Credit Contracts and Financial Services Law Reform Bill — Second ReadingText is incorporated into the Bound VolumeCredit Contracts and Financial Services Law Reform Bill — Second Reading[Sitting date: 10 April 2014. Volume:697;Page:17169. Text is incorporated into the Bound Volume.]Credit Contracts and Financial Services Law Reform BillSecond ReadingHon CRAIG FOSS (Minister of Consumer Affairs):I move That the Credit Contracts and Financial Services Law Reform Bill be now read a second time. I would like to compliment the Commerce Committee for its consideration of this technically challenging piece of legislation. The committee has considered approximately 70 submissions covering a wide range of views and tested the underlying policy intent of the bill. The policy intent remains sound. The Commerce Committee’s report reflects the large amount of work that has gone into getting the bill to this point. The bill comprehensively amends the consumer credit legislation which is an important part of the Business Growth Agenda promoting confidence in our financial markets. The bill reflects a sensible approach to compliance costs through amendments recommended by the Commerce Committee including changes to the standing disclosure requirements and repossession provisions. It is not the intent of this legislation to reduce access to credit by imposing heavy compliance costs that will ultimately be passed on to consumers.Many changes have been made to improve our consumer protections under this bill. At the select committee many submitters raised concerns about the protections available particularly to vulnerable consumers. The bill as introduced already elevated consumer protection to the primary purpose of the Act and introduced the new concept of responsible lending. It introduced sensible reforms including that initial disclosure must be provided before the contract is entered into. Standing disclosure must be available on request and free of charge. Overpayments must be refunded to the borrower. Hardship applications can be made by borrowers who are already in default. The Commerce Committee has helpfully refined many of these changes and it is pleasing to see the proposals in the bill confirmed and strengthened. The amendments made by this bill ensure that the interests of consumers are protected lenders compete effectively and consumers can participate confidently in the market.The current law the Credit Contracts and Consumer Finance Act is a principle-based approach to consumer credit legislation. The lender responsibility principles will help consumers and lenders to identify the practices you would expect from a responsible lender. The responsible lending code is intended to provide guidance and elaboration on the principles. Submissions to the committee asked that the status of the code should be clearer. Submitters were also impatient for the code to come into force as soon as possible. I share that impatience. We are keen to progress this legislation and the code. As a result the committee has recommended that the bill specifies the code is non-binding but also allows for work to begin on the code before the Act comes into force. This will ensure that the principles and the code come into force at the same time: no later than 12 months after the Act has passed or hopefully sooner.The fees provisions particularly the provisions relating to unreasonable credit and default fees have been a controversial area of the bill. Submissions to the Commerce Committee stated that the provisions needed work. The committee has recommended that the bill make it clear that fees are constrained by a reasonableness test and that the test is anchored in the principle that fees are a means for creditors to recover costs. This is consistent with the policy intention of the legislation as it currently stands. The committee has recommended two further amendments to the fees provisions: firstly making it clear that prepayment fees should be limited to losses from changes in interest rates for fixed rate contracts and secondly that third-party fees will also be subject to the unreasonable fees test. They are in addition to the increased limitation period for unreasonable fees that was included in the bill as introduced.A significant improvement to the consumer credit landscape is the incorporation of the Credit (Repossession) Act provisions into this bill. The 2012 Law Commission report on credit repossession recommended measures to provide a balance between consumer protection and access to credit. The primary recommendation was to incorporate repossession law into the Credit Contracts and Consumer Finance Act. Repossession is part of the life cycle of a loan and the idea is that the law should deal with the consumer credit as a whole. The bill adopts virtually all of the Law Commission recommendations and makes it clearer and easier for lenders and borrowers alike to know where they stand in a repossession process. Goods available to be repossessed must be specifically identified by the lender and some items including beds bedding medical equipment and heaters will be prohibited from the repossession altogether. Borrowers who have received a repossession warning notice will also have the right to voluntarily return the specified goods rather than being forced to participate in an often stressful repossession process. Previously the Credit (Repossession) Act was self-regulated.One of the most significant amendments in relation to credit repossession is the introduction of the Commerce Commission as the regulator. Enforcement was a key area identified in submissions to the committee where consumers and their advocates called for action. The committee has taken a positive step in boosting enforcement powers and penalties for breach. The committee has recommended the alignment of penalties with the Fair Trading Act increasing these from $30000 to $200000 for an individual and from $30000 to $600000 for a company increasing the amount of statutory damages available from $3000 to $6000 and introducing an infringement regime that will allow the Commerce Commission to issue infringement notices in respect of minor misconduct or straightforward issue of fact. In addition where a lender breaches the lender responsibility principles more than once the court will be able to order certain persons not to act as creditors. This will provide a mechanism for recidivist and irresponsible lenders to be banned from the market.I know that the select committee gave full consideration to the issue around interest rate caps. I note that in its report it states that although restricting interest rates may offer consumers protection from one form of high-cost credit it considered that it may also have unintended consequences. Those include restricting access to credit for consumers and also having the interest rate that is at the upper limit coming to be viewed as a target or reasonable. The committee considered that the provisions included in the bill especially as they relate to disclosure unreasonable fees and responsible lending would reduce the risk of lenders offering unaffordable credit. I do agree with the committee on those findings.Also of note in the bill is the increased access for consumers to the oppression and hardship remedies. Access to justice is paramount when it comes to consumer protection. Submitters noted that many consumers do not know where to go when they are in trouble. The bill will allow applications for hardship relief to be made once the debtor is already in default and elaborates on the grounds for a court to reopen a credit contract on the grounds of oppression. The committee has recommended that specific references in the financial dispute resolution schemes are included within the Act increasing their presence.To conclude I commend the committee for its consideration and examination of this bill. I believe this bill will be welcomed by lenders borrowers consumer groups budget advisers regulators and the like. We want the consumer credit market to work as effectively as possible. Reshaping the consumer lending environment is an important part of the Government’s Business Growth Agenda. These changes will boost confidence in the role that consumer credit plays in our financial markets while providing increased protection for New Zealand’s most vulnerable consumers. I commend this bill to the House.CAROL BEAUMONT (Labour):I am rising to support the Credit Contracts and Financial Services Law Reform Bill at its second reading. This is a substantial bill and it covers across the consumer credit area. Certainly as the Minister of Consumer Affairs has said there are many very positive provisions in this bill. For many of us and I am sure for those listening the impact on fringe lending or predatory lending as part of consumer credit is the area we are particularly interested in. I just want to look at what that problem is because actually it is a weeping sore. Just in the last month or so there have been reports in the media from budget services all around New Zealand of examples of 100 percent interest rates of 50 percent interest rates and of 50 percent interest rates for a loan of 7 days. These are just a few examples that I have recently looked at. This is a real problem. People know—I am sure that virtually every MP in this House knows—about the shonky business model of the so-called truck shops that rattle around in low-income parts of our communities. So we know that there is a problem and it is an ongoing one.But it has got worse. In tough economic times the problem has got a lot worse. These lenders—these predatory lenders—have preyed on vulnerable consumers. They have preyed on families who are struggling to make ends meet. There has been an increasing problem of the type of predatory lender that has been in the market. So over recent years we have seen an explosion in for example the number of pay-day lenders—short-term smaller loans supposedly from one pay period to another but often longer than that—loans by texting and things like that. So there has been an increasing problem from new players. Budget services say that the level of indebtedness that they see in our communities has increased. The overwhelming majority of people who go into budget services are tied up in high-interest consumer debt and many of the budget services have seen a change in the ratio—that is the proportion of people whom they see who are in the paid workforce has increased as well.Families are damaged by these lenders. Families are damaged as they try to repay excessive interest rates and many of them actually repay those loans with those excessive interest rates. That is just taking money that they can ill afford to lose out of their children’s pockets or mouths—taking it away from feeding and clothing their children. So it is being irresponsible not to have acted sooner when we know this problem when we can see these problems and I know that the level of concern in the community is very very high.This particular bill has been a long time coming. There was already a review of consumer credit laws under way when National came into Government. It started in 2007 with the Financial Summit held in South Auckland and that was held in response to concerns about the adequacy of the current legislation the Credit Contracts and Consumer Finance Act—particularly in response to its adequacy in dealing with predatory loan sharks which were starting to be seen as an increasing problem. The deprioritisation of the work of reviewing that legislation is shameful. The delays despite the rhetoric from across the House of getting tough on loan sharks has just been truly shameful. I ask how many thousands of families have been caused immeasurable grief and hardship as a consequence of the exploitation and predatory behaviour that has been increasingly evident right across New Zealand but it is especially evident in low-income areas. Loan sharks truck shops and pay-day lenders have flourished in an environment of low and static wages ever-rising prices and high unemployment. This is not the rock star economy that the Prime Minister brags about.I want to talk about interest rate caps. The Minister has referred to them in his speech. How many members of this House think that interest rates of 80 percent 100 percent 200 percent or 700 percent are acceptable? How many of you think that that is acceptable? How many of the people listening to this debate think that those sorts of rates are a fair go? If we went and surveyed New Zealanders how many of those people do you think would think that it is OK? Well I do not think too many would. So why are such rates legal and why are we not addressing those rates in this bill?Although Labour welcomes many parts of the Credit Contracts and Financial Services Law Reform Bill as it is a positive step to further protect consumers we are outraged that National has once again rejected interest rate caps. New Zealand is now one of the last remaining countries that have not capped rates in an effort to curb unscrupulous rates of interest. Many of those paying such interest rates can ill afford to lose that money from their impossibly tight family budgets. As I said many of those people repay those rates but at what cost? It is at the cost of food at the cost of clothing and at the cost of other essentials for their family and many get caught in a cycle of debt and despair that has a huge cost for that whole family. Many are vulnerable families living in our poorest communities.On 1 July last year Australian legislation came into force capping interest rates at 48 percent right across Australia. A bill was introduced into the US Senate in April 2013 proposing an interest rate cap of 36 percent right across the United States. More than 80 percent of the individual states in the United States already had interest rate restrictions. Britain was one of the last European jurisdictions to decide to implement loan shark interest rate caps. It had explored every avenue in an attempt to avoid caps but just before Christmas Prime Minister Cameron and the Chancellor of the Exchequer George Osborne did a U-turn and announced interest rate caps after previously denouncing them. They announced that every avenue had been explored and that there was simply no alternative to interest rate restrictions. In addition to the above interest rate restrictions now apply in Japan Singapore most countries in Africa and Europe Canada Mexico and almost all of South America. This list is by no means exhaustive.The same old tired arguments—and the Minister of Consumer Affairs had them just before—were trotted out during consideration of this bill: unintended consequences the caps become a target access to credit from loan sharks may be reduced or driven underground. What was not adequately answered for Labour was why this would be a problem here in New Zealand but not in the many many jurisdictions around the world that have introduced interest rate caps. If the Government’s concerns have any substance then New Zealand would not stand out as one of the last remaining countries not to have imposed interest rate caps. I personally challenge Minister Craig Foss to find a country that has recently repealed such provisions because they have proved unworkable. Canada has had them for 8 years. If they had all those consequences why has it not repealed that legislation?So we are not going to sit back and leave this unchallenged. We will be putting forward amendments to this bill to include interest rate caps and also to ensure that the oppression provisions can be used to look at interest rates. I am pleased to say that when we introduced those we had clear indications of support from the Greens New Zealand First Mana Brendan Horan and the Māori Party. Peter Dunne is the man we need to get across the line I say to everybody. To those listening Peter Dunne is the man we need to get across the line. He supported interest rate caps when he voted for my member’s bill in 2010. What stops him doing it now? He said at the time he was deeply disappointed. What stops him in my opinion is his need for the National Party’s support and it outweighs anything else for that man so I urge everybody to talk to Peter Dunne. Let him know what you think he should do.Going back to the rest of the bill the bill contains many positive provisions as I have already said. Many of them have been provisions that budget services put forward years ago and from citizens advice bureaux in the review Labour commenced 7 years ago. I want to acknowledge the work of those people. They deal with the consequences of this every single day.My member’s bill also provided for responsible lending provisions in 2010 and I am pleased to see that we have responsible lending provisions albeit 4 years later in this legislation. Another thing I am very pleased to see is responsible lending provisions being applied to guarantors. I think that is great. I think that is particularly good for all those elderly people who end up guaranteeing loans for their children and their grandchildren. Truck shops as I have mentioned will be covered by some of the provisions and I want to acknowledge my colleague Kris Faafoi. Kris and I also worked very hard on the select committee to try to ensure that truck shops were covered by those provisions. Thank you.JONATHAN YOUNG (National—New Plymouth):I am very pleased to stand and speak in the second reading of the Credit Contracts and Financial Services Law Reform Bill. I want to say thank you very much to the officials who worked alongside the Commerce Committee. This was a particularly interesting but also a very complex and large bill. In fact the commentary that the committee signed off as a record of our work was about 25 pages long—one of the largest commentaries I think in a bill this year. It showed the complexity and the scope of the work that we did.The availability of credit both for businesses and for consumers is fundamental to the sound operation of a modern economy. Many goods and services are purchased through consumer transactions that are partly or completely financed by credit. Without credit such purchases would not occur and consumers and businesses would be worse off. Accessible consumer credit can make a significant contribution to the welfare of consumers and to the prosperity of business.The credit industry can be categorised in a number of ways. The Reserve Bank household financial liabilities report from a year ago shows that there was approximately at that point in time $180 billion of housing loans $9 billion of bank consumer loans and $3.9 billion of non-bank consumer loans.Colmar Brunton produced a report in 2011 for the Ministry of Consumer Affairs entitled Using a third tier lender: experiences of New Zealand borrowers. This report defined the three segments in the consumer credit market—that is first-tier lenders second-tier lenders and third-tier lenders. First-tier lenders include registered banks. Second-tier lenders include building societies credit unions the Public Service Investment Society and other deposit-taking financial institutions. The third-tier lenders are providers of personal non-mortgage credit which are not banks credit unions building societies deposit-taking institutions or credit card providers. Third-tier lenders include finance companies pay-day lenders and moneylenders.Some third-tier lenders are quite large organisations with multiple outlets. However most are single-outlet small operations. Third-tier lenders have tended to focus their business in lower-income areas. A number of lenders operate solely via the telephone internet and/or brokers and third-tier lenders are seeing opportunities and increasing demands for more accessible loans that are not being met by the banks and other credit providers. Third-tier lenders operate in a market where it is easier to engage in practices that potentially take advantage of vulnerable consumers because many of the borrowers have lower levels of financial literacy and/or have low incomes and do not have access to affordable credit.One of the things that we found quite challenging in the committee was the marked differentiation between those different tiers. That was quite a challenge as we looked at wanting to certainly address the real problem that happens particularly in those low-income families and communities where financial literacy is low. I think we worked quite extensively in the committee to try to find those demarcations.One of the areas that we worked on was lender responsibility principles. The bill introduces the concept of responsible lending to New Zealand credit legislation requiring lenders to help borrowers to be reasonably aware. It does not take away the responsibility of the borrower to gain financial literacy but it puts the onus upon the people lending the money to do everything they can to help the borrower to become reasonably aware of the full implications of entering into a credit contract.We recommend requiring lenders to express in plain language the terms of agreements and subsequent variations to agreements to help borrowers and guarantors to reach informed decisions. This is a very important part of the bill. Its sounds simple but when we have a population—particularly in the northern part of the country—that is increasingly made up of immigrants who have come from overseas and whose English language may not be as strong as it is in the rest of country it is important that plain language is used and that borrowers become reasonably aware of those implications.There is much to cover on this but I have probably said enough at this point in time. I am very happy to commend this excellent bill to the House and thank all the Commerce Committee members for their hard work in getting it this far.Hon CLAYTON COSGROVE (Labour):I join with other colleagues in support of the Credit Contract and Financial Services Law Reform Bill. I am particularly pleased by a couple of aspects of it. I will not labour the point but before I get into the guts of the legislation I want to refer members to a particularly pertinent piece in the commentary which is on page 4: “We recommend amending new section 9B(3)(e) to expand on ‘problems’ defining them as situations where a credit contract has been breached or may be breached. We also recommend requiring lenders to treat borrowers ‘in an ethical manner’…”. It is that ethical behaviour that I want to touch on in a wider context in respect of this bill because I note that—Hon Peseta Sam Lotu-Iiga: What page?Hon CLAYTON COSGROVE: —many of the concepts in this bill will amend—for the member’s help it is page 4 second paragraph down beginning: “We recommend …”.Grant Robertson: No pictures sorry.Hon CLAYTON COSGROVE: There are no pictures and a few large words but we will get over it. In terms of corrupt practice I note that when the President of China was appointed to his post one of his pledges if you will to his people was to go after and deal with both unethical behaviour and corrupt practice. I have to say that when we talk about acting in an ethical manner—ethically and responsibly—an example of that could not be used when it comes to the Minister of Justice. I will not labour the point because I want to go on to some other aspects of this bill but I say that where you have a person who is as eminently qualified as a Minister of Justice you would expect that person to act in an ethical way with ethical behaviour and in an ethical manner. Ordinarily you would especially since the chairman of the Commerce Committee talked about those people who should be educated in respect of financial literacy so that they are qualified to make appropriate decisions when it comes to lending. In the same way you would expect a person like Judith Collins—a Minister of Justice a lawyer and a senior member of Parliament—to conduct herself in a way where she could not be accused of unethical behaviour she could not be accused of corrupt practice and her reputation as the leading justice official in this House apart from the Attorney-General could not be besmirched.However when we look at the track record in the proceedings of the House today—The ASSISTANT SPEAKER (Lindsay Tisch): Order!Hon CLAYTON COSGROVE: —that does not fit the definition even in this legislation. Oh they may not like it Mr Assistant Speaker—and it is germane to this legislation—but her conduct today does not fit in any way shape or form the words contained in this bill about acting in an ethical manner. It is not ethical in relation to this bill to attempt to enrich oneself or one’s husband by one’s actions as a member of this House and as a Minister. If it is ethical then that is corrupt practice. I call that behaviour and the Minister of Justice’s behaviour in this House today back-pedalling corrupt practice where she will not name officials—The ASSISTANT SPEAKER (Lindsay Tisch): Order! It is not proper to allege that a member of this House is corrupt. From now on the member will come back to the substance of the bill. We are on a second reading and I refer the member to page 110 of Speakers’ Rulings. We will not have any cause for a member to talk about another member as acting in a corrupt manner.Jonathan Young: Please do not corrupt Standing Orders.Hon CLAYTON COSGROVE: I appreciate your advice. I appreciate it as well.Jonathan Young: Oh how kind of you. Thanks very much.Hon CLAYTON COSGROVE: No no ethical behaviour and ethical standards are very important in this House. The bill talks about treating people with respect and there are a number of disclosure provisions within this legislation. I put it to you that in order to be ethical and not be accused of corrupt practice if you a lender a borrower or any other individual in the community you have to be transparent you have to be ethical you have to tell the truth and you should not change your story every 5 minutes as we have seen in the last few hours in this Chamber—for the record.Moving on one thing I am particularly pleased about in this bill for the benefit of the Minister of Pacific Island Affairs over there if we look at the commentary under “Content of continuing disclosure statement”—and we would love a bit of that when it comes to the Minister of Justice would we not a bit of continuing disclosure—it is the recommendation to insert new clause 13A “to provide for regulations to prescribe a minimum repayment warning on credit card statements.” This is something I am particularly interested in—and I have campaigned in my own way over the years in several committees about this—because as the commentary says this is where “The warning would detail to the debtor the consequences of paying only the minimum monthly payment on credit card debt such as higher interest costs over time.” The Aussies have had this for several years.When we talk about financial literacy it is incumbent on this Parliament to assist those who often cannot—sometimes will not but often as not cannot—assist themselves. I put it to the House that there is no better form of financial literacy than for a bank to do as they do with mortgages where they tell you on your statement what your repayments are what your interest bill is from month to month what your interest bill currently will be on maturity and the total amount of the debt on maturity. You can see it all mapped out and see how many years you have to pay it off.Yet banks in New Zealand for a time have resisted under really the only excuse which is cost. There is a cost to making these changes and I acknowledge that but it is not an earth-shattering one. Their parent companies in Australia were compelled some years ago to disclose to a person who holds a credit card that this is your minimum payment this is the average payment you are making monthly and that if you keep paying it off with this frequency it will take X number of years and you will have paid X amount of money you will have paid the bank a bucketload of interest and it might take you 10 years to pay it off. At that point everything is disclosed to the person who is incurring that debt.I would wager—I hope I am right—that many people once that explicit disclosure is made on the credit card statement will look at it and go: “Heck. I didn’t think if I kept paying at this sort of frequency that I would be paying that amount of interest and that it would take that amount of time and my total bill at the end of this would be a bucketload of cash.” Once that realisation is made I suspect those people will say: “Hey I’m going to remedy this. I’m not going to give the bank a bucketload of money in interest. I’m actually going to shape up in terms of my internal financial processes. I’m going to redo my household budget and I’m going to try to quit this debt or minimise it to a manageable level.”I am quite proud of that. I am pleased and I am grateful to all members of the committee. It was something that I think sprang out from left field for us all. We raised it with the officials. I commend our officials who went away and challenged the banks and the financial institutions and came back with a remedy. Yes it will put a bit of cost on the banks to make the electronic changes that they will have to make. It will not raise interest rates. I would say that I would be very surprised if it is passed on in any major shape or form to the punters to the customers but it will bring our banks in line with their Australian parents. More than many things that have been done around financial literacy to me this is one of the ultimate forms of it because it is completely transparent it hides nothing and it gives a warts and all view to the person who is incurring debt through a credit card.We certainly know that it is relatively easy for credit cards to be made available to people and we know that they are an easy form for all of us who like to make the odd purchase from time to time. They are an easy form that aids our purchasing power. For those who can afford it that is OK. For those who cannot afford it it is troublesome. I am one of those people who can afford to pay the credit card off on time every time. The banks do not particularly like me I suspect because they do not get any interest out of it. I am well remunerated like all members of this House.Hon Simon Bridges: Too well.Hon CLAYTON COSGROVE: But we all have constituents who have been caught in that credit trap—especially the “Minister for Victoria Forest Park” or the “Minister for Geography” over there Mr Bridges. He did not pass School Certificate geography I am told. Even he is well remunerated in this House. But there are many constituents who get caught in that trap. Hopefully this small measure within the totality of this bill will assist them. I wish Judith Collins all the best for question time next week.JULIE ANNE GENTER (Green):The Green Party is happy to vote in support of the Credit Contracts and Financial Services Law Reform Bill at its second reading. The Green Party has long called for better regulation of third-tier lenders—that is pay-day lenders moneylenders and those who are known as loan sharks. Third-tier lending at extortionate interest rates has been increasing in New Zealand and in other jurisdictions over the past decade. It is both a symptom and a cause of growing inequality. The gap between those who have and those who have not is growing in New Zealand and in other countries and wealth is being concentrated in the hands of fewer people.Post the global financial crisis although the people who arguably caused the global financial crisis—The ASSISTANT SPEAKER (Lindsay Tisch): Order! I am sorry to interrupt the member. There is this banter going across the House. I am trying to hear the member who is speaking.JULIE ANNE GENTER: Thank you Mr Assistant Speaker. Post the global financial crisis a number of people lost their jobs and they found it more difficult to put food on the table and to pay their ever-increasing power bills. Predatory lenders set up precisely in those areas of greatest social and economic deprivation and take advantage of limited financial literacy and a desperate need for cash to make ends meet.It is not enough to improve financial literacy and regulate loan sharks alone. Part of the solution is addressing the underlying causes of this growing inequality and that means taking a hard look at our tax system which currently favours the wealthy few. We need to look after our children 250000 of whom are living in poverty. There are many steps the Government can take to do this thing like raising the minimum wage paying a living wage themselves and working towards a living wage across the country and investing in smart affordable transport and kid-friendly streets. Our Schools at the Heart policy which is focused on our education hubs and on making sure that kids are looked after from the beginning is going to help deal with some of this growing inequality.But the immediate issue of regulating third-tier lenders is finally being addressed in this bill. Even though we do not agree with everything in the bill—there are a few areas where we certainly differed from the Government’s policy and that is expressed in the minority report—we are very happy to finally see the very good work that was done as an outcome of the review of the Credit Contracts and Consumer Finance Act. I have to acknowledge the excellent work of officials in this area and especially the work of my colleague Carol Beaumont on the Commerce Committee. She is really the expert in this area. I am certainly not. I had to look to her expertise. She advocated for really important changes in this bill and I was so happy that she was there to do that.We will see truck shops and other lenders covered by this legislation which is incredibly important. As Carol Beaumont said in her speech earlier this evening one of the biggest disappointments of this legislation is that it does not include any provision for setting a cap on interest rates. What is disappointing is that we did not get any compelling evidence or reasons why this was not being included in the bill. We certainly asked for it. We heard a huge number of submissions and it is fair to say that some submitters were not in favour of interest rate caps—most notably the Bankers’ Association. But there were quite a few submitters who were in favour and there certainly is a lot of evidence that other jurisdictions are using interest rate caps to protect consumers from spiralling out-of-control debt. As Carol Beaumont said New Zealand is one of the last remaining countries not to have a provision for interest rate caps.So although I am certain that the provisions in this bill will go some way to protecting those consumers who are most vulnerable I am concerned that we have not given ourselves even the opportunity to try interest rate caps. The reasons given for not including interest rate caps were simply that there might potentially be a lack of access to short-term credit and that the interest rate cap would become the target and everybody would automatically put up interest rates to whatever the cap was. I have to say these are not really overwhelmingly compelling reasons for not including some sort of provision. I am an empiricist. I very much believe that we cannot know everything before trying it—Simon O’Connor: Did you say an imperialist?JULIE ANNE GENTER: Empiricist.Simon O’Connor: Oh I thought you said imperialist.JULIE ANNE GENTER: No empiricist sorry. So basically I think that when it comes to policy it is very easy to make up reasons for not trying something but actually if most of our trading partners in other comparable jurisdictions are doing something then maybe we should give ourselves the opportunity to at least try it. Seeing as how it took so many years for this legislation to come before the House we are not going to easily have that ability to include a cap in the future. I mean it takes time. We consulted on it. It was certainly spoken about in the submissions process. This was the logical place to at least introduce the possibility of the Government imposing an interest rate cap or allowing the Reserve Bank to set one.Of course if all these hypothetical drawbacks of interest caps did occur and there were no other means of introducing them then we could always roll it back but we should at least try it because it is an important tool. Why would you restrict the number of tools in your tool kit to deal with predatory lenders? As we know it is a growing problem and one that is increasingly affecting the people in New Zealand who are the most vulnerable and the people whom we should be looking out for the most.The lack of access to short-term credit is perhaps something that the Government should be seeking to address so that those who have the least really should not be forced to go out and get a pay-day loan or a short-term loan in order to put food on the table. That should not be a reason. You should not need access to credit to get your kids enough food to eat or to make sure that they have got warm clothes or that you are able to pay your power bill. There are other problems deeper problems that need to be addressed in this country and I think that allowing predatory lenders to go out and charge interest rates of well over 100 percent to people who have potentially—and I have to say that most people are not very good at understanding compounding interest. People who are struggling just to get enough to eat and to put food on the table might not be in the best position to understand the consequences of interest rates that are expressed simply in a daily rate and to understand what that is going to mean as it compounds.So simply put I think the Green Party is happy to see this legislation finally come to its second reading. It is mostly very very good and we are disappointed that the Government for quite ideological reasons seems to have neglected to include an important tool in the tool kit to address the problems we face.The other disappointing thing I think was the last-minute amendments around credit and default fees that were made entirely at the behest of the New Zealand Bankers’ Association—with some scaremongering claims that I am sure it made about the increased costs to it. Again I thought it was disappointing that the amendments came at the last minute. We were not presented with very compelling evidence for the wording changes. I think that although we have to admit that at least the Government did see this legislation come before the House—that is good—and there are some improvements ultimately there are still some ideological policy decisions being made by the National Government that are about “Let’s look after the bankers and let’s ideologically be opposed to caps on interest rates even though they might help those who are the most vulnerable in our society.” Thank you.Hon Peseta SAM LOTU-IIGA (Minister of Pacific Island Affairs):It is a pleasure to speak on this the second reading of the Credit Contracts and Financial Services Law Reform Bill. This bill will make a difference and it will make a real difference to people up and down this country who have fallen prey to predatory moneylenders. Many of my colleagues and members opposite have referred to this. Part of this bill is about protecting the most vulnerable in our communities in what is sometimes the most desperate of times. The bill is a result of many hours of consultation. I want to thank the officials as well. I also want to thank the Ministers both the present Minister of Consumer Affairs Craig Foss and past Ministers of Consumer Affairs—Simon Bridges who is in the House and Simon Power—and many others who have brought this bill to this stage. I also just want to say that the bill has taken some of the clauses from my own member’s bill which I launched 3 years ago—I am quite happy to tell my friends opposite—especially around credit repossession agents. It is a bill that is going to make a difference to our lives and the lives of many New Zealanders.We campaigned on this bill in 2011. It is now seeing some real results and I am glad that members opposite have chosen to support it. What they have not spoken about is the responsible lending guidelines that will be part of this bill.Carol Beaumont: I did actually mention that.Hon Peseta SAM LOTU-IIGA: No they have talked a lot about interest rate caps and I will come to that soon. The guidelines are about the duty on responsible lenders to their borrowers and customers. They cannot be indifferent to the needs of those borrowers. They cannot be indifferent to the circumstances of those borrowers. They cannot be indifferent to the borrowers who have situations where the transaction may lead to distress. This bill will fundamentally change the way that lending is done in this country and it will skew the power if you like back to protecting consumers particularly those vulnerable borrowers whom I referred to. I have seen them in my electorate office and I have had family members who sadly have been fleeced by these loan sharks. This bill is only part of the overall thrust of our Government to assist those borrowers. It is about education it is about having freephone lines so that they can access help and it is about the Commerce Commission playing its role in enforcing and prosecuting these lenders. That is what it will be about in the future. Responsible lending guidelines are going to be a critical part of this bill.I just want to touch on interest rate caps which members opposite have been referring to. As I asked in a member’s bill that advocated for interest rate caps—and they still do not get it across the aisle—what happens when you cap interest rates and fees get out of control? What happens when default fees get out of control? What they should be advocating—and I do not hear it—is a cost of finance cap not an interest rate cap. If you understand the fundamental difference between fees and interest rates then you would not be advocating the latter. What I am saying to members opposite is that interest rate caps do not work. In the jurisdictions that have implemented them you still have predatory lending. It is a blunt instrument that does not work.This bill has a lot of solutions. We are glad members opposite are supporting the measures within this bill because it is going to make a real difference to New Zealanders out there that finally a Government—not the Labour Government but the National Government—is putting in place these measures.ANDREW WILLIAMS (NZ First):I take a call on behalf of New Zealand First on the Credit Contracts and Financial Services Law Reform Bill. It is very appropriate to come after the Minister of Pacific Island Affairs Sam Lotu-Iiga with whom I had a discussion today on this very subject. I asked the Minister whether he would reconsider the aspect of capping the interest rates. He advised me that that was not going to be possible and he gave me various reasons. I am somewhat disappointed Minister because you come from the very area that is one of the most affected by loan sharks by high interest rates and by racketeers. The people whom you represent and are Minister of desperately need all the protection that they can get. They are the most vulnerable the Pasifika people. My colleague here Le’aufa’amulia Asenati Lole-Taylor can confirm that in the area of South Auckland in the Manukau area these people are very vulnerable. They need every assistance to ensure that they are not ripped off by some of these racketeers.So it is disappointing that the National Government just cannot see fit to go that extra step. It is bringing this bill through but it cannot go that extra step to put caps on interest rates. Caps have been introduced in the UK the USA Canada Japan Australia and much of Europe. This Government says it sees no justification for doing it here in New Zealand yet so many of our major trading partners so many of the countries that we have some of the closest contact with have done this. Therefore there can be no justification for this Government saying it does not think it is appropriate to do it when so many of these other countries based on a huge amount of case studies and past history in this area have seen fit to do so.It is also most concerning that this bill will go through but that the suggested amendments from Carol Beaumont in relation to those caps will be lost 61 votes to 60. They will be lost by one vote. They will be lost by the one vote of the Hon Peter Dunne. I use the word “honourable” very loosely because in this case if he was to do the honourable thing he would vote for the amendments as he voted back in 2010 for the Credit Reforms (Responsible Lending) Bill a member’s bill that was then in the name of Carol Beaumont. Back then United Future voted in favour of that bill and that bill said: “The amendments to the Credit Contracts and Consumer Finance Act 2003 will require lenders to seriously consider the actual means of a prospective borrower and their ability to service the debt and will allow for the prescription of maximum annual percentage rates of interest payable in respect of consumer credit contracts. Rules applying caps to annual interest rates now apply in many overseas countries including the United States Canada and Australia.” That was in that bill and the vote on that bill was lost by 59 votes to 63 but those who voted for it included United Future.So the Hon Peter Dunne was happy to vote for that and have caps 3 years ago but yet recently in the media he has said that he has never supported it and never did support it. He has done the usual flip-flop of a Minister. As the Rt Hon Winston Peters said in the case of Peter Dunne “he will double-cross that bridge when he comes to it.” In this case he has double-crossed the bridge when he has come to it because he is on record—and I have a letter here also confirming it—saying that he supported that bill and was sorry that it did not go through. He wrote a letter and I have got the letter here. He said: “I was very pleased to hear from you … thank you for taking the time to write to me and for your [kindness]. I was happy to support this bill and was very sorry that it did not proceed past first reading. I hope that further progress will be made on this issue in future.” Well this is the future Peter Dunne—this is the future. This is 2014. We now have a bill that would allow if the Government accepted the amendments caps to go on interest rates.At a time when people can be absolutely ripped off with interest rates rising to three digits—hundreds of percent—why should poor vulnerable people be paying interest rates of hundreds of percent in some cases when this Government has the ability to support putting caps on interest rates? It is just absolutely diabolical in this day and age that this Government cannot see sense in doing this when our trans-Tasman sister country Australia has done it and when so many of these financial people operate on both sides of the Tasman as well. Why should they have constraints in Australia but not have constraints here in New Zealand? It does not make sense. Why does this Government often say “Oh we are trying to harmonise with Australia as much as we can so that businesses both sides of the Tasman know what the rules are and so do the banks and everybody else—you know so we’re harmonised.” and yet here is an instance where the Government will not harmonise with what is happening in Australia? It is just absolutely nonsensical.In the case of the Hon Peter Dunne New Zealand First can say to him that once again he is selling out taking the baubles of office and giving the one vote that is required to stop those caps going in. If he followed what his party’s principles stand for—and also we have confirmation that people within United Future are saying that they would like to see these caps in place. They cannot understand why Peter Dunne himself is not supporting the capping of rates. Peter Dunne is obviously a one-man show voting for his own self-interest and not voting on the basis of what many of the people in his own party would say. He is basically voting to ensure that he keeps his ministerial portfolios his Crown limousine and all the baubles of office so he will give the one necessary vote to ensure that credit caps are not put on interest rates.In closing New Zealand First will just say once again that we are very disappointed. We will be supporting the bill overall because it does significantly help vulnerable people. It will enhance the whole situation in terms of those who are most affected and who require credit. But at the same time when the bill comes through the Committee stage we will be expressing grave concerns as to why the Government is once again letting down low and middle income earners in this country and is not seeing sense by doing that.KANWALJIT SINGH BAKSHI (National):It is my pleasure to take a call on the Credit Contracts and Financial Services Law Reform Bill. I would like to acknowledge the Hon Simon Bridges and the Hon Craig Foss for their contributions to this bill. I would also like to thank all the members of the Commerce Committee—in particular the Hon Peseta Sam Lotu-Iiga and Alfred Ngaro—for their contributions during the select committee process. It is a very important bill particularly for the people of South Auckland where I have got my office. It is my pleasure to commend this bill to the House.KRIS FAAFOI (Labour—Mana):Thank you very much for the chance to speak in this second reading of the Credit Contracts and Financial Services Law Reform Bill. Like the Minister of Pacific Island Affairs Sam Lotu-Iiga I also represent a community that is disproportionately affected by the kind of behaviour that is carried on by third-tier lenders—or as we like to colloquially call them loan sharks—and the likes of as I guess they would call themselves mobile traders whom we like to call truck shops.It would not seem fair to any fair-minded New Zealander that interest rates of the likes of 50 percent to 100 percent or even more are charged to vulnerable people in our community. I think if you asked any fair-minded New Zealander who wants a fair go for consumers especially those who are vulnerable and who cannot get credit from the likes of traditional banks they would say that getting charged the likes of 50 to 100 percent is just not fair. It lands a whole lot of families—and as I say there are a whole lot of families in my community who sign up to those kinds of deals—in massive trouble. It usually ends up with them going to the likes of the local citizens advice bureau or the Porirua Budget Service. I am going to see the Agape Budgeting Service tomorrow in Porirua. Those are the kinds of people who end up dealing with the hurt of the families because the likes of third-tier lenders or loan sharks are able to charge exorbitant interest rates.Although we are supporting this piece of legislation this is a massive opportunity gone for this Government to take some real action to introduce interest rate caps. I do want to acknowledge my colleague Carol Beaumont who has a number of Supplementary Order Papers on this bill. One of those specifically does do what the Government should have done in the introduction of this bill and that is to look at interest rate caps. I think it was Mr Lotu-Iiga who said that these interest rate caps do not work. So maybe Mr Lotu-Iiga would like to ask the likes of many countries in Europe Mexico Canada South Africa Japan Singapore—which has a Government that this Government always says is doing a good job financially—the US Australia and most recently the United Kingdom as to why they think it is appropriate to put in interest rate caps for third-tier lenders. I think those Governments probably recognise the fact that there is huge public interest in making sure that the most vulnerable in our communities are not stung more by the likes of interest rates of 50 percent to 100 percent.Essentially what we are saying here is that this side of the House is not OK with the most vulnerable people in our community going to third-tier lenders and paying interest rates of 50 percent to 100 percent or more. But that side of the House—the Government; National United Future—are quite OK with people who probably cannot afford to take out these loans having these huge exorbitant interest rates. That is exactly what this boils down to. We are not OK with it but that Government is OK with it.From now on all the hurt that the likes of budgeting services see around the country can be blamed on that Government because it is quite OK with letting things go on as they are now.Or one person in this House the Hon Peter Dunne could change his mind again. He could change his mind again. Andrew Little said that Mr Dunne supported a member’s bill back in 2010 in the name of Carol Beaumont that would have introduced interest rate caps. I want to quote from the same letter that Mr Little—Dr Cam Calder: Williams.KRIS FAAFOI: —Mr Williams thank you—quoted from. I want to declare somewhat of a conflict of interest. This letter is to Mr Andrew Shann who is a constituent of mine and who also works for me part-time and who has been campaigning against third-tier lenders since well into the past and also to make sure that interest rate caps come in.Hon Simon Bridges: Ah!KRIS FAAFOI: You can crow over there because you guys are OK with 50 percent or 100 percent interest rates. You are OK with it. I am not OK with it. You guys are the ones who are OK with it. I just want to say that Mr Dunne was not OK with it 4 years ago. He said: “I was very pleased to hear from you … thank you for taking the time to write to me” He said he supported the bill and was very sorry that it did not pass the first reading.So 4 years ago Mr Dunne was not OK with exorbitant interest rates but now that he has got the Crown car back and he is back in his ministerial office he is toeing the party line and he is all of a sudden not OK with caps on interest rates. I would suggest—if people are watching this debate and I am sure a lot of people around the country who are interested in making sure that—Dr Cam Calder: If they know you’re speaking they will be—they will be.KRIS FAAFOI: He is a retiring member. Those people who are interested in making sure we are looking after vulnerable people can put a lot of pressure on Mr Dunne to change his mind again. His is the one vote that could change this whole thing. Peter Dunne said in 2010 that he was OK with interest rate caps but now that he is back in the House with the Government he is not OK with it.So write letters to Peter.Dunne@parliament.govt.nz. Send him a letter—to the Hon Peter Dunne. It is freepost. If you are not OK with 50 to 100 percent or more interest rates write Peter Dunne a letter send him an email or bombard his office with phone calls. He is the one who can change this whole situation. The Government has not shown any leadership on this. It is dead against interest rate caps. It does not want to introduce them. But there is one person in this House who can change everything. I fear that he may not change his mind because what did he do with asset sales? He made sure he voted for that. That squeaked through with one vote. But I do not want to discourage people from trying to get Peter Dunne to change his mind on this.Can I just take a brief moment because this was the first substantive piece of legislation that I sat through on the Commerce Committee to thank other members of the Commerce Committee. It was a relatively good process. We had the odd stoush—nothing compared with what we have had recently.Carol Beaumont: Officials.KRIS FAAFOI: Can I thank the officials too because as the chair of the select committee Jonathan Young said the bill is very technical but I think the way the officials guided us through this process made it very plain sailing for someone who had to make sense of this as a new member to the select committee.I do represent a community where the effects of loan sharks and truck shops do have a disproportionate effect. Although I support this piece of legislation I do think as I have said before that we have missed an opportunity to make the lives of those people better. I have had people in my office who have been in tears because of the interest rates and the debt that they have got themselves into with loan sharks. I cannot do much more than offer the services of a budgetary advice service. That is heartbreaking because I think this Parliament should be able to do something to prevent people from getting into those situations. I think an interest rate cap certainly would have been one of those ways.There is also one person I do want to thank who is not in this House any more and that is Charles Chauvel. Before he left this House he also took a very strong leadership role in the Ōhariu electorate which Mr Dunne is the MP for in making sure that this issue was brought to the fore. It was actually 5 years ago when the effects of the global financial crisis started kicking in that this really started to hit home especially with our most vulnerable people in our communities.As Sam Lotu-Iiga said he put in a member’s bill 3 years ago—3 years ago. It was 3 years ago and we are sitting here today 6 months before an election and something is being done about it only now. My question is why it has taken so long for this Government to get off its chuff and make sure that something is done for these most vulnerable people. We have still got the Committee stage of this debate to go and I suggest that that question may be a very strong theme in that debate—as to why it took so long for this Government to do something. During that time a lot of families up and down this country and certainly in my electorate of Mana have been put through harm that I do not think they necessarily should have been put through. They are in debt. That affects their daily lives. It affects what they can do with their kids and their families. If this Government had acted a little bit sooner to put some protections in place for them their lives could have been markedly different.I just want to finish up with this thing. There is one vote in this House that can change it. We on this side of the House are not OK with interest rates of 50 to 100 percent or more. If this Government does not support the Supplementary Order Paper of Carol Beaumont that pretty much says that that Government is OK with it.Bill read a second time.