Brash Don: Credit Contracts and Consumer Finance Bill — In Committee 
Brash Don: Credit Contracts and Consumer Finance Bill — In Committee 
[Volume:611;Page:8845] 
Dr DON BRASH (NZ National) 
: 
 Even before the result of this recent voting I was going to express concern about the schedules but following the defeat of the Supplementary Order Paper put forward by my colleague the Hon Tony Ryall I feel even more concerned. The point of Mr Ryall’s Supplementary Order Paper dealing with clause 111 was that as currently defined it appears that the intent of this bill may well be significantly circumvented because of the omission of a potentially very large part of the charge against a borrower. Mr Ryall pointed out during the second reading debate that a fee charged by a mortgage broker is on the face of it not caught by the definition of the cost of a loan or credit. When we look through schedule 1 that indeed appears to be the case. I feel that is a significant omission and as drafted the bill may very well not achieve the purpose that I think both the Government and we in the National Party would like to see it achieve. That must be a matter for serious regret. 
That said I am bound to say that in our judgment the best way of protecting consumers against rapacious moneylenders is a competitive banking and finance sector. It is not more than 25 years back that most consumers were unable to borrow from mainstream lenders—banks and so on—at all. They were therefore vulnerable to being charged very high prices indeed for consumer credit. Even those who could get less-expensive credit from trustee savings banks were obliged to get down on bended knee and cultivate good relationships with their bank managers in a way that these days is not required at all. We now have a very competitive banking and finance market and for most of the population that provides all the protection required. But I acknowledge that this bill is designed not merely to protect the 80 percent of the public who do not need protection in a competitive banking and finance market but also the 20 percent who find it more difficult to borrow from mainstream banks and finance houses. I accept that we therefore need something of this kind. 
Having acknowledged that a competitive banking and finance model is the most effective way of protecting most of the public let me also suggest that another highly desirable thing to protect the public from rapacious moneylenders would be a higher understanding of the way finance works. It is a matter of regret that so many people come out of our school system with only the most rudimentary understanding of how credit works how interest works how compound interest works and therefore of the dangers and consequences of borrowing at high interest rates. 
I suspect that the most effective way of protecting that 20 percent of the public who cannot get access to mainstream banks and finance houses would be to give them some understanding of the risks they run in borrowing from third-tier financial institutions at very high rates. We have seen tragic cases where people have lost homes cars and furniture by not understanding the risks they run. Frankly I would like to see people—at least at high school and possibly even at primary school—given some education about the benefits of understanding how interest works and the risks of not understanding that. My colleague Sandra Goudie pointed out that one of the most effective ways of helping people in borrowing situations would be to make it clear what the total cost of a loan is. 
While I do not condone some of the quite distorted discussions of some financial institutions in adding principal to interest—