Foss Craig: Credit Contracts and Consumer Finance Amendment Bill Financial Service Providers (Registration and Dispute Resolution) Amendment Bill — Third ReadingsText is incorporated into the Bound VolumeFoss Craig: Credit Contracts and Consumer Finance Amendment Bill Financial Service Providers (Registration and Dispute Resolution) Amendment Bill — Third Readings[Sitting date: 27 May 2014. Volume:699;Page:18353. Text is incorporated into the Bound Volume.]Hon CRAIG FOSS (Minister of Consumer Affairs): I moveThat the Credit Contracts and Consumer Finance Amendment Bill and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill be now read a third time. The legislation sets out significant reforms to the Credit Contracts and Consumer Finance Act more commonly known as the CCCFA; the Financial Service Providers (Registration and Dispute Resolution) Act; the Private Security Personnel and Private Investigators Act; and the Personal Property Securities Act. In addition the legislation repeals the Credit (Repossession) Act and incorporates its content into an expanded Credit Contracts and Consumer Finance Act.I would like to thank the House and the Commerce Committee for the immense support that this legislation has received. This support reflects robust consultation and a shared view on delivering positive outcomes. Thanks are also due to previous Ministers of Consumer Affairs who have guided this work—and there have been one or two—to officials and to the large number of stakeholders who have been involved throughout the credit review and who have made submissions on both the exposure draft and the legislation.The improvements made by this legislation represent the first major change to consumer credit legislation since the enactment of the Credit Contracts and Consumer Finance Act in 2003 and reflect the Government’s commitment to protecting vulnerable consumers and facilitating the fair efficient and transparent operation of consumer credit markets. The three key features of the legislation include the introduction of a responsible lending framework strengthened provisions around disclosure and fees and incorporating and strengthening the rules around credit repossession. The legislation also strengthens registration provisions in the Financial Service Providers (Registration and Dispute Resolution) Act to prevent the misuse of the registrar by overseas-based entities. I would like to take a few moments to elaborate on these features.The responsible lending framework requires lenders to exercise the care diligence and skill of a responsible lender throughout the life of a credit contract. This explicit direction ensures that lenders take responsibility for the likely effect of the credit they provide. A responsible lender is one who meets the specific lender requirements to first make inquiries to be satisfied that the borrower can meet repayments without suffering substantial hardship; second assist borrowers to reach an informed decision when entering into the agreement; and third treat borrowers and their property reasonably and in an ethical manner. A creditor who repeatedly fails to comply with the lender responsibility principles can be banned from the market.The Responsible Lending Code will be important in providing guidance as to how lenders can comply with the lender responsibility principles. I expect that the code will elaborate on important matters including how a responsible lender can assist borrowers to reach an informed decision given the borrower’s circumstances and objectives—for example where the borrower’s first language is not English—and how a responsible lender can comply with the prohibitions on charging unreasonable fees. The legislation improves transparency requirements recognising that consumers make better decisions when they are fully informed. Such improvements include requiring lenders to disclosethe credit terms to the borrower before the contract is entered into—this compares with the current requirement where disclosure can be made up to 5 working days after the contract is entered into—and requiring lenders to provide to consumers free of charge and upon request their standard form contract terms and information on the cost of borrowing. This will allow consumers and others to compare the standard terms and costs of borrowing offered by different creditors in the market and make an informed decision based upon this information.Unreasonable fees have been a key issue for consumers and have contributed to families often finding themselves in unmanageable situations of debt. The legislation clarifies that fees charged by a lender must reflect the costs and losses associated with the credit rather than recovering an element of profit. The cost recovery principle should enable consumers to compare interest rates across the market without worrying about additional hidden and often extortionate fees contributing to the cost. The clarification should assist in making these provisions more enforceable.Other changes worth mentioning include that all creditors must be registered under the Financial Service Providers (Registration and Dispute Resolution) Act and be a member of an approved dispute resolution scheme. Furthermore as part of initial disclosure requirements to borrowers lenders must disclose the dispute resolution scheme of which they are a member. Lenders who do not register as a financial services provider under the Financial Service Providers (Registration and Dispute Resolution) Act will have no legal right to charge interest or fees on credit until they are registered.Some of the current practices relating to credit repossession processes can have significant detrimental impacts upon vulnerable consumers and families. The legislation significantly improves protections in this area by a number of measures such as incorporating the credit repossession provisions in an expanded Credit Contracts and Consumer Finance Act requiring that any item that a creditor wishes to repossess be specifically identified in the contract prohibiting altogether certain essential items like beds and cooking equipment from being repossessed requiring repossession agents to be licensed or to hold a certificate of approval under the Private Security Personnel and Private Investigators Act and providing that the Commerce Commission will be responsible for enforcing the rules relating to credit repossession along with its other functions across the rest of the Credit Contracts and Consumer Finance Act.The legislation also makes changes to financial service provider registration and dispute resolution. In particular it will provide the Financial Markets Authority with the power to prevent offshore financial service providers from registering in New Zealand solely to take advantage of our good standing as a well-regulated jurisdiction. This change will be important in maintaining the international reputation of our regulatory system. Changes to allow the Government to adjust the rules of approved dispute resolution schemes will ensure that the dispute resolution regime continues to be effective and meet consumers’ needs.The Commerce Commission will play an important role in enforcing and taking action against irresponsible practices in the market. In relation to enforcement and deterrents the legislation increases the maximum penalties for breaches to $200000 for an individual and $600000 for a company. The Commerce Commission will also have the ability to issue infringement notices for minor straightforward breaches of the Act. Together with the range of provisions outlined above these should assist in providing the commission with a flexible range of tools to address and target behaviour of concern in these markets.In conclusion overall the amendments in the legislation will support effective fair and transparent markets while also providing adequate protections to vulnerable consumers and families. I commend these bills to the House.