Faafoi KrisCREDIT CONTRACTS LEGISLATION AMENDMENT BILLFirst ReadingHon KRIS FAAFOI (Minister of Commerce and Consumer Affairs): I move That the Credit Contracts Legislation Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill. For vulnerable consumers this is a significant piece of legislation that amends the law which regulates the provision of credit or lending in New Zealand. This bill represents the Government's commitment to protecting vulnerable consumers and stopping families being trapped in debt spirals and hardship that result from unaffordable debt. It is estimated that more than 200000 New Zealanders use high-cost credit. A large proportion of these New Zealanders are subject to excessive interest rates and fees that trap them in debt spirals with long-term detrimental impacts. Sadly such conduct disproportionately harms our most vulnerable communities. This bill will change the law to better protect consumers from irresponsible and predatory lending by introducing an interest and fees cap on high-cost loans of 100 percent of the principal. It also introduces clear minimum standards for responsible lending it strengthens penalties for irresponsible lending it makes enforcement easier by requiring lenders to demonstrate that their loans are affordable and suitable and that their fees are reasonable it raises the bar to becoming a lender by introducing a fit and proper person test for lenders and shopping trucks and finally it improves transparency and access to redress during debt collection. New Zealand's credit legislation the Credit Contracts and Consumer Finance Act 2003 or CCCFA was last amended under the previous Government in 2015. But their amendments did not address some fundamental issues and harm has continued. Last year the coalition Government reviewed these amendments and the CCCFA and found that across the country consumers are still experiencing harm from non-compliance of the law and predatory lending practices and credit terms and continuing to get into trouble with debt spiralling out of control.One of the biggest harms identified through the review was when small loans of say $500 spiralled to $5000 or $6000 worth of debt. And this often becomes an intergenerational problem and leads to significant hardship. I've seen this first-hand as a member of Parliament for Mana. For many years I've had constituents come into my office who have become victims of egregious conduct from high-cost lenders and are now facing crippling debt.Given that 40 percent of adult New Zealanders don't have a credit card and may not be able to get an overdraft from the bank a small short-term loan can sometimes be the only option in times of need and I acknowledge that sometimes access to credit is necessary. However when that credit is irresponsible lending it can lead to vicious and debilitating debt spirals and this is why this bill puts strict limits on the total interest and fees that can be charged on high-cost loans. The 100 percent cap on the total fees and interest will go a long way to preventing the debt spiral problem. Importantly this cap continues to apply even if the borrower refinances the loan or takes out further loans with the same lender. The cap means that interest and fees on loans with an annual interest rate over 50 percent will be limited to 100 percent of the amount borrowed. For example if someone takes out a loan of $500 they will never have to repay more than $1000.But the 100 percent repayment cap is only one part of this package of reforms. We've heard from regulators and community groups that there continues to be non-compliance with the law around how lenders assess whether a loan is affordable or suitable. Unaffordable or unsuitable loans are the biggest source of harm to borrowers. To address this the bill includes three measures designed to clarify affordability and suitability requirements streamline enforcement and create stronger incentives for compliance. First the bill includes a regulation-making power to prescribe minimum requirements for affordability and suitability tests. Second there will be an increased onus on lenders to verify details of those applying for loans. For example lenders will need to obtain verification of primary income and fixed financial commitments like rent and other debts given that this is among the most important information a borrower can hand over. Third lenders will also be required to keep records that demonstrate their loans are affordable and suitable and that their fees are reasonable and cost-based.In order for these reforms to be effective we have strengthened the penalties where the law is breached. Stakeholders throughout the review commented that both stronger enforcement and penalties were needed in the lending industry for serious breaches of the law. We have listened to that feedback by including new and tougher financial penalties statutory damages and improving banning orders for breaches of the law.The bill raises the bar for lenders entering into the industry as well. To lift professionalism in the industry and reduce the presence and operation of irresponsible individuals in the lending sector directors and executives of consumer credit lenders will be required to meet a fit and proper person" test. Directors and executives of lending companies and truck shops will need to satisfy this test before the creditor can be registered on the financial services provider register and lend.Debt collection has also been identified as a problem and there have been too many accounts of false and misleading claims being made by debt collection agencies. These include pursuing people for non-existent debts misleading claims about the size of debt or the debt collectors' powers and using unnecessarily aggressive tactics. The bill addresses the lack of transparency and access to redress during debt collection. It requires key information to be shared with borrowers at the start of debt collection activity. The details of the information required will be contained in regulations but may include information about the original debt the fees added by the debt collector and contact details for the services that can help.In conclusion this bill will go a long way to protecting consumers from irresponsible and predatory lending and improve the well-being of many New Zealanders and their families. The Government is proud to be introducing this bill to the House and I would like to thank all those stakeholders during their review of the Credit Contracts and Consumer Finance Act that have got us here to this stage."