Credit Contracts and Consumer Finance Bill — Third Reading 
Credit Contracts and Consumer Finance Bill — Third Reading 
[Volume:612;Page:8886] 
Credit Contracts and Consumer Finance Bill 
Third Reading 
Hon JUDITH TIZARD (Minister of Consumer Affairs) 
: 
 I move  
That the Credit Contracts and Consumer Finance Bill be now read a third time 
. The purpose of this bill is to protect consumers entering into and through the duration of credit contracts consumer leases and buy-back transactions. The bill achieves this purpose by updating and strengthening the information disclosure requirements thus enabling consumers to make informed decisions about consumer finance transactions. Flexible but fair rules relating to fees and interest charges on credit contracts are set. The bill closes the loophole exploited by buy-back operators in the housing area and empowers the Commerce Commission to enforce the new legislation including the buy-back provisions. 
I acknowledge the very efficient and timely manner in which Parliament has progressed this bill. I acknowledge the work of the select committee and the work of parliamentary counsel and officials on the legislation. I also want to acknowledge that this is a major consumer law statute and represents a milestone in providing consumer rights to New Zealanders. I commend this bill to the House. 
Hon TONY RYALL (NZ National—Bay of Plenty) 
: 
 I would like to report that during the Committee stage the Opposition parties drew to the Committee’s attention a number of flaws in this bill that the Government refused to acknowledge. Not only did we tackle the Government about the inadequacies of the compliance costs statement involved in this bill and not only did we draw to the Government’s attention the unfair and cumbersome administrative burden that would go on New Zealand finance companies in particular but we drew this important notice to the Government. This bill is supposed to be about improving the provision of information to New Zealanders who borrow money from second-tier financial institutions; it is supposed to be about providing those New Zealanders with more information so that they can be more aware of the cost of the credit and the responsibilities that they may have. But this Opposition in a united way pointed out to the Government that its very first goal in this legislation will not be met. The Government said very clearly that this bill was about providing full information on the cost of credit for consumers—but it does not. It does not because it fails to capture the fees and charges of brokers involved in financial transactions. It fails to capture recording the charges of brokers involved in financial transactions. 
I give members the example of the many New Zealanders who may want to consolidate their debt or may need to travel overseas for a funeral or may need money to buy a new car. They go off to “Quickloans Ltd” and borrow for example $5000 to do so. The Government’s bill fully allows for the full cost of that credit to be disclosed in the documentation. But many New Zealanders go and arrange their consumer finance through a broker. There are brokers in New Zealand who charge quite large percentages for their fees but the average charge is 10 percent. A broker will say: “I will arrange a $5000 loan for you and I will take a 10 percent commission.” He or she will advise the finance company of his or her appointment and the finance company will approve the loan and send $4500 to the consumer and $500 to the broker. But all that the documentation shows is that the person borrowed $5000; it does not have to say what the broker’s fee was. In some situations the broker’s fee is added to the actual amount of money that the person wants to borrow. This bill does not capture that charge. 
The Committee stage went on for 6 or 7 hours and the Minister in the chair Judith Tizard took only a handful of calls—virtually amounting to one call—in order to address the concern that Opposition members were raising. The point is that this bill fails to capture that $500 that goes to the broker. It fails to have it declared in the transaction—in the information that is required in the bill. We moved amendments that required that information to be included. The Government says that all of that is caught by the description of fees but the point is the fees relate to the transaction between the finance company and the borrower. The transaction involving the broker is outside that contractual arrangement and therefore does not have to be declared. Therefore the person who is borrowing the money is not fully aware of the costs associated with that borrowing. 
During the Committee stage the united Opposition parties made that point time and time again. Mr Catchpole will agree; he stood up and talked from a south Auckland experience about why it is important to have that money declared. Sandra Goudie from Coromandel made the point to the Government about the need to do something about it as well. Deborah Coddington from ACT also pressed the Government about why brokers’ fees are not being included in the Credit Contracts and Consumer Finance Bill. 
We did that because we do not want Government members going up and down the country trying to convince New Zealanders that they have improved the level of information associated with consumer finance. They have not because there is a huge loophole. The Opposition was told that there are finance companies in New Zealand that are considering changing their entire commercial operations so that all their offices will operate on a brokerage arrangement rather than on an agency arrangement. That is a pretty dramatic step. Those companies know that the brokerage fee does not have to be declared; it does not have to be on the document that is available for consideration of various quotes that a person may be seeking. That is serious. There are a whole lot of people who go to the second-tier lenders who want to be fully informed of all that information and want to know what the full cost of their credit is and that information will be not provided by the Credit Contracts and Consumer Finance Bill. 
That is a major loophole that the Government is inviting finance companies to drive their tractors straight through. Because we told the Government that that would happen it will be culpable for the confusion that happens when brokers’ fees and charges are not included in the borrowing and people say: “But the Government said that this was the full cost of my borrowing and that all the information would be declared on this one piece of paper.” It is not. 
We say that it is disrespectful to Parliament for the Minister Judith Tizard to come to the House and say that this is a bill that will provide full information to borrowers when it does not. We also say that it is disrespectful of the Government to introduce a bill in which the compliance cost statement is woefully inadequate and does not cover the considerable compliance costs associated with upgrading forms and procedures to comply with what is required in the bill. Small businesses are what run these finance companies. We should respect the effort and the service that they provide to the public and the Government should have had the decency to tell Parliament how much this legislation will cost those finance companies because that cost is passed on to consumers. We think it is disrespectful for the Minister to know that she is leaving a huge loophole in the bill and to do absolutely nothing about it. I tell members that we will be back here within 18 months in order to fix that loophole. We have warned the Government what will happen we know that there will be an amendment and I will be the first one to say to Judith Tizard: “We told you so. You should have listened.” 
MURRAY SMITH (United Future) 
: 
 United Future supports the third reading of this bill. It is part of a reform process of the Credit Contracts Act and the Hire Purchase Act and will replace those Acts. It follows the line of other Acts that have been implemented by Parliaments over the years—in particular the Consumer Guarantees Act the Contractual Remedies Act and to bring up living memory even the Door to Door Sales Act. Those pieces of legislation were all designed to address the imbalance of bargaining power between commercial enterprises and consumers. 
This bill and bills like it fly in the face of pure market ideology. ACT at least and National—well I think National; I am never quite sure what National thinks these days—support the pure market ideology. In essence that ideology says that everyone is in an equal bargaining position and that market forces will ensure that no one gets ripped off—or at least that if people do get ripped off then it is their right and choice to have that happen. That ideology says it is their fault if they have not been properly informed and they will learn from that so at the very least the Government should not interfere. 
However we are very well educated by programmes such as  
Fair Go 
 and  
Target 
 in particular to recognise the reality that even well-informed consumers can be trapped by unscrupulous commercial operators and that there is a need to protect consumers against commercial operators who know information that consumers cannot possibly know. Even if consumers buy the simplest of goods the people who manufacture and market those goods will inevitably understand the nature and quality of their goods and the purposes for which they can be used far far better than consumers who are trying to address all sorts of different goods during their lifetimes. 
The difficulty we have in our society is that we will always find people who use enterprising ways to get around whatever laws are put in. This bill is an endeavour to keep pace with some of the entrepreneurial ideas that such people come up with in order to avoid their legal obligations and to ensure they can market products in a way that unwitting consumers will get sucked into and that they the entrepreneurs can profit by. I note that this bill in particular has gone through a long gestation period. The law was reviewed over a 2-year period from July 1999 to July 2001. The bill has had extensive input since the 2-year period when the review was done. It has of course been through the select committee process where it was further examined in depth. The difficulty is that our commercial world has lost a lot of its moral sanction yet it can operate only where there is a degree of morality in existence and in particular a degree of trust. Even commercial businesses such as car dealerships—which over the years have perhaps borne more than their share of the brunt of criticism for unscrupulous dealing—have people listening to their salesmen when buying cars. Although people may take precautions such as arranging independent checks they still need to rely on the information provided to them in order to buy anything like that. 
The difficulty we face when dealing with fraudsters who will use any legal device to rip off consumers is to know how far Parliament should go in order to protect people from themselves. The balance that has thus far been struck—which this bill follows and which I believe is the right balance—is the knowledge that we cannot stop consumers from going into those sorts of transactions or using their money in the way that they wish to use it. All we can do is to ensure that they have as much information as possible in a format that is easily read and brought to their attention so that they make their decisions as intelligently as possible. Thereafter if consumers want to throw their money at something that is in fact not worth the paper it is written on then that is a choice they must be free to make. In some cases it is appropriate that people are required to obtain independent legal advice before entering into transactions and we find that happening already in the law. But at the end of the day even a lawyer giving independent legal advice—as I know from my own experience—must always say: “Well that’s my advice but you need to make the decision.” People unfortunately sometimes do make decisions contrary to good advice and find themselves entrapped. 
There are two aspects of this bill that particularly please me. One is the requirement for disclosure to guarantors. I have faced that problem in my legal practice over a number of years in situations where somebody signs a guarantee and thereafter the terms of the guarantee—in particular the weight of the obligations placed upon the guarantor—are increased without the guarantor even knowing that let alone consenting to it. That happens in husband-and-wife situations where the husband may be running a business and the wife signs a guarantee that covers and is secured by the family home. The husband can increase the debt of the business and get the business into difficulties without the wife being aware of it. Then the home is suddenly lost because the amount of debt at stake is a lot more than the wife even contemplated. It happens in parent-and-child situations and the mother-and-son situation is perhaps the most typical of those. A young son trying to set out in business may persuade his mother to allow her home to be used as security for an advance. Then the mother finds all of a sudden that the home is stripped out from under her because the son either through bad dealings or simply through misfortune has got himself into financial difficulties. It also happens in small companies where the directors and shareholders are called upon to provide guarantees of the company and then do not have the information the company is generating in order to see how it is going and to understand that the risk they have placed themselves under has increased. 
In my practice particularly with guarantors I got to a point at which whenever a bank required a guarantee I would endeavour to limit it to a fixed amount to a specific loan to a specific period or even to a combination of all those. Effectively the extent of the guarantee could not then be increased without the guarantor’s specific consent to do so. I know that more than once I provided a provision and a bank guarantee stating that the guarantee would cover only a loan numbered 12345 or whatever the number was. In the situation where the bank subsequently over the years refinanced that loan into other loans it then found that the guarantee was not effective because it was restricted. That problem often occurred in situations where the guarantor was unaware of what was going on. So I welcome the fact that guarantors will now know a lot more about the information that has been provided. 
The second area that I am particularly pleased to see provision made for is the buy-back schemes generated over the last 5 to 10 years which have become a bit of a plight. That area falls under the comments I made before about people finding enterprising ways of getting around the law which in this case is the provisions of the Credit Contracts Act. I remember 5 to 10 years ago having a client come to me with some papers about a buy-back / lend scheme. I found that very quickly I was smelling a rat. The papers and the scheme were complex and seemed to be trying to get around the legislative restraints. When I realised that a private company was putting great efforts into marketing a get-money-quick scheme the alarm bills started ringing. When I realised that the company was targeting older people and other vulnerable groups in society with its project the orange lights started flashing. It was not hard at all for me to find that the scheme was untenable. The clients concerned were looking to sell their home for less than its value with an option to buy it back within a certain period of time if they could afford to but otherwise they were selling it at a great loss. Usually I found that clients looking at those schemes were unable to obtain finance from more legitimate sources such as first-lender banks. They had got themselves into debt with credit cards or moneylenders and realistically the likelihood of their being able to repurchase their homes was not particularly high. I strongly advised against the buy-back transaction and it did not go ahead. 
I am very pleased to see that the provisions concerning buy-back schemes are there in the bill. I am also pleased that my colleague Paul Adams was able to increase the penalties which started at $30000 for such schemes. The Commerce Committee put that penalty at 3 months’ imprisonment and a sum of $200000. My colleague’s Supplementary Order Paper increased that to 3 years’ imprisonment and a sum of $200000 and I think that such sanctions are important. 
United Future will support this bill. 
GERRY BROWNLEE (NZ National—Ilam) 
: 
 There is unfortunately a growing trend developing within the current Government that sees legislation such as this pushed through the House fairly quickly subjected to a Committee stage that has absolutely no relevance or meaning—where the legitimate concerns of members of Parliament are raised with Ministers and rejected—only for the legislation to be passed and then a short time later subjected to change through the statutes amendment process. So far this year we have seen bills like the Crown Minerals Amendment Bill passed where the Opposition stated there was a clear problem with some of the definitions and the Ministers rejected that but now just 3 months later that legislation is subject to a statutes amendment change. 
The Hon Tony Ryall in his speech outlined a very serious flaw in this bill: if someone is to arrange a loan that is subject to a brokerage fee there need be no disclosure of that fee. This bill allows finance houses to reorganise themselves from agencies into brokerages and a person taking out a loan to be none the wiser about the overall costs of that loan. I predict as did Mr Ryall that in a couple of months we will see the Government quietly sidling up to members of the Opposition and saying it sees there is a problem here and wants to slip an amendment into the “Statutes Amendment Bill (No 1) 2004”. I say to the Minister and everybody else involved that they should not bother knocking on our door because it will require a full bill to be brought to this House to sort that out. 
One of the interesting things about this bill is that it is designed to let those New Zealanders who borrow money know the full cost of that. We have just been through the exercise of explaining that they may not know the cost in all cases but let us assume that everybody plays the game fairly. It will be a good thing that those New Zealanders who are borrowing money understand the costs involved. But it may be interesting to consider for a minute why so many New Zealanders need to get the sort of consumer credit we are talking about—why so many New Zealanders need to load up their credit cards to the gunwales and why so many retailers in this country cannot move stock unless it is with some sort of a “payday may” or some other interest-free arrangement that effectively entices customers through the door under a credit contract. The reality is that the vast majority of retail sales in the household lines—whiteware appliances furniture and various other electronic appliances—are done through a consumer credit contract. I think the reason for that is that in the last 4 years New Zealanders’ incomes have become extremely squeezed. 
The Government is out there saying how wonderful it is skiting about its massive surplus of $5.6 billion— 
Hon Tony Ryall 
: Overtaxing the people. 
GERRY BROWNLEE 
: —and overtaxing poor workers in order to achieve that $5.6 billion surplus. We read in the newspapers that the average income of New Zealanders rose recently to a point—and this is nothing to skite about—where income from wages and salaries is now set at some $332 a week! 
Jill Pettis 
: Because we want everything and our parents went without. 
GERRY BROWNLEE 
: I heard the junior Government whip say that people are too greedy—that workers want too much and that they expect everything. 
Jill Pettis 
: We don’t say that. 
GERRY BROWNLEE 
: When people are earning $332 a week and the Government is saying they are well off I do not blame them for getting a bit keen to have one or two extra things in their life to make it slightly more comfortable. We have a Government that identifies problems out there—like the buy-back schemes that have affected so many Maori families— 
Hon John Tamihere 
: Don Brash doesn’t agree with that. 
GERRY BROWNLEE 
: —and have the Hon John Tamihere all hot under the collar yet he is going out there and he is going to pass this bill which makes the conditions of buy-back schemes much clearer. He says that that is good for Maori. I tell him that $332 a week as an average wage and salary income for New Zealanders is not good for Maori or for anybody else. [ 
Interruption 
] What we get— 
Mr SPEAKER 
: I am sorry to interrupt the member who does handle interjections but the member who is interjecting will not do so again during this speech. She has been interjecting in the second person and I am not to be brought into the debate. 
GERRY BROWNLEE 
: Well we will have to turn the heaters on because we will all be shivering after the heat we have been subjected to from that member in the last couple of minutes. 
I make it clear that the problem with this bill is that while it does some good things—while it tidies up a whole lot of aspects of credit information for consumers and while it does do some good things in creating a definition of what buy-back schemes are and how they should operate—it fundamentally misses the point that New Zealanders do not earn big incomes and that is why they borrow so much. It is a disgrace that a Government can say to New Zealanders their incomes have gone up the average wage and salary income is now $332 a week and they are well off and the Government will put in place some consumer credit legislation so that when they have to borrow for the kids’ uniforms to get the bikes to get them to school to get the family car or to fund the mortgage etc. then the rules around that are to be a whole lot better for them—and is this not a good Government! That misses the point that a Government should be looking to increase the disposable income of families in this country and this Government is not doing that. 
I want to comment about the legislation itself and about a concern I have. Much of the interpretation of this legislation will be open to the courts. I do not have a problem with the courts enforcing the law. But I am worried about the courts giving an interpretation of it because one of the key points in this bill particularly with regard to the buy-back schemes that have caused so many families so much angst is the issue of whether the activities of the lender are oppressive. The bill states that if the credit contract consumer lease or buy-back transaction is oppressive then that contract lease or transaction can be reopened by the court and conditions can be reapplied. Clause 93(b) provides that a matter may be reopened if “a party has exercised or intends to exercise a right or power conferred by the contract lease or transaction in an oppressive manner;”. We now have an idea of what an oppressive approach would be but we are leaving it up to a court to decide exactly what that is. That will make it very difficult for some minor credit contracts to be exercised by legitimate finance houses which will be uncertain about what “oppressive” may mean. It may be oppressive to even ask for a payment from someone who is living on a benefit for example. A loan may be oppressive if someone claims that he or she simply cannot afford to repay it and a court could instruct that the loan need not be repaid. 
So whilst there is much gloss being applied by the Government in respect of this bill there is a murky underside. I want to restate the proposition I laid down earlier: one can make all the rules one likes about credit but if people do not have enough money to live on—and New Zealanders whose average wage and salary income has just gone up to some $332 a week are struggling—then we will see more and more of them going into debt because of this Government’s policies. 
Hon JOHN TAMIHERE (Associate Minister of Commerce) 
: 
 First I would like to thank my colleague the Minister of Consumer Affairs Judith Tizard for her work on this bill. Although the bill has a number of applications I would like to focus on the impact it will have on housing buy-back schemes. Earlier this year I became aware that a number of my constituents in the electorate of Tamaki Makaurau many of them from the poorer parts of south Auckland and many of them elderly people had lost their homes or were under threat of losing their homes through housing buy-back schemes. That led us to lay complaints with the Serious Fraud Office the Banking Ombudsman the police Auckland District Law Society and the Commerce Commission. Upon further investigation it turned out that although the buy-back schemes were most concentrated in Auckland they were also operating in other parts of the country including Christchurch and Tauranga. Investigations by the authorities involved continue and I am confident that those whose conduct is found to have been illegal unprofessional or unethical will face the full consequences of such behaviour. 
I would also like to commend the Minister of Commerce Lianne Dalziel for her efforts in bringing to account the companies involved in operating housing buy-back schemes. In June she moved to place into statutory management eight companies that were operating buy-back schemes. That prevented the immediate sale of a number of families’ homes. No other Government would have taken such quick and decisive action in that regard. This Government also set up a hotline so that victims of housing buy-back schemes would get help and alert the Government to the full extent of the problem. The people duped into those scams were not greedy people hooked into get-rich schemes by their own greed as Rodney Hide would tell members. Not all of them were the most sophisticated people in the world; they were ordinary honest hardworking Kiwis. They were people who through years of hard work and saving had sometimes built up a substantial equity in their homes which they were offered the chance to use in order to help family members to be on-financed into their homes. They took that opportunity. People entered into those schemes without independent legal advice; the same people who gave them legal advice also acted as lawyers for the finance companies. 
Amendments to the bill will protect consumers against future loses through such schemes and will provide remedies for those already involved in those deals. The bill will ensure that any consumer entering into a deal has received independent legal advice. 
Simon Power 
: Throw the notes away and speak from the heart! 
Hon JOHN TAMIHERE 
: It will prevent the sale of property without court permission where full disclosure has not been made or independent legal advice has not been given. Furthermore the bill’s provisions relating to oppressive conduct will provide consumers with remedies against scam operators. The member for Rangitikei knows about oppressive conduct particularly with regard to the caucus he is in. Together those elements of the legislation should put an end to buy-back schemes. Similar provisions in Australian law against unconscionable conduct covering credit arrangements banking transactions and financial advice particularly for disadvantaged groups have been effected and I expect that this legislation will carry similar weight to that in protecting consumers. 
I am glad to be part of a Government that acts promptly to put an end to scams targeting innocent New Zealanders. I commend the bill to the House. 
DEBORAH CODDINGTON (ACT NZ) 
: 
 I rise on behalf of the ACT party to oppose the third reading of this bill. What was the Consumer Credit Bill is now the Credit Contracts and Consumer Finance Bill and the aim as we have heard is to repeal the Credit Contracts Act 1981 and the Hire Purchase Act 1971 and replace them with this new legislation that covers credit contracts and consumer leases. 
I will refer to some of the submissions that have been made on this bill. The Financial Services Federation for instance made some very valid points. It said that the Credit Contracts Act is an extremely well conceived Act. It is settled law and it has generally worked pretty well over a period in which we have seen significant growth especially in the sector of household borrowing. So it does seem a pity to see that Act thrown out. There has been valid criticism of that legislation in that enforcement has been difficult but I argue that that aspect could have been fixed without rewriting the entire Act—a point that has been argued since 1988 but seems to have fallen on deaf ears. It seems to me that we did not need to go down this whole expensive process and come out with legislation that is confusing to say the least. 
I ask members to look at what Simon McArley wrote in the  
National Business Review 
 last year. He is senior lawyer a specialist in commercial law in Auckland. What he stated about the law was that there was a perceived imbalance between borrower and lender and that the existing law does not provide adequate redress for unfair behaviour by lenders. 
There may be some merit in that perception. That may not be the reality but there may be some merit in the perceptions. As we debated this bill during the Committee stage we heard stories about usury schemes. We heard about some of the buy-back nonsense that needs tidying up. But I ask this question of the Minister: if a power imbalance does exist why does it cease to exist simply because the borrower is borrowing for business purposes? 
One of the essential faults of this bill is that it leaves businesses out in the cold. It does not cover business transactions. I know that if the Minister were here she would say that that is in order to reduce compliance costs but that is actually not the case. It is impossible to see how excluding businesses from what is supposed to be simplified statutory procedure actually reduces costs. That is a non sequitur; it does not make sense. 
Let us turn the argument around. If including businesses in this legislation would have increased compliance costs for them then that means the Government is actually quite happy to increase costs for individuals for families who are borrowing for working people and for sole traders. There are many sole traders in this country who pay GST and accident compensation and who have to comply with all the other strangling red tape such as the occupational safety and health legislation. Why should they be subject to the increased costs that this legislation by the Government’s own admission will now deliver to them? 
This bill favours big business. Clearly a large business can use resources to hire lawyers to ferret out unfair terms and wield commercial clout but those businesses comprise less than 20 percent of the New Zealand business community. More than 80 percent of businesses in this country employ fewer than five people and those businesses those owners share the same concerns and needs as the average consumer who is covered by this bill. And why is that? It is because those owners and operators are average consumers. I cannot see why they have been left out of this legislation. 
Let us look at the new protections that the Minister thinks are inappropriate for new businesses. Briefly those protections are simplified disclosure requirements—that is setting out clear and useful information about the transaction so that informed decisions can be made—a 3-day statutory cooling-off period in which to evaluate the disclosure and properly consider borrowing decisions; a prohibition on unfair fees and bank charges; and stronger and more easily enforceable remedies when lenders do not follow the rules. Well all those areas have been the basis of complaints from small businesses in the past but now the Minister is quite happy to cut those small-business voices out of realistic consumer protection and I do not see the fairness in that. 
As my colleagues in the National Party like the honourable Gerry Brownlee have already said there is still much confusion over several clauses in this bill. Once more we are seeing the passing of legislation that will actually be a feast for lawyers and an absolute nightmare for people who are trying to comply with confusing legislation that just raises the uncertainty stakes. For instance if we look at clauses 56 to 58B I think it is which cover the buy-back transactions and the definitions of “occupier” and the disclosure provisions we see that the transferee must ensure that the occupier has independent legal advice and so on. That is fine but if we read on a bit further to the following clauses we see that every transferee must ensure that a copy of the terms is given or sent to every occupier under the transaction. 
We go from dealing with “an occupier” to suddenly “every occupier”. Presumably this is under one transaction therefore one piece of land is being dealt with. Is the transferee liable because he or she did not know or did not try to find out how many occupiers there are for the transaction or inform them about all the terms and conditions? That is not clear. 
There is also the issue of loan sharks. I argue that this bill will not stop loan sharks. In fact it will make it easier for them to operate because credit is going to become more expensive and as I have already said rich people can get lawyers to guide them through the legislation and pay for it. But what about poor people? They also have a need for credit and they will now be driven to the back-door credit agencies and the loan sharks. 
 I predict that we will see more of the underworld area of lending where recovery is gained through a brick through the window; or the other downside of that form of lending which is that the people who cannot afford it and should not be in debt end up in even more debt because they are high risk. They go to the lenders of last resort and to cover the risky situation they are in they end up signing up to the most dreadful terms and conditions and putting on the line even more of what meagre property they have. 
Finally I would just like to address the hardship clause. This really is a farce. It allows people to welsh on their debts and it is telling that creditors who submitted were unanimously opposed to this. Under the current legislation there is nothing to stop creditors from negotiating with lenders if they get behind on payments. In fact most creditors know that it is better and more sensible if there is a hiccup to negotiate through it rather than call in the debt abruptly and put the debtor through and have the chance of getting nothing out of it. 
The legislation is now far too loose. Debtors will be much more able to give creditors the runaround by using illness injury loss of employment or the end of a relationship to have the terms changed. If the creditor does not allow it to be changed then he or she can apply to the court and this could delay it for years. 
This is bad law. It will make credit harder and more expensive for small-business people it will send poor people to loan sharks and the ACT party opposes it. 
SUE BRADFORD (Green) 
: 
 On behalf of the Green Party I welcome the return of this bill to the House this afternoon for its third reading. We look forward to its implementation. This updating of the laws around the provision of consumer credit is well overdue. The addition of buy-back transactions to deal with the dreadful scams that have recently come to light and which the honourable member John Tamihere has done so much good work on only makes this legislation even more timely. 
The Green Party strongly believes that the State has a role to play in protecting the most vulnerable in our community to the extent that it reasonably can. I trust that as the bill comes on stream we will see a real clean-up of a lot of the worst aspects of third-tier lending and an end to the iniquitous buy-back schemes that lead all to often to the loss of an innocent person’s home. 
During the Commerce Committee consideration of this bill the Green Party was pleased that the committee saw fit to seriously take on recommendations from some submitters particularly church and community groups working with people suffering from the impact of some of the worst excesses of third-tier lending to include hardship provisions in the final draft of the bill. The Green Party supported the desire of these submitters to strengthen the original bill and we pushed for the addition of clauses that mean that a debtor who unexpectedly faces hardship such as illness injury loss of job or the end of a relationship has a right to apply to have the terms of his or her credit contract changed. 
Debt is one of the most exacerbating causes of extreme poverty and family hardship in New Zealand today. I commend the Government for taking action to strengthen protections for consumers in these areas. I hope that as the bill is put into practice it will achieve its avowed goals of bringing to an end the most unfair oppressive and exploitative practices of some parts of the credit industry. 
BRENT CATCHPOLE (NZ First) 
: 
 I am pleased to rise on behalf of New Zealand First to speak on this bill. Generally New Zealand First is supportive of any initiatives by this Government to improve to protect and to safeguard consumers’ credit contracts and in particular with regard to buy-back schemes. In that regard the Government is to be commended for bringing this to the House at this time. It is timely because we have seen a huge influx of the buy-back schemes that have trapped people into tremendous debt making it virtually impossible for them to get out of those debts. 
Changes to the previous legislation are long overdue and it is timely that we now determine and enshrine in legislation those matters that need updating and improving. I have previously spoken on this bill and have alerted the House to some areas that require further fine-tuning if this bill is to be successful. If it is to be successful complete and robust then these changes will need to be made later on. As Gerry Brownlee mentioned there are one or two other issues—brokerage fees being one—and I will touch on those in a moment. 
Once the new bill becomes law it will be far more difficult for unscrupulous lenders to take advantage of the often desperate bargaining positions of some of their customers by charging fees and interest rates that border on exorbitant. 
The most important part of this bill is Part 3 because this is where the Government has had to act swiftly and take into effect the buy-back schemes. These deals have left families in destitute situations unable to recover their homes. These schemes came about in fairly recent times and they hit with a vengeance. It is very important to protect the unwary from the extraordinary lengths to which some people will go to trap the most vulnerable into a situation that they will have no way of getting out of. These schemes are set up in such a way that the individual borrower transfers his or her property to the moneylender under conditions that make it virtually impossible for that borrower to recover his or her property. 
Simon Power 
: It’s called a mortgage. 
BRENT CATCHPOLE 
: Under real mortgages the interest rates and the conditions are not so oppressive that it is impossible for people to get their property back. These schemes have left people in a situation where they have lost not only their home that they tried to borrow money for but often the homes of relatives who had put up the finances to try to help them out. 
A section in the bill covers independent legal advice. This is a very important part and one that is essential if these people are to get the proper advice and not be trapped into these schemes. However it must be enforced rigorously. One of the concerns during the Committee stage was that the independent legal advice would be recommended by the lender. This is unsatisfactory because obviously if the lender is recommending the legal advice then that legal advice will be leaning towards the lender and not be independent of that lender and it will therefore create a problem for the people borrowing and may even leave them in a situation where they may be entrapped again. 
Clauses 115 and 116 allow for the older Acts that this bill replaces to continue to apply. These clauses allow creditors the choice to elect for the Acts to apply in contracts that were in existence prior to this law coming into force. However it does not allow anywhere for the debtor to have that choice. I am disappointed that debtors are excluded from this option because there are a number of very important issues in this bill on which a debtor would have recourse to a better deal rather than just the creditor having that option. 
Those clauses allow for the creditors to decide whether they want buy-back schemes to remain under those old Acts. If we consider that the buy-back schemes were legal under those old Acts then I am afraid that people who are already trapped in those buy-back schemes will not have recourse under this bill. During the parliamentary Committee stage I asked the Minister to take a call on that to assure the people who are already trapped in these schemes that they would have a safeguard under this bill but sadly that Minister would not take the call to alleviate the fears that people have over the buy-back schemes. 
The Minister’s failing to continue to assure people has meant that they now will be in a position where they have no recourse. In regard to clauses 93 and 96 relating to reopening of credit contracts we were hoping that those clauses would provide the consumer with the means of getting out of some of those contracts. But unfortunately clauses 93 and 96 relate to oppressive contracts. 
Buy-back schemes were legal under the old Acts; even though we considered them to be oppressive they were legal. Therefore if the creditor chooses to continue with those schemes under the old Act unfortunately I fear that people will not have recourse under those particular clauses in relation to the oppressive nature of a contract. That to me is a very sad situation particularly considering that many of those schemes are so oppressive in real terms that if those two clauses give the lender an out then I am afraid the bill will fail and as Gerry Brownlee suggested will have to come back to the House in the new year not just as a short clause but as a full bill to try to rectify those problems. 
In the previous debate on this bill there were suggestions that an education scheme be set up to try to educate people in the better management of their finances and try to avoid the schemes that these contracts are setting up. If this bill is successful then I suggest that it would be a wonderful model to set up an education scheme in schools where people can learn how to avoid the financial difficulties and traps that many people in lower socio-economic situations get themselves into particularly gambling and other means of throwing their money away and not putting it into the correct means of saving and budgeting. If an education scheme were put in place then I think many of the measures that we have had to legislate in this bill would not have needed to be legislated for. 
DAVID BENSON-POPE (NZ Labour—Dunedin South) 
: 
 I am delighted to rise very briefly in support of this bill and recommend its speedy passage through the House. 
LINDSAY TISCH (NZ National—Piako) 
: 
 There have not been any major changes to the credit contracts that we have operated under for many years. The bill provides for the repeal of the Credit Contracts Act 1981 and the Hire Purchase Act 1971. This has come about because over time we have seen changes—the deregulation of the finance industry and the role that computerisation and technology have played. The concepts of the Hire Purchase Act and the Credit Contracts Act were relevant for the 1960s and 1970s but today of course they have gone by the by. 
The bill does refer specifically to individuals and persons as opposed to business. One of the shortcomings that we found in this bill is that it is silent on business. It does not relate to business enterprises yet it is our view that businesses are very much affected by credit contracts and by the way that individuals who enter into contracts can now cancel those contracts and get out of them. On the other side the creditor who has supplied the services and provided the finance can be worse off. I will cover that more specifically later on. 
There are other shortcomings that came to light during the Committee stage. I never got a response. I asked a number of questions. In fact I spoke on each part in the Committee stage and I put some specific questions to the Minister about the shortcomings that we saw. It was interesting that Government members would not take a call either. They were not prepared to stand up and answer the queries I had yet this is a Government bill. 
The first issue that I want to draw the House’s attention to an issue that I spent some time on is clause 24 “Right to cancel consumer credit contract”. Subclause (1) states that “A debtor under a consumer credit contract may cancel the contract by giving written notice ...” and that 3 days’ notice is required. Well that is fine and that will be allowed. But if we were to take that further and look at what happens if those goods that have been taken are used within those 3 days the contract is cancelled and those goods are returned we see there is no provision in the bill for compensation. We had some very good submissions that were made by the New Zealand Law Society and the New Zealand Retailers Association. They said that if someone purchases some goods and then the contract is cancelled it is a fact that goods depreciate immediately and in some cases by 25 percent. A 25 percent depreciation is not uncommon; that is what can happen. Yet the creditor the retailer the wholesaler or whoever it is—the person who has provided the goods—at that stage is left out of pocket because the bill is silent on the whole issue of compensation. 
That issue comes up in clause 27 which is another clause that I was concerned about and spoke in the Committee stage about. It concerns the effect of cancellation of a consumer credit contract Specifically clause 27(1)(e) 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 …”. That is fine. I have no difficulty with that whatsoever. But the point that I make here is that no compensation will be paid for the loss of value. 
The classic example and the one that I used during the Committee stage is that if a person goes into a car yard and buys a new car what happens as soon as that car is driven out of the yard? The value of that car is diminished. If that person wants to resell that vehicle he or she will not get back what was paid. I made that point during the Committee stage and the Minister was not prepared to take a call and nor where Government members; they were not prepared to explain why when we had had those submissions from the New Zealand Retailers Association and the New Zealand Law Society those provisions were not included. 
Another shortcoming in the bill that I believe needs to be reiterated for future reference is that as we heard earlier from the Hon Tony Ryall and Gerry Brownlee it is a possibility that the Government will come back in a short time and by way of statutes amendment legislation want to make some changes. Another concern that I draw members’ attention to is the hardship provisions. They enable debtors to alter credit contracts. Examples could be because of illness injury loss of employment or loss of a relationship. There could be a number of reasons why one would want to alter the contract. But the provisions do not apply if one has exceeded the credit limit or been in default of a payment. They do not apply to that. 
If the creditor does not agree to a course of action that the bearer is proposing it could be that the debtor goes to court. This is where we move into the area of cases being taken to court. There will be huge compliance costs. This Government is renowned for increasing costs. That is its hallmark. In the last 4 years compliance costs have been increased at every turn. One area that we identified in the course of the Committee stage was the costs involved and the inability really of the creditor to enforce a contract. If the debtor decides that the creditor is not playing ball he or she has the right to take the case to court and we will end up with a huge compliance cost regime. 
Another clause that caused me concern was clause 111. In every piece of legislation that the Government brings in it seems to be hell-bent on doing things by way of Order in Council—that through regulations it can increase costs. That is what clause 111 talks about—that the Governor-General by Order in Council can make regulations for the purposes stated. Well it is just another way to increase the tax take. It is just another way to add compliance costs on to those businesses and those individuals who are finding it extremely difficult. Gerry Brownlee articulated very well the issues about the disposable income of people and the extra costs that will be incurred. It is interesting that the  
National Business Review 
 of 3 October states: “Spring of discontent. Businesses seething privately over high taxes and galloping compliance costs”. 
Simon Power 
: What did they say about Margaret Wilson? 
LINDSAY TISCH 
: There you go. It says: “Ministers may think they are reducing them but in fact business groups”—and we have plenty of examples of business groups and others—“are saying that those things are getting out of control.” So that was an issue that we identified and talked about. The Minister was not prepared to take a call at the time about clause 111 “Regulations”. 
Mark my words: within a very short time this Government will want to make amendments to this legislation by way of statutes amendment legislation to streamline the process that we are going through now. We are concerned about that and we are flagging it now. Although the concept of the bill is fine and there are some minor changes that actually improve the position—and we have no disagreement with that—there are still the shortcomings I have mentioned of compensation and of regulations and the way in which they can be applied. The other area of major concern that the bill does not allow for is brokerage fees and that is another story in itself. But if full disclosure is wanted—and that is what the bill states—then brokerage fees should be included. They are not included and that is a major shortcoming of the bill. 
JANET MACKEY (NZ Labour—East Coast) 
: 
 I am very pleased to rise in support of the Credit Contracts and Consumer Finance Bill. I commend the Minister for her initiative in putting forward this legislation to address the serious concerns about the industry. I congratulate the select committee on its work. It is probably an ongoing regret of the whole nation that members opposite did absolutely nothing about this issue in the 9 years they were in Government. 
Bill read a third time.