Beaumont Carol: Credit Contracts and Financial Services Law Reform Bill — Second ReadingText is incorporated into the Bound VolumeBeaumont Carol: Credit Contracts and Financial Services Law Reform Bill — Second Reading[Sitting date: 10 April 2014. Volume:697;Page:17169. Text is incorporated into the Bound Volume.]CAROL BEAUMONT (Labour):I am rising to support the Credit Contracts and Financial Services Law Reform Bill at its second reading. This is a substantial bill and it covers across the consumer credit area. Certainly as the Minister of Consumer Affairs has said there are many very positive provisions in this bill. For many of us and I am sure for those listening the impact on fringe lending or predatory lending as part of consumer credit is the area we are particularly interested in. I just want to look at what that problem is because actually it is a weeping sore. Just in the last month or so there have been reports in the media from budget services all around New Zealand of examples of 100 percent interest rates of 50 percent interest rates and of 50 percent interest rates for a loan of 7 days. These are just a few examples that I have recently looked at. This is a real problem. People know—I am sure that virtually every MP in this House knows—about the shonky business model of the so-called truck shops that rattle around in low-income parts of our communities. So we know that there is a problem and it is an ongoing one.But it has got worse. In tough economic times the problem has got a lot worse. These lenders—these predatory lenders—have preyed on vulnerable consumers. They have preyed on families who are struggling to make ends meet. There has been an increasing problem of the type of predatory lender that has been in the market. So over recent years we have seen an explosion in for example the number of pay-day lenders—short-term smaller loans supposedly from one pay period to another but often longer than that—loans by texting and things like that. So there has been an increasing problem from new players. Budget services say that the level of indebtedness that they see in our communities has increased. The overwhelming majority of people who go into budget services are tied up in high-interest consumer debt and many of the budget services have seen a change in the ratio—that is the proportion of people whom they see who are in the paid workforce has increased as well.Families are damaged by these lenders. Families are damaged as they try to repay excessive interest rates and many of them actually repay those loans with those excessive interest rates. That is just taking money that they can ill afford to lose out of their children’s pockets or mouths—taking it away from feeding and clothing their children. So it is being irresponsible not to have acted sooner when we know this problem when we can see these problems and I know that the level of concern in the community is very very high.This particular bill has been a long time coming. There was already a review of consumer credit laws under way when National came into Government. It started in 2007 with the Financial Summit held in South Auckland and that was held in response to concerns about the adequacy of the current legislation the Credit Contracts and Consumer Finance Act—particularly in response to its adequacy in dealing with predatory loan sharks which were starting to be seen as an increasing problem. The deprioritisation of the work of reviewing that legislation is shameful. The delays despite the rhetoric from across the House of getting tough on loan sharks has just been truly shameful. I ask how many thousands of families have been caused immeasurable grief and hardship as a consequence of the exploitation and predatory behaviour that has been increasingly evident right across New Zealand but it is especially evident in low-income areas. Loan sharks truck shops and pay-day lenders have flourished in an environment of low and static wages ever-rising prices and high unemployment. This is not the rock star economy that the Prime Minister brags about.I want to talk about interest rate caps. The Minister has referred to them in his speech. How many members of this House think that interest rates of 80 percent 100 percent 200 percent or 700 percent are acceptable? How many of you think that that is acceptable? How many of the people listening to this debate think that those sorts of rates are a fair go? If we went and surveyed New Zealanders how many of those people do you think would think that it is OK? Well I do not think too many would. So why are such rates legal and why are we not addressing those rates in this bill?Although Labour welcomes many parts of the Credit Contracts and Financial Services Law Reform Bill as it is a positive step to further protect consumers we are outraged that National has once again rejected interest rate caps. New Zealand is now one of the last remaining countries that have not capped rates in an effort to curb unscrupulous rates of interest. Many of those paying such interest rates can ill afford to lose that money from their impossibly tight family budgets. As I said many of those people repay those rates but at what cost? It is at the cost of food at the cost of clothing and at the cost of other essentials for their family and many get caught in a cycle of debt and despair that has a huge cost for that whole family. Many are vulnerable families living in our poorest communities.On 1 July last year Australian legislation came into force capping interest rates at 48 percent right across Australia. A bill was introduced into the US Senate in April 2013 proposing an interest rate cap of 36 percent right across the United States. More than 80 percent of the individual states in the United States already had interest rate restrictions. Britain was one of the last European jurisdictions to decide to implement loan shark interest rate caps. It had explored every avenue in an attempt to avoid caps but just before Christmas Prime Minister Cameron and the Chancellor of the Exchequer George Osborne did a U-turn and announced interest rate caps after previously denouncing them. They announced that every avenue had been explored and that there was simply no alternative to interest rate restrictions. In addition to the above interest rate restrictions now apply in Japan Singapore most countries in Africa and Europe Canada Mexico and almost all of South America. This list is by no means exhaustive.The same old tired arguments—and the Minister of Consumer Affairs had them just before—were trotted out during consideration of this bill: unintended consequences the caps become a target access to credit from loan sharks may be reduced or driven underground. What was not adequately answered for Labour was why this would be a problem here in New Zealand but not in the many many jurisdictions around the world that have introduced interest rate caps. If the Government’s concerns have any substance then New Zealand would not stand out as one of the last remaining countries not to have imposed interest rate caps. I personally challenge Minister Craig Foss to find a country that has recently repealed such provisions because they have proved unworkable. Canada has had them for 8 years. If they had all those consequences why has it not repealed that legislation?So we are not going to sit back and leave this unchallenged. We will be putting forward amendments to this bill to include interest rate caps and also to ensure that the oppression provisions can be used to look at interest rates. I am pleased to say that when we introduced those we had clear indications of support from the Greens New Zealand First Mana Brendan Horan and the Māori Party. Peter Dunne is the man we need to get across the line I say to everybody. To those listening Peter Dunne is the man we need to get across the line. He supported interest rate caps when he voted for my member’s bill in 2010. What stops him doing it now? He said at the time he was deeply disappointed. What stops him in my opinion is his need for the National Party’s support and it outweighs anything else for that man so I urge everybody to talk to Peter Dunne. Let him know what you think he should do.Going back to the rest of the bill the bill contains many positive provisions as I have already said. Many of them have been provisions that budget services put forward years ago and from citizens advice bureaux in the review Labour commenced 7 years ago. I want to acknowledge the work of those people. They deal with the consequences of this every single day.My member’s bill also provided for responsible lending provisions in 2010 and I am pleased to see that we have responsible lending provisions albeit 4 years later in this legislation. Another thing I am very pleased to see is responsible lending provisions being applied to guarantors. I think that is great. I think that is particularly good for all those elderly people who end up guaranteeing loans for their children and their grandchildren. Truck shops as I have mentioned will be covered by some of the provisions and I want to acknowledge my colleague Kris Faafoi. Kris and I also worked very hard on the select committee to try to ensure that truck shops were covered by those provisions. Thank you.