Credit Contracts and Consumer Finance Bill — In Committee 
Credit Contracts and Consumer Finance Bill — In Committee 
[Volume:611;Page:8837] 
Credit Contracts and Consumer Finance Bill 
In Committee 
Debate resumed from 16 September. 
Part 6 Miscellaneous provisions 
LINDSAY TISCH (Junior Whip—NZ National) 
: 
 I raise a point of order Mr Chairperson. We cannot hear you Mr Chairperson. Either there is something wrong with your microphone or there is too much noise. 
The CHAIRPERSON (Hon Clem Simich) 
: Could those who are leaving the Chamber do so quietly and leave now. I ask members to bear with us for a moment. 
LINDSAY TISCH (NZ National—Piako) 
: 
 I want to look at clause 114 “Transitional provision” which states: “(1) This Act applies to every credit contract consumer lease and guarantee that is made after the commencement of this subsection.” The point I make is that the contracts formed prior to the bill coming into force continue to be governed by the law in force at the time the contracts were formed. However revolving credit contracts that were formed prior to the bill coming into force must comply with the bill after the transition period. 
Simon Power 
: What is a revolving credit contract? 
LINDSAY TISCH 
: That is one that goes round. That is why it is called revolving. I draw the attention of the Committee to quite a significant move a change that was made in the original drafting of the bill—that is the original clause 114 which was struck out. National believes that this is a very important point because we should not be treating revolving credit contracts differently from any other contract. So the new provision is the one that we think is significant. That was a change that we supported—a change that says that all contracts need to be treated the same and in this case revolving credits. 
When we are looking at the transition periods we need to go back to the commencement date of these. The timing of the changes the commencement dates is significant. Clause 2 states that the buy-back provisions “come into force on the day after the date on which this Act receives the Royal assent.” Clause 2 then goes on to state in subclause (2)(a): “for the purpose of applying those provisions to buy-back transactions on the day after the date on which this Act receives the Royal assent;”. That is saying that there will be quite a considerable time frame that will allow creditors sufficient time to be able to change the way they operate change their requirements and procedures and update the computer system software whatever it will be. That provision is a good one and we support it. The buy-back provisions though come into force on the date on which the bill receives the royal assent. So those provisions are certainly ones that we supported. We are quite happy with those. 
I draw the Committee’s attention to clause 111 “Regulations”. What we see so much in legislation that is being promoted by this Government is that there is always by way of Order in Council provision for regulations that will put up charges on business. The National Party is concerned about the high compliance costs and the regulatory creep that come in under so much legislation. Clause 111 states: “The Governor-General may by Order in Council make regulations for all or any of the following purposes:”. This is the compliance cost regime that we see creeping in and in this case here it is of major concern to the way that we see this bill. Although we are supporting the bill we flag quite clearly the fact that anything that increases the cost of doing business and the cost incurred by people involved in whatever lease or credit facilities they have is something we are really concerned about. It is interesting that today we had a question in the House about the lower tax regimes that will come in and the Government’s discussion document which was released yesterday about how we can simplify tax for small businesses. 
I make the point here that with the release yesterday of the simplification of taxes for small businesses we will see that if they are paying GST on a 2-monthly basis then any provisional tax will be linked to that. Of course businesses that are on a 1-monthly GST return period will be paying that monthly. If it will improve and simplify the tax regimes that is all very well. But I tell members—I am putting out a warning here—that in a situation like that which relates to this bill here the huge costs associated in terms of being able to fund revolving credit facilities may be necessary. Revolving credit is a facility that one has to be able to move up and down within the scale of one’s operations without having to come back to the lender each time and want variations and extensions overdrafts term loans or whatever it will be. 
I am just flagging here that although the Government yesterday moved to look at tax simplification for small businesses it has not taken care of all those other huge compliance costs that business have to deal with. Dr Don Brash asked a question today about the KPMG survey of 760 businesses in New Zealand which showed that 98 percent of them said that compliance costs had gone up. The Minister Mr Cunliffe did not have an answer for that but he is in the chair now so he may like to answer that in a moment. I am talking about clause 111 “Regulations” which relates to compliance costs and the way this will work. The answer he gave to Dr Brash in question time this afternoon was completely unsatisfactory. The Minister was relating to a survey—not the KPMG survey because the KPMG survey on compliance costs was very very clear in what it said. The Minister was referring to the Massey University survey—which did come up with something different because it was instituted by the Government. So what else will it get but the results it was looking for? The point I make is that anything that increases compliance costs is to be avoided. Clause 111 “Regulations” allows the executive by Order in Council to say: “Hey we will increase fees. We will do whatever we like without the scrutiny of the House.”—without it coming back for members of this House to adequately debate and to see whether the charges and the fees that will be put on are sustainable and are for the benefit of all users. Those were the two points in Part 6 that I wanted to concentrate on. 
As I said earlier National will be supporting this bill but I have flagged those concerns. With regard to the transitional provisions in clause 114 we are quite comfortable with what they mean. Certainly the treatment of revolving credit facilities in the same manner as others is to be applauded and that original clause has been struck out. However I do flag the concerns we have about clause 111 “Regulations” and the costs that can be applied. I know that other speakers will pick up on the concern about anything that adds costs to the way people operate. I know that the bill is not specifically about business; it is about individuals. But if people on fixed incomes have to change the way they operate because of these provisions and extra charges then that must be looked at closely and needs to be avoided. Those were the points that I wanted to raise on Part 6. 
STEPHEN FRANKS (ACT NZ) 
: 
 This bill does bring out some strange things. Every now and then I am reminded of why I am not in the National Party. Mr Lindsay Tisch explained—in rather mild terms—a few of the stupidities in this bill and said that the National Party was against them. Then he told the Committee that National would support this bill when not only this part but the entire scope of this bill is already covered by a very adequate settled piece of law the 1981 Credit Contracts Act; legislation about which there has been almost no complaint in an area of industry that has expanded vastly—and we get this drivel and the National Party decides it will support it. I suppose it is one of the benefits of MMP that I can be in this Parliament and not have to associate myself with that through some sort of party discipline. I cannot imagine how the National Party has reached that position. 
I look at just one of the items that Mr Lindsay Tisch mentioned—the regulations. Clause 111 now has a new provision that allows the Governor-General to prescribe all the assumptions that may be made to simplify disclosure. It is not very often that the law becomes dramatically worse from the time it is introduced to the time it is reported back by a select committee. At least the bill as introduced set out the assumptions in the schedule to the statute. At least the criminal penalties that would apply for breaches related to something that someone could look up and know that Parliament had addressed its mind to what the consequences would be of non-compliance and how easy it would be and that Parliament was therefore creating a law that it understood. But I look at schedule 3 and find it has been removed by the select committee. In reading it I can see why. The select committee went through and decided it was probably a little bit inaccurate. In all the months that the committee had the bill it was too hard to think what they would really do so the Minister has persuaded the select committee to take the schedule out and leave it to be decided later. So firstly we have something that is bad in principle; secondly it is impossible to debate that set of assumptions now because we do not know what the Minister will prescribe. It is all up to his or her discretion; and thirdly we have it in a form in which the assumptions could be entirely at variance with what Parliament believes they will be. 
That will now be an implication in looking at the legislative history of this bill. If anyone challenges the assumptions that the Minister decides are the assumptions of Parliament—because that is the effect of what is happening—on the grounds that the Minister is ultra vires and the court looks at what has been knocked out it will have to decide that there was something defective about those assumptions but it does not know what. It will have to decide that the areas covered were an embarrassment or that there was some serious reason that Parliament would not legislate for them. It will then try to imply from there some further assumptions of its own as to what Parliament might have anticipated or contemplated when it decided that it did not know what it meant. The bill now states that the Minister might know what Parliament meant and they will leave him to decide later. That is bad constitutionally bad in principle and bad outright. 
Another little gem in this bill is the conflict of laws provision. The bill as introduced was relatively straightforward. It said: “This Act applies to contracts governed by the law of New Zealand.” Now it says it applies to contracts governed by the law of New Zealand even if there is a choice of law provision that says they are not. The normal provision for the courts to apply is that the parties if they are competent adults can choose for themselves whether they will have their contract governed by another law. There are provisions that say that where a choice is entirely unnatural the court can overrule it. Now we have Parliament saying that competent adults cannot put in a choice of law provision. This might well affect for example closer economic relations. An Australian bank might not want to incur the cost of having to become familiar with New Zealand’s silly variant of Queensland’s credit contracts legislation and might want to do lending in New Zealand by the Internet under Queensland law but this little advance by this brilliant Government—that so understands relations with Australia—has decided that that is no longer possible. 
Dr DON BRASH (NZ National) 
: 
 I was impressed with some of the points that my learned colleague Mr Franks made. I think it is a great pity that he was not able to present those points at the Commerce Committee because it seems to me that some of them do have force. There can be few people in this Committee who have more experience of commercial law than Mr Stephen Franks has. But at this stage I am assuming that the Government is not able or is not likely to change this bill so I will confine my comments to Part 6. I want to emphasise the comments that my colleague Lindsay Tisch made a few moments ago. I will speak about both the transitional provisions in clause 114 and our concern about the compliance costs. 
Clause 114 as amended by Supplementary Order Paper 141 in the name of the Hon Judith Tizard comes into force on 1 April 2005. It seems to us that that is a useful advance but a number of submissions on this bill suggested that even that transitional period would be too short to reduce the compliance costs that are inevitably involved in this new legislation. I think it is unlikely that this bill will go through the Committee stage and its third reading today which means that it will not be passed until well into October. That means we will not even have 18 months between the bill becoming law and coming into effect on 1 April 2005. We will have fewer than 18 months for the financial institutions affected by this bill to get their systems documentation and so on into order. That is a very minimal period— 
Stephen Franks 
: They want to have headlines during the election year. 
Dr DON BRASH 
: Mr Franks makes a very important point. Some of the submissions suggested that the transitional periods should be at least 2 years. I think we have compromised with a period of 18 months but there will be less than that between the time that this bill becomes law and the time that the law comes into effect on 1 April 2005 and we regret that. 
Mr Tisch made the point that we have been increasingly concerned on the Opposition side of the House about the compliance costs that this Government lumbers on the business sector and it seems to me that this is just one further example of that problem. As Mr Tisch pointed out earlier KPMG and Business New Zealand released a very comprehensive survey of 760 businesses on 25 August which indicated that three of the 760 businesses surveyed felt that compliance costs had reduced over the last 12 months. Eleven of the 760 businesses felt that compliance costs had not changed very much over the last 12 months and 746 of the businesses—98.2 percent of the total—felt that compliance costs had gone up. That survey indicated that tax compliance costs and issues relating to the Occupational Safety and Health Service the Resource Management Act and the Employment Relations Act were all significant issues for a great many businesses. This bill does not talk about that territory. It is just one more example of the compliance costs that are lumbered on the business sector at every turn. 
Large businesses can often cope with those compliance costs because they can employ specialist human resources people and specialist lawyers and accountants. But compliance costs are a very major impediment to growth for smaller businesses. They are a major impediment to taking on more staff and a major reason that our growth in per capita income is still insufficient to get us back to the top of the OECD or even halfway up the OECD ladder within a reasonable period of time. Indeed at the moment all those compliance costs—of which this bill is a good illustration—are likely to mean that we will never get back into the top part of the OECD—not in 20 years not in 30 years and sadly not even in 50 years. 
Hon GEORGE HAWKINS (Minister of Police) 
: 
 I move  
That the question be now put 
. 
BRENT CATCHPOLE (NZ First) 
: 
 Part 6 of this bill covers the transitional provisions which is one area that I would like to touch on at this point. Although there are transitional clauses here to allow other Acts to apply until this legislation comes into effect I am concerned about clause 114(3) which states: “However subpart 3 of Part 3 does not apply to a buy-back transaction made before the commencement of this subsection.” 
I would hate to think that that particular form of transaction will be excluded until that clause comes into being. I request the Minister in the chair David Cunliffe to stand up and take a call to make it quite clear to this Committee and to everybody else that buy-back transactions that occurred prior to this bill coming into force will be captured and that there will be remedies for those people who have been trapped in such schemes by unscrupulous transactions. The Minister should take note of what I am saying and then get up and confirm to this Committee that transactions under buy-back schemes will not be excluded from this legislation. An awful lot of desperate people are already trapped in existing buy-back schemes and they are hopeful that they will have a means of remedying that so I hope that clause 114 will not exclude those people from that remedy. 
 I move on to clause 115 “Election for Act to apply”. That clause allows creditors the choice to elect for this legislation to apply to contracts that existed prior to this law coming into force. It does not allow anywhere for debtors to have that choice. I am disappointed that debtors are excluded from that option because on a number of very important issues that are addressed in this legislation a debtor would have recourse to a better deal under it rather than just the creditor having that option. I would like the Minister in the chair to comment on that. 
I move to clause 116 “Continuing application of Credit Contracts Act 1981 and Hire Purchase Act 1971”. I am pleased to see that provision there. I just hope that it does not preclude people from remedies under this legislation if the creditor has elected to continue under the old Acts. I would like the Minister to take a call and confirm to the Committee that continuation under those old Acts does not preclude actions under this legislation in circumstances where the creditor has elected to work under the old Acts and that is to the detriment of the debtor. I suggest that in such cases those three clauses disadvantage the debtor to the extent that we really need some comment from the Minister—in particular to do with buy-back schemes. If buy-back schemes are being excluded because of those three clauses I really do need to have some comment from the Minister. 
If buy-back schemes are not being excluded and debtors are able to continue under this legislation and get a remedy I will be happy with that. But I ask the Minister to please confirm to the Committee that there will be a remedy under this legislation in respect of buy-back schemes already in existence before this bill comes into effect. I ask the Minister to stand and take that call. 
Hon MARK GOSCHE (NZ Labour—Maungakiekie) 
: 
 I move  
That the question be now put 
. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 In speaking to Part 6 I laud the excellent contributions from my colleagues Lindsay Tisch and Don Brash. I also acknowledge Stephen Franks because I valued his contribution and I see that he has an amendment on which I am sure he wishes to address the Committee during the debate on this part. I would appreciate hearing from him and I hope that he will get a further call. 
In speaking to this part I recall that no reason was given for the introduction of this bill so one can only presume that the reasoning was that there was a growing concern about people entering into credit contracts and that there was an increasing problem with regard to people finding themselves in difficulties with their creditors. Hence one presumes we have this bill to deal with the issue of those people who enter into credit contracts and get themselves into difficulties. It has been said that while this bill is predominantly about disclosure for the benefit of people who have a limited understanding of these particular contracts the starkest way to bring home to consumers the meaning of a credit contract would be to have nothing on the first page of the contract other than the total sum payable in large black letters. I cannot emphasise that to members enough. Many people think they have a degree of understanding when they enter into credit contracts but often they do not particularly when they have limited literacy and numeracy skills. 
First of all I will carry on with the comments made by my learned colleagues on Part 6 “Miscellaneous provisions”. Clause 111 states: “(1) The Governor-General may by Order in Council make regulations for all or any of the following purposes:”. In doing that he or she can change the information that must be disclosed. We already know from many many submitters that it could cost some people hundreds of thousands of dollars to change their documentation and processes as required by the disclosure requirements. If at any time the Governor-General issues an Order in Council to institute a difference in the disclosure requirements that results in a change to the documentation that will activate an additional compliance cost to be met by all those creditors who have to comply with those requirements. That is of concern and my colleagues have expressed our concern at that. 
Clause 111(1)(f) states: “prescribing model disclosure statements that comply with section 29 and the terms and conditions on which the model disclosure statements may be used:”. I put it to members that “may be used” is not correct; I would have thought that they had to be used. Thus we enter into that whole realm of compliance costs. Those compliance costs will actually be ongoing. There was quite a substantial compliance cost in an earlier version of the bill. However some assumptions associated with that cost were not correct and were challenged by submitters to the Commerce Committee. It was quite clear that those assumptions were not correct and that there will be an ongoing cost because of the requirement for creditors to continually monitor their performance and to have programmes to monitor their compliance with the legislation. 
I will move on to subclause (1)(ia) which provides for “prescribing the form of the certificate that must be given under section 58C:”. Clause 58C refers to the buy-back provision. In that situation the creditor has to ensure that every occupant of a house gets legal advice. I would like the Minister in the chair the Hon David Cunliffe to take a call and perhaps explain to us why the bill requires that every occupant of a house where someone from the house is to be involved in a buy-back scheme has to have legal advice and why the creditor has to ensure that. Perhaps he would like to explain that further and clarify that little provision which relates to prescribing the form of the certificate that must be given under clause 58C. 
I too would like to raise the concerns that have been mentioned concerning clause 114(3). 
DAVID BENSON-POPE (Senior Whip—NZ Labour) 
: 
 I move  
That the question be now put 
. 
STEPHEN FRANKS (ACT NZ) 
: 
 I would like the opportunity to explain the effect of the amendment I have proposed which is that clause 109 be amended to in effect reinstate in this bill the provision of the Credit Contracts Act that allows the parties’ choice-of-law clause to prevail. I am unaware of any case where that has been exploited or been a problem. The Commerce Committee in its report imagined the possibility that people might use a choice of law clause as a way of avoiding the protection that the committee hoped to improve in this bill. 
I guess that is a theoretical possibility but the effect of the change—which having talked to people involved I do not think was contemplated by the committee—is to shut down a much more likely possibility. For example there is the possibility of Australian retailers selling into New Zealand—using a term sale or credit arrangement that would be deemed to be a consumer credit contract under our law and their law—but having to try to comply with New Zealand’s provisions. As I understand it if the Queensland code is applied a consumer in New South Wales can contract on the Queensland form and there will be a mutual recognition. I am not certain of that but that is what I understood to be the effect of the mutual recognition arrangement a few years ago. I suggest that our clause 109 would permit something similar in New Zealand because the Australian contract will say which state’s law governs—whether it is Queensland or any other state. 
Accordingly I urge that members vote for this amendment. It will permit the trans-Tasman market that is so important not only in terms of the simple freedom of people to contract and take advantage of opportunities but also to keep competitive pressure on New Zealand. It might be that at some later stage an efficient form of direct consumer credit from banks in Australia will be a constraint on pricing in the New Zealand market for credit alone. But more important in the short term I believe that reinstating in this bill the law that has caused no problems since 1981 will allow Australian retailers and providers of services on credit to continue to operate in New Zealand without the compliance costs of having to change their contract forms get legal advice and work in the unfamiliar code that our code would be for them. The consequence probably would be that if their offers were price-sensitive they simply would not bother to extend them to New Zealand. 
So I urge the adoption of my amendment. It is not a hazardous one it does not take people into strange territory and it would simply maintain the position as it currently is under the Credit Contracts Act and extend it to this bill. It is not like the normal last-minute change at the Committee stage where it is a matter of stepping into the dark; this is a change the Government could easily support. I recognise that it is hard for a Government to move very quickly on something like this clause but it should be able to decide that by initiating it the select committee was making what was probably a well-meant flight of ambition. As I understand it the officials had not proposed it and if it closes down part of the retail market and excludes people from Australia who would otherwise be making credit sales in New Zealand it is a change that might have much wider implications than anyone anticipated. 
The question was put that the following amendment in the name of Stephen Franks to clause 109 be agreed to: 
to omit from paragraph (a) all the words after the words “New Zealand”. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 39 
New Zealand National 20; New Zealand First 13; ACT New Zealand 6. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 111(1) be agreed to: 
to insert the following new paragraph: 
(a)prescribing any fee or commission charged by a broker and known by the creditor:. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 39 
New Zealand National 20; New Zealand First 13; ACT New Zealand 6. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 111(3) be agreed to: 
to insert the following new paragraph: 
(f)the fee or commission charged by a broker and known by the creditor. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 39 
New Zealand National 20; New Zealand First 13; ACT New Zealand 6. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 141 in the name of the Hon Judith Tizard to clause 105 be agreed to. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 6 as amended be agreed to 
. 
Ayes 102 
Labour 52; New Zealand National 20; New Zealand First 13; Green Party 9; United Future 8. 
Noes 6 
ACT New Zealand 6. 
Part 6 as amended agreed to. 
Schedules 
Dr DON BRASH (NZ National) 
: 
 Even before the result of this recent voting I was going to express concern about the schedules but following the defeat of the Supplementary Order Paper put forward by my colleague the Hon Tony Ryall I feel even more concerned. The point of Mr Ryall’s Supplementary Order Paper dealing with clause 111 was that as currently defined it appears that the intent of this bill may well be significantly circumvented because of the omission of a potentially very large part of the charge against a borrower. Mr Ryall pointed out during the second reading debate that a fee charged by a mortgage broker is on the face of it not caught by the definition of the cost of a loan or credit. When we look through schedule 1 that indeed appears to be the case. I feel that is a significant omission and as drafted the bill may very well not achieve the purpose that I think both the Government and we in the National Party would like to see it achieve. That must be a matter for serious regret. 
That said I am bound to say that in our judgment the best way of protecting consumers against rapacious moneylenders is a competitive banking and finance sector. It is not more than 25 years back that most consumers were unable to borrow from mainstream lenders—banks and so on—at all. They were therefore vulnerable to being charged very high prices indeed for consumer credit. Even those who could get less-expensive credit from trustee savings banks were obliged to get down on bended knee and cultivate good relationships with their bank managers in a way that these days is not required at all. We now have a very competitive banking and finance market and for most of the population that provides all the protection required. But I acknowledge that this bill is designed not merely to protect the 80 percent of the public who do not need protection in a competitive banking and finance market but also the 20 percent who find it more difficult to borrow from mainstream banks and finance houses. I accept that we therefore need something of this kind. 
Having acknowledged that a competitive banking and finance model is the most effective way of protecting most of the public let me also suggest that another highly desirable thing to protect the public from rapacious moneylenders would be a higher understanding of the way finance works. It is a matter of regret that so many people come out of our school system with only the most rudimentary understanding of how credit works how interest works how compound interest works and therefore of the dangers and consequences of borrowing at high interest rates. 
I suspect that the most effective way of protecting that 20 percent of the public who cannot get access to mainstream banks and finance houses would be to give them some understanding of the risks they run in borrowing from third-tier financial institutions at very high rates. We have seen tragic cases where people have lost homes cars and furniture by not understanding the risks they run. Frankly I would like to see people—at least at high school and possibly even at primary school—given some education about the benefits of understanding how interest works and the risks of not understanding that. My colleague Sandra Goudie pointed out that one of the most effective ways of helping people in borrowing situations would be to make it clear what the total cost of a loan is. 
While I do not condone some of the quite distorted discussions of some financial institutions in adding principal to interest— 
LINDSAY TISCH (NZ National—Piako) 
: 
 I want to focus very briefly on schedule 1 and in particular on paragraph (s) headed: “Debtor’s right to cancel”. This paragraph is a very important part of the bill. It allows the debtor to pull out of a contract within 3 working days and shows what the process should be for that cancellation. However if I go back to clause 24 I see that that clause refers to the cancellation of a contract. Clause 24(1) “Right to cancel consumer credit contract” states: “(1) A debtor under a consumer credit contract may cancel the contract by giving written notice of the cancellation to the creditor under the contract within 3 working days of the day that disclosure is made …”. It goes on to explain how that will be implemented. 
I have concern with this clause and the Minister may be able to help me. Although I understand the basis of the clause I find no opportunity in it—when a contract has been terminated and the creditor has agreed to the termination—for compensation for loss of value. I refer to two significant submissions in particular. We had one submission from the New Zealand Retailers Association which said: “Consumers who purchase goods on credit should not be entitled to return those goods upon taking possession even if they are entitled to cancel the credit contract because the goods depreciate upon delivery—25 percent depreciation is common.” That is a factor. For people who are in business or involved in any commercial activity once something is purchased then its value depreciates very very quickly. 
I see that Paul Adams wants to take a call later on. I am sure that he would be able to relate that situation to driving a vehicle out of the showroom door. As soon as someone drives a $10000 car a $30000 car or whatever it is out of the door with his or her name on the ownership papers he or she will not get what was paid for that vehicle even if the contract is cancelled within 3 days. I am sure that Paul Adams will take a call and might be able to explain that because he has some expertise in that area. 
Brent Catchpole 
: After a student party! 
LINDSAY TISCH 
: Yes. I am concerned that no depreciation factor is included here and that is a major cost on businesses. It is a loss of opportunity for that money which could be used elsewhere. 
If we look further we see that clause 27(1)(e) which relates to the effect of the cancellation under the schedule states: “unless the contract otherwise provides the debtor is liable to pay to the creditor—(i) any reasonable expenses necessarily incurred by the creditor in connection with the contract and the cancellation of the contract; and (ii) if property is returned to a creditor that has been damaged while in the possession of a debtor the cost of repairing the damage.” 
Another submission put in by the New Zealand Law Society states that clause 27(e) should be amended to enable a creditor to require payment of compensation for depreciation if the goods had been used while in the possession of the debtor. That is a real concern and maybe the Minister could explain to the Committee the issue of goods and depreciation—why once people have taken goods they have paid for the goods are not worth the same value if returned. That is a concern and I bring it to the attention of the Committee. 
BRENT CATCHPOLE (NZ First) 
: 
 I would like to follow up on Lindsay Tisch’s comments about the right of the debtor to cancel under schedule 1 which refer back to clause 24. He is quite right in his example of a car leaving the car yard because it certainly does lose its value. I tried to point out to him while he was speaking—and I hope he did not mind my interruption—a reference to a student party and a stereo. I tend to think that a stereo after a student party would lose a lot of its value if returned within the 3-day limit of the normal interpretation of clause 24. 
I move on to paragraph (s) in schedule 1: “Time limits for cancellation”. In general the time limit is 3 working days. However if the documentation and agreement are made by electronic means or email then that period can be extended to 5 working days after the electronic communication is sent. I have a problem with the terminology of “after the electronic communication is sent.” because there is no guarantee that the electronic communication will be received and read at the other end unless a provision is inserted to ensure that that happens. That provision can be activated with modern email systems but if it is not activated then there is no guarantee that electronic mail and emails have been received. That is a key factor. If somebody is not aware that an email is there then how can he or she possibly respond to it within the 5 working days set out in this schedule? This is quite a concern because one has the right to cancel a transaction within a certain time but that right is extended by the use of an electronic method without any confirmation of whether the electronic communication has been received. 
The schedule goes on to say that there can be an agreement within the contract or process to receive information by electronic mail. That information could concern the request for a price or some details about a particular product or contract. The provision does not necessarily set out that the agreement has to advise the debtor of the final contract which I think is something that was overlooked in the final analysis. 
I go on to the statement in paragraph (s): “Delete if the credit contract does not involve a credit sale.” I have some concerns about the interest provision of this paragraph. The interest period is from the day the property or services are received until the day either the cash price is paid for the property or services or the property is returned to the creditor. But if someone makes a credit contract and then pays that cash price within 3 days where does that situation lie? That person has the right to cancel that contract within 3 days but if he or she then decides to pay cash within 3 days will interest be charged for that 3-day period? I would like the Minister to take a call on that and give me an answer. 
I move on to schedule 3 which sets out the procedures for buy-back transactions. It is good that there is a fairly comprehensive description of what information there should be on a contract but there is one thing missing— 
PAUL ADAMS (United Future) 
: 
 I will take a call on the schedules. I just want to pick up on one point Don Brash mentioned and that was educating people regarding their credit debt. I think it is a very good point. There is no way unfortunately that we can legislate in Parliament for people’s success as much as we would love to. We must have laws; nobody would doubt that. But we need to understand that we cannot legislate for people’s success and we need also to be responsible for educating them and letting them know exactly what they are getting into when they take on debt. 
I have learnt in life as probably many members have also learnt that money is a wonderful servant but it is a terrible master. Yet we all have to learn in life by experience. But sadly with debt that can be a very painful lesson to learn. Sometimes it does concern me. The other day I was in a queue and there were some young people in front of me—and I love young people so hear me correctly on this—and one said to the other: “Look I’ll give you the cash and you just put this cost on your credit card.” Well the answer amused me because the person turned round and said: “I’m sorry I think my card is full.” Well I thought that “full” was an interesting way of saying: “I have reached my maximum credit allowance.” 
I heard another conversation between two ladies. One said to the other: “Let’s go shopping.” Now of course one never has to convince a lady to go shopping. She said: “Why are we going shopping?”. The other lady said: “I have just discovered that my card owes me $5000.” I thought that was another interesting saying. So I had to ask her: “What do you mean ‘my card owes me $5000’ ”? She explained to me that she thought she was at the maximum of her credit card balance but she had just got her account and in actual fact she still had $5000 to go and she thought that the card owed her that amount. That sort of comment scares me because I think that people do not fully understand the debt they are getting into. As I said earlier the current credit card interest rate of 18.75 percent—which I think banks in New Zealand need seriously to look at—is an extremely high interest rate. We have 90-day bill rates at below 6 percent yet banks are still charging the average New Zealander 18.75 percent interest on a credit card. If a person cut up his or her card when it was at the maximum balance of $3000 and never spent another cent on it but just continued to pay the minimum balance which is 2 percent per month most New Zealanders do not understand that it would take that person 37 years to pay off the card. 
So as we bring in this legislation I just want to make that point because I think it is a very good opportunity to mention that we can legislate. This is great legislation and United Future is supporting it. But I think we have a responsibility to make sure that as a Government we let people know exactly what debt is costing them and encourage this nation again to begin saving—because once again that would be United Future common-sense policy. 
STEPHEN FRANKS (ACT NZ) 
: 
 United Future common-sense policy is: “We will save when we are told what money costs us.” People will save when it is worth saving. When we have a Government that for 45 years has been telling us it is OK to live beyond our means and that we will live off the savings of poor people. The Taiwanese have become twice as rich as us by lending us money. We will keep spending money for as long as our Government keeps pretending we will never have to pay it back.  
But getting back to this bill I am a little bit baffled by a completely unexplained change in the schedules. Schedule 3 “Assumptions” has been completely deleted and there is no reference in the Commerce Committee report as to why. There may be someone here who was on the select committee who can explain it. But given that it was not explained and that schedule 3 was a major part of the bill in that its intent was to simplify the form of disclosure—with statutory assumptions—I am genuinely baffled about why it has gone. 
 I am also curious about the form of schedule 1 “Key information concerning consumer credit contract” and in particular the right to cancel. Paragraph (s) prescribes a statement to the consumer about his or her cancellation rights that does not seem to fit the head clause—clause 15. The cancellation right in that paragraph states that notice must be given within a certain period and the cash price must be paid within 15 days but it does not state when the property has to be given back. I wonder whether that is deliberate or an oversight. The head clause states that the property should be given back in 3 days but the notice which is the only thing most consumers will ever see does not tell them when the property has to go back. At the very least some poor soul will think that some bush lawyer will read it and decide to push his or her luck and of course cause cost to the lender. Very very easily he could assume and argue that the notice would have told him when he had to give back the property. Certainly it tells consumers when they have to pay the cash price. In fact as a reasonable person I might think that I had to pay the cash price and give back the property within 15 days. Of course people will know that quite a lot of property deteriorates considerably as time passes. If it was a consignment of plants from a garden shop it may well be that the plants had died before they went back. 
Sandra Goudie 
: A used bed. 
STEPHEN FRANKS 
: I am not sure about that. Another little puzzle here is that this does not seem to apply if possession has been taken of the goods. I am not sure why that is but using the garden shop example one could easily pay for a whole garden full of plants and not pick them up—intend to pay for them later. Of course the garden shop ought to try to keep them alive but theoretically at least it is not its problem once a person has bought them. Maybe the person has not taken possession—the carrier has them—and there is an argument because whose carrier it is has never been prescribed. There are a whole lot of situations where this could be an issue and it puzzles me that this form of disclosure is set out in full in schedule 1 where it will be hard to change. Then the regulation-making power states that if anything is forgotten extra disclosure can be added—maybe that can be used. But it does not state that the prescribed form can be changed. I think that is just a bit of clumsy work. 
I do not know the quality of the advice from the ministry or from the officials who have advised on this legislation but anything from the Ministry of Consumer Affairs has to be deeply suspect. It has no intellectual rigour in the way in which it approaches consumer protection. It does not believe in markets. I suspect that this is simple incompetence. The confusion that will result for consumers is that those well-meaning people who always purport to act in the interests of consumers are in fact acting against them. 
Finally in looking at the schedules I find that there is another small puzzle. If the Minister in the chair would take a call that puzzle might be explained very easily. The prescribed information for the standard form of consumer credit contract is in great detail. 
GEORGINA BEYER (NZ Labour—Wairarapa) 
: 
 I move  
That the question be now put 
. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 I would like to take up a few of the comments from the previous speaker. Schedule 1 puts out quite a substantial amount of disclosure. One of the main problems identified with the current regulation of the consumer credit industry is the imbalance of strength between lenders and borrowers. When one considers the information that Stephen Franks has just referred to with regard to schedule 1(s) one has to wonder whether the emphasis is now in favour of the borrower; whether all the difficulty in fully understanding what is happening with regard to goods and the return of goods is now in favour of the lender. There will be substantial costs as a result of that to the lenders. We have already talked about exorbitant compliance costs. 
One thing the bill does address is the exorbitant interest rates which have previously gone unchecked. Now there is some control around that and around the high cost of a multiplicity of fees which were unregulated. One of the problems of the current industry is laws that allow lenders wide latitude and require security for loans and double-jeopardy clauses interest insurance and a call on chattels often in excess of the loan. However concerns have been expressed around that and there may still be some problems in that area even within the current proposals. 
The difficulty in understanding the arcane and sometimes contradictory language of the current law is certainly an issue and is really to some degree one of the major premises of the bill in terms of the disclosure requirements to consumers. Schedule 1 certainly identifies the requirements with regard to disclosure to consumers. 
But one has to wonder whether even with full disclosure of all those things people really understand what they are getting themselves into. Many people do find themselves in some considerable difficulty. If people have literacy difficulties how will they understand what they are doing? How will they understand what sorts of contracts they are entering into? A number of cases have been given. In one case study a person borrowed $10000 from a lender at 26 percent interest with no fees payable over 3 years and with a monthly payment of $402.91 and a friend borrowed the same amount also at 26 percent interest and also for 1 year from another lender. He owes another 12 payments; he owes $7478.60 and the other person owes $7600. It is a case of “Do you understand all of that? Would you please sign on the dotted line.” If people have a limited understanding— 
Simon Power 
: We have trouble understanding it here. 
SANDRA GOUDIE 
: Exactly; that is my point. If people have limited literacy skills and a limited understanding of the language under the current disclosure provisions being promoted in the bill will they be any better off? At the end of the day how far can we go to protect people from themselves? We heard Paul Adams give an interesting address on indebtedness and on how people make assumptions about their credit cards which they really do not understand. People get themselves into all sorts of difficulties. Paul Adams referred to it taking 37 years before a person paying the minimum payment 
pays off a balance of $3000 on his or her 
overdraft. That is the type of impression that people are getting and the sort of indebtedness that people get themselves into. There is a range of areas where this happens. 
Another couple on a very modest combined income bought a $7000 car on hire purchase for a total cost finance included of $13000. They then borrowed $6000 from a building society to meet general living expenses. In the same year the husband travelled home to Samoa by taking out a personal loan from a loan company that was secured over the household furniture. He fell ill and his wife had to travel to Samoa to be with him. For her travel she borrowed from another loan company using the same furniture as security and when they returned home their furniture had been repossessed by the second loan company. There were three different instances of borrowing by this particular family. They entered into each of those transactions so they must have had a limited understanding of what they were doing but with the whole lot put together they clearly could not manage their situation. They certainly needed assistance. How far do we go in trying to protect these people from themselves through legislation? 
Hon MARIAN HOBBS (Minister for the Environment) 
: 
 I move  
That the question be now put 
. 
BRENT CATCHPOLE (NZ First) 
: 
 Thank you for the opportunity to finish what I was saying on schedule 3. This particular schedule has the information concerning buy-back transactions. I make the point that nowhere in the explanations or information does it set out or highlight the specific clauses that deal with the independent advice that is required when somebody goes into this particular type of transaction. That is the point I wanted to make. Paragraph (j) does not quite provide a description. Therefore I think the schedule is missing a provision that would cover the independent advice that is required under this Act. Perhaps the Minister could take a call and explain that. 
To round off I would like to touch on what Sandra Goudie and Don Brash talked about which was the idea of budgeting for education at an early stage to explain some of these things. This would perhaps go a long way to help people overcome the difficulties they get into when they are in financial trouble. It is usually the people who can least afford it who end up in these contracts that are so bad for them. I think that with a bit of early education in secondary schools at least or perhaps a little earlier people could be helped through the process of learning how to handle a credit contract. Don Brash made a good point about that and it would be worth looking at further education under the education system. 
Thank you for the opportunity to finish my contribution. 
The question was put that the following amendment in the name of the Hon Tony Ryall to schedule 1 be agreed to: 
to insert the following new heading and paragraph: 
Broker’s fees and commission 
(na)a description of any fees or commission payable as a result of the contract when that is known by the creditor:. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 39 
New Zealand National 20; New Zealand First 13; ACT New Zealand 6. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
Schedules agreed to. 
Bill reported with amendment.