveness of New Zealand’s core consumer legislation which is at the heart of an effective market economy. I commend this bill to the House.