Credit Contracts and Consumer Finance Bill — In Committee 
Credit Contracts and Consumer Finance Bill — In Committee 
[Volume:611;Page:8691] 
Credit Contracts and Consumer Finance Bill 
In Committee 
Clause 1 Title 
Hon TONY RYALL (NZ National—Bay of Plenty) 
: 
 This is the Committee stage of the Consumer Credit Bill which has found itself morphed into the Credit Contracts and Consumer Finance Bill. We will refer to it as the “TripleCFB” during our debates. I have a team of experienced members of Parliament who will debate this bill. We are seriously concerned about a number of factors and we will spend quite a considerable amount of time on the debate. I have at least five members on my team and they will each want to take a couple of calls on the quite important matters here. 
During this debate we will focus on the compliance costs associated with the bill. We will also talk about and attack the new hardship provisions because we believe that they will add to the cost of consumer credit in New Zealand. We have discussed this issue with a number of financial institutions and it is quite clear that the cost of credit will go up. What is worse the cost of credit for people who can least afford it will increase. 
We have also discovered a major loophole in the bill which will see a significant credit cost to a lot of borrowers omitted from the disclosure regime. We will discuss that later in the bill. We signal to the Minister that she will want to discuss the loophole with her officials because it completely undermines this bill. If the bill is all about making sure that borrowers know the full cost of what they are undertaking the loophole that we have discovered could have a very serious implication for that purpose and we know that that Minister will want to make changes to the bill. 
We have proposed a number of changes to the title of the “TripleCFB” because we do not believe that it correctly identifies what is being proposed. This bill should be called “An Additional Compliance Bill” because it will put a huge compliance cost on those involved in the financial service industry which will be passed on immediately to the consumers of credit. 
I give the Committee just a couple of examples of additional compliance costs. New credit documents will be required to be drafted by all financial institutions and the institutions will have to revamp their compliance regime in respect of consumer credit matters. It is very worrying that there will have to be quite a new set of procedures and practices in relation to the setting of fees because this bill provides for a legal challenge to fees provided by institutions. It also provides for a legal challenge to the terms and conditions of loans advanced by institutions. 
Jill Pettis 
: What about the title? 
Hon TONY RYALL 
: We have had a little chirp from the cheap seats asking about the title. If that member would listen to a debate for a change instead of looking at her papers and piping up from time to time with those irrelevancies for which she is known she would realise that we have put forward amendments because this title reflects additional compliance. I am trying to explain that to her. Obviously I need to do it in monosyllabic terms to try to tell her about the difficulties—four syllables—associated with this bill. One of them is that there will be an additional compliance cost associated with the fact that borrowers will be able to go to court and for something called “reasonable cause” or “sufficient reason” request that the terms and conditions of their loans be set aside by the court. That is a very serious implication because a lot of those finance institutions factor their books— 
The CHAIRPERSON (Hon Clem Simich) 
: Could the member please come back to the title? 
Hon TONY RYALL 
: The point is that the Committee should look at my amendments. It is clear that in the amendments we are talking about additional compliance and disclosure of regulations. I have moved those amendments I am allowed to talk to them and I say that the additional cost associated with a bill that will undermine certainty about the value of debt needs to be reflected in the title of the bill. I have two amendments. One refers to “additional compliance” being added to the title because that is being proposed— 
Mark Peck 
: No submissions. 
Hon TONY RYALL 
: The member says there were no submissions about additional compliance. Well members should look at the submissions made by the Financial Services Federation and the Bankers Association. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 I am absolutely delighted to be able to follow on from my learned colleague the Hon Tony Ryall. He has done an excellent précis of the concerns that we have around this bill. To follow on from the excellent words he had to say I say that many submitters expressed huge concern about compliance cost. There was to be a compliance cost somewhere in the region of hundreds of thousands of dollars for some of the provisions. [ 
Interruption 
] OK. Members want me to speak to the bill. 
We are identifying the bill as the “CCCFB” bill. However we could call it some other titles as well. We could call it the “Additional Compliance Bill”. We could also call it the “Consumer Credit Disclosure Bill” because it is all about disclosure for people entering into what are called consumer credit contracts so disclosure is the predominant emphasis in this bill. It is about being open transparent and accountable in our transactions. However given the emphasis from this Government on disclosure we could also call it the “Do as we say not do as we do Bill”. I give a number of reasons for saying that it is the “Do as we say not do as we do Bill” because doing as the Government does would certainly mean that we would be happy not to disclose documents—as occurred in the “corngate” affair. That was where the Government did not do what it purports to want other people to do—which is to have full disclosure. It is all about the “lie in unison” issue in immigration. 
Jill Pettis 
: That’s got nothing to do with it. 
SANDRA GOUDIE 
: Well yes it has because I am saying that the title is the “Do as we say not do as we do Bill”. I am saying that “to do as we do” would mean that one would be able to lie. 
Hon Harry Duynhoven 
: That’s not on. 
SANDRA GOUDIE 
: Well no it is not actually. The “lie in unison” immigration matter was not on either nor was the lack of disclosure under “corngate”. 
Mark Peck 
: That’s got nothing to do with the title. 
SANDRA GOUDIE 
: OK. The title was as I said the “Do as we say not do as we do Bill” and that is what I was referring to—all those other activities of the current Government when it says “Do as we say—have full disclosure—but we won’t necessarily do that ourselves.” In this bill one is required to have full disclosure so I will go back to the title of the “Consumer Credit Disclosure Bill” and we will stick with that. It means that Labour members will be a lot happier with that and a lot more comfortable about their own past activities in relation to the other title I put on this bill. 
If we look at the “Consumer Credit Disclosure Bill” there is absolutely no certainty that one will get full disclosure. The reason for that is that under “full costs”—[ 
Interruption 
] 
Mark Peck 
: Full cost has nothing to do with the title. 
SANDRA GOUDIE 
: Yes it has because we are talking about consumer credit disclosure. Hello! Gosh do we need a dictionary here? Perhaps I could have a dictionary. “Disclosure” means providing information and that means that one is required to provide full disclosure. It is my understanding that that was the requirement of this bill and is what one wants to achieve—the protection of all those consumers who might enter into those credit contracts. They do not understand usually what is going on—they do not fully understand what is being disclosed to them—so that is why I am calling this bill the “Consumer Credit Disclosure Bill”. That is why this bill is being produced—so that there will be more disclosure to consumers. 
Do members understand the meaning of the definition of disclosure? Perhaps the Minister would like to take a call and elucidate on what disclosure actually means. I keep referring to the word “disclosure” because that is the word I am emphasising in my new title for this bill. Disclosure certainly is not paramount in the legislation—not when the bill refers in clause 15(1) to “disclosure of as much of the key information …”. Key information is not necessarily full disclosure. Under “full costs” the definition does not necessarily mean that one will get full disclosure either. 
This bill is meant to be about disclosure. That is why I am suggesting that the title should be the “Consumer Credit Disclosure Bill”. It should be but is it? That is the real question. Perhaps the Minister would like to take a call and give us her interpretation of what “disclosure” means why the definition of “full costs” does not necessarily mean full disclosure and why only key information comes within the definition for disclosure. So I think that my title for the bill—the “Consumer Credit Disclosure Bill”—is adequate. 
MARK PECK (NZ Labour—Invercargill) 
: 
 I move  
That the question be now put 
. 
BRENT CATCHPOLE (NZ First) 
: 
 The chairman of the Commerce Committee is trying to shut down the debate and I am disappointed. 
The Consumer Credit Bill has been renamed the Credit Contracts and Consumer Finance Bill. That is quite a mouthful. The bill as it stands is trying to stop oppressive credit contracts and buy-back schemes. Probably a better title would be: “Prevent Buy-back Scheme Bill”—or even “buy-back scams” as they have come to be known. That would be a much better title because these buy-back scams are one of the reasons that this bill is being rushed through the House. 
Hon Judith Tizard 
: Rushed! 
BRENT CATCHPOLE 
: The Minister screams out “Rushed!”. It has taken a long time to get the bill back into the House and there has recently been a rush to get it back. That has happened in response to the buy-back scams that have been going on particularly over the last few months. The Minister is nodding in agreement because she knows that these scams have come about in the last few months? 
Hon Judith Tizard 
: I concede that. 
BRENT CATCHPOLE 
: The Minister agrees. I think the title should be the “Prevent Buy-back Scheme Bill”. 
If we do not accept that suggested title perhaps we should look at an alternative title: “Credit Contracts (Offered in Languages in Which They Are Advertised) Bill”. There was a concern that advertisements for consumer credit were sometimes advertised in a language other than English or Maori. This issue is covered in Part 6. It was discussed in the Commerce Committee—I am coming back to the title Mr Chairperson—and there was a belief that credit contracts should be offered in the same language in which the consumer credit was advertised. If we do not put that wording into the title then people will continue to believe that only English and Maori are to be used for the credit contracts. They will think that creditors can advertise consumer credit in whatever language they like but the contracts will be written in either Maori or English. Without that new title this bill is quite worthless. 
I say again that the title should be changed to: “Oppressive Contracts Buy-back Scheme Bill” because that is really why the bill has been rushed back into the House. I think the Minister will agree that that has happened because we need to deal with the problem of these scams. 
JILL PETTIS (Junior Whip—NZ Labour) 
: 
 I move  
That the question be now put 
. 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 The “CCCF Bill” has had a number of iterations. It started out as the Consumer Credit Bill but as my colleague Mr Ryall has pointed out there are a number of titles that could be floated and I want to build an argument as to why they have merit. I think an apt title is “Increased Compliance Bill” and I want to build an argument to demonstrate why I feel that is so. The “Nanny State Bill” would be an apt title. I will deal with that when we come to the hardship provision which I think is an absolute nonsense. The hardship provision will undermine the legislation’s credibility as far as the finance industry is concerned and will do immense harm. 
The bill could also be renamed the “Disclosure Bill”. When one thinks about it this bill is all about disclosure. But disclosure would not relate to the Prime Minister would it? Remember “corngate”? Members will recall all the “disclosure” we have gone through. 
The CHAIRPERSON (Hon Clem Simich) 
: Can the member— 
BRIAN CONNELL 
: I am relating my comments to the title. The title “Disclosure Bill” goes to the heart of confidence—the “Corngate Disclosure Bill”. Remember the one memo that was held back—the only one that was not disclosed? Well that one memo turned into 105. If one were talking to the Prime Minister one would not know what else could be disclosed. God only knows! I put it to the Committee that the country needs a conservative— 
The CHAIRPERSON (Hon Clem Simich) 
: The title is a very narrow debate. 
BRIAN CONNELL 
: I am talking about disclosure. 
Hon Harry Duynhoven 
: Let’s have a few declarations here. 
BRIAN CONNELL 
: Harry Duynhoven—the “One Rule For Me” member—calls out. The Credit Contracts and Consumer Finance Bill deals with disclosure around interest rates fees payment schedules and legal fees. I accept that that is fair and reasonable though it begs the question that small business is not covered in the title. Why is the title not extended to “Credit Contracts and Consumer Finance (Including Small Business) Bill”? That would be fair and reasonable. With the benefit of time I am sure we could find a more concise title. We do need to be told why small business is not covered. About 80 percent of small business in this country is run by owners who employ five people or less. Why are they not being afforded consumer protection like individuals? I want to expand on that point and build my argument as we go through the Committee stage. 
The provisions on foreign languages in terms of contracts are clear enough. People should understand what they are signing and what they are contracting into. That is why I go back to the suggested title of increased compliance costs. Every time someone goes to a solicitor a compliance cost will be built into the credit consumer arrangement that people are entering into. That is something I want the Committee to dwell on as we go through this bill. Certainly the hardship provisions will create uncertainty. The way the Credit Contracts and Consumer Finance Bill is constructed at the moment it will bring that uncertainty to the retail sector of large banking organisations across this country and I do not think that was ever the intention. The bill will drive up compliance costs and that is a matter the National Opposition wants the Committee to think about. That is why National is giving this bill very limited support and is suggesting that it be sent back to the Commerce Committee for further work. 
The Minister in the chair should take a very good look at the legislation as it is constructed at present because it contains loopholes that will do enormous harm to the finance industry. 
JANET MACKEY (NZ Labour—East Coast) 
: 
 I move  
That the question be now put 
. 
The CHAIRPERSON (Hon Clem Simich) 
: I think members have clearly indicated that they wish to continue discussing the provisions of the bill. 
DEBORAH CODDINGTON (ACT NZ) 
: 
 I rise on behalf of the ACT party to oppose this bill and to address the title. I would like the Minister to explain to the Committee why there has been a change to the title. Up to this stage we have debated a bill titled the Consumer Credit Bill 2002. This morning the bill is back on the Order Paper as the Credit Contracts and Consumer Finance Bill still showing 2002. We are actually in 2003 in case people in the Labour Party have not noticed. 
The commentary on the bill as reported back from the Commerce Committee does not provide a good enough reason for the change of title. The commentary tells us that part of the reason is that Part 5 which we will be discussing later on addresses non-consumer arrangements and non-consumer contracts. I shall refer briefly to some of those reasons. A previous speaker mentioned the need for a dictionary when considering the words used here. All of those things do concern consumers but does the Government now consider that small business is not a consumer? That could be the only reason for changing the title. The bill should be called the “Leaving Small Business Out in the Cold Bill” because that is what it does. I call on the Minister to take a call to give a valid explanation of the change in the title of the bill. 
A previous speaker for New Zealand First said the bill is being rushed through. I do not think that Minister could rush to anything—except an art award that would be seen on television. If she were really passionate about the bill’s ability to address consumer finance we would not have waited so long for it to be introduced. After all the Ministry of Consumer Affairs discussed the issue in 1999. It has taken for ever and the title still includes the year 2002. 
The bill could be called the “Loan Sharks Bill” because it will make it much easier for loan sharks. The bill has absolutely nothing to do with protecting consumer finance. It has to do with paving the way for loan sharks. It should be called the “Loan Sharks Bill” because it will make it much harder for those poor people to get access to credit. Credit will be more expensive. Rich people can afford lawyers so they will be fine. However loan sharks will move into the underworld of advancing credit. In terms of complying with the legislation in respect of recovery of payments their way will be a brick through the window or sending the heavies around to deal with a debtor. 
I call on the Minister to give us a valid reason why the title of the bill was changed. It was introduced as the Credit Consumer Bill and was referred to the select committee. It was reported back with recommendations and changes but some changes made it worse. It has been reported back as the Credit Contracts and Consumer Finance Bill. 
The hardship provisions will make it easier for some people to get out of repaying credit. They can apply to the court if there has been a relationship break-up or some form of hardship. [ 
Interruption 
] Why does that member not take a call? Why does he not stand on his hind legs? I know it is difficult for us to see him even when he is standing on his hind legs but why does he not get up and take a call instead of bleating? 
DAVID BENSON-POPE (Senior Whip—NZ Labour) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put 
. 
Ayes 69 
Labour 52; Green Party 9; United Future 8. 
Noes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Motion agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 1 be agreed to: 
to insert after the word “Finance” the words “Additional Compliance”. 
A party vote was called for on the question  
That the amendment be agreed to 
. 
Ayes 35 
New Zealand National 27; ACT New Zealand 8. 
Noes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 1 be agreed to: 
to insert after the word “Finance” the words “Disclosure and Regulation”. 
A party vote was called for on the question  
That the amendment be agreed to 
. 
Ayes 35 
New Zealand National 27; ACT New Zealand 8. 
Noes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Amendment not agreed to. 
A party vote was called for on the question  
That clause 1 be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Clause 1 agreed to. 
Part 1 Preliminary provisions 
Hon TONY RYALL (NZ National—Bay of Plenty) 
: 
 This part is very important and we will seek to take a number of calls on it because we have quite a lot of substance to cover in this part. 
We have moved some amendments in respect of the commencement date. It is clear from the submissions from business that it is concerned about the additional compliance costs associated with the bill. This bill will require financial institutions to get new contracts drawn up to put new procedures in place to train their staff and to seek additional legal advice about how they deal with the fact that people can now make a claim to the court to set aside a credit contract if there is some sort of ground to do so. There is a phrase in the bill about “some other reasonable cause” for people to do that. So there needs to be a significant amount of time to allow that work by the financial institutions to happen. The Government has almost accepted that that is a valid point because in the amendments to the bill—and the Minister may want to take a call on this—the provisions in respect of the new credit contract procedures are split out and clause 2 states that they can be brought in at a later date. 
The National Party believes that Parliament should set—I will wait until the Minister has finished conversing with the Chair—a date for that provision to come into force. We have moved an amendment stating that it should not happen until 2 years after the bill obtains the royal assent because we believe that is an appropriate time in which to allow business to get its procedures up to speed. We have talked to a lot of business people and they say 18 months would do it but we think 2 years would play it safe. We know the Government accepts that something needs to happen and we agree with immediate action on buy-back schemes. But this is an arrangement that will affect every finance company in New Zealand. We think that we should state in the law what the time line is so we have moved an amendment on that. 
We have also moved a number of other amendments to this part. The most important amendments which I want to draw to the Minister’s attention relate to clause 5. Declaring the fees associated with a credit contract is fundamental to this bill because it is premised on disclosure. The Minister wants to disclose as much as possible. Yet the bill does not disclose the fees that brokers charge for their involvement in a financial arrangement. So for example if a person borrows $5000 from Easy Loans or somewhere like that every charge that Easy Loans makes will be declarable. But if a person goes to a broker—who may want 10 percent of the charge—that charge is not included in the disclosure regime. Nowhere in the bill does a broker’s charge have to be disclosed. 
National Party members think that is a big loophole because we have been advised that most finance companies in New Zealand that deal with consumer finance will consider moving to broker arrangements rather than keeping their branch offices. That is because the broker’s fee does not have to be included—it is not part of the credit arrangement. But we say it should be. The broker is not party to the contract but the broker’s 10 percent fee is a cost of the credit and its disclosure is not included in the bill. So if what we are trying to show people is the full cost of their borrowing—and that is what we are trying to do—we should have a requirement that when a finance company knows about a broker’s fee it should be included in the classification. 
We know that finance companies are getting ready. I spoke to someone today and I was told that within 48 hours the finance companies could change the whole way in which they run their business in order to have everybody become a broker. When people line up for financial arrangements and look at the official documentation that the Minister is proposing on disclosure the broker’s fee is not included. Some brokers’ fees are taken without the finance companies being aware of it but some companies are aware of those fees. We have put up an amendment that will mean that if a financial institution is aware of a broker’s fee that should be a credit fee that is disclosed because it is part of the overall cost of borrowing the money. Some financial institutions tell me that 90 percent of their business comes through brokers; others have hardly any of that business. 
We think that if the Government seriously wants to deal with its purpose of disclosure it needs to make amendments to this bill. We are prepared to have this debate suspended for a day so that correct amendments can be drawn up. I say to the Minister that I have noticed the officials nodding the whole way through my point about that. 
Dr DON BRASH (NZ National) 
: 
 I am delighted to speak on the bill. My learned colleague the Hon Tony Ryall has drawn the attention of the Committee to what we believe is a significant loophole in the bill. If his legal advice is correct—and we have no reason to believe that it is not—the loophole almost totally negates the purpose of the bill. 
There is not much doubt that our consumer credit law in New Zealand needs updating. For that reason the National Party is basically willing to support some updating of the legislation but it is crucially important that in doing that we achieve what we want to achieve. Clearly that is not being done at the moment in the way the bill has been drafted. My learned colleague has suggested amendments to the bill that we believe would more accurately reflect the desire of this Parliament. I also support the notion that the best way of dealing with consumer credit is to mandate a high level of disclosure and not to mandate a lot of silly rules and regulations. 
I express my regret that notwithstanding the support of that principle a huge increase in compliance costs is involved in putting this bill into place. People such as the members of the Financial Services Federation have expressed their considerable concern about the compliance costs involved in the legislation. In some respects we should not be too surprised at the compliance cost increase because this Government has a sad record of increasing compliance costs in almost every bill it brings down. 
Just a few weeks back—in fact about 10 days ago—KPMG and Business New Zealand released a major piece of work dealing with the compliance costs faced by 760 businesses in New Zealand. They discovered that 98.2 percent of those 760 businesses believed that over the previous 12-month period compliance costs had increased. Only four of the 760 businesses believed that compliance costs had gone down. It seems to me that this bill will continue in the pattern of significantly increasing the compliance costs that businesses—in this case financial institutions—will face and I am bound to say that that is a matter of considerable regret. The faster we force financial institutions to put the bill into practice the greater those compliance costs are likely to be. I certainly support my learned colleague in recommending a transitional period of 18 months to 2 years for bringing in key parts of the legislation. 
I point out one other important part of this bill which worries me a great deal and that refers to the hardship provisions. I was not able to catch your eye Mr Chairman when speaking on the title but I think it is important I make the point that although the addition of these hardship provisions sounds as if they are something useful and constructive for borrowers in New Zealand in fact the result will almost certainly be the reverse. By giving borrowers the right to renegotiate their loans rather than leaving that to the discretion of the lender we are significantly increasing the risk that financial institutions face when they make loans. What will they do in response? There is only one thing they can do which is to turn down loans they judge to be risky. They will also increase the costs of loans they make because the bill as drafted will be increasing the risk they face. I think that that is a seriously retrograde step. 
It is very similar to what the Government is also proposing to do with redundancy payments. It is proposing to give greater security for a larger lump of redundancy payments. What effect will that have? It will put secured creditors at greater risk. So what will they do? They will pull the plug more quickly because they will recognise there are more charges ranking ahead of them. I think that increasing the risk that lenders face is a serious issue. Although it may seem like a sensible helpful thing to do for New Zealand borrowers the reverse is almost certainly the effect. 
PAUL ADAMS (United Future) 
: 
 It is my pleasure to rise on behalf of United Future which will be supporting this bill. I personally believe that it is a very important bill as it affects the vast majority of New Zealanders. We can ask people about the many powers that work in their life but most people will never mention the power of interest. They will often mention the power of love they may mention the power of a dream or many other powers but they will very seldom mention the power of interest. 
This bill is about the consumer. It is called the Credit Contracts and Consumer Finance Bill. I agree with the previous speaker that compliance cost is an issue but with this legislation we are really trying to bring to people’s attention the issue of interest costs—so that they really do know exactly what they are getting into. We are trying to show them the full cost of borrowing. I believe that if we are honest the majority of members often do not understand the true costs of borrowing. 
Let me give an example because I think this legislation is good and very important. But on the other side of this coin I also think we have a responsibility to educate people and to show them what they are really getting into. Let us have a look at credit card debt. Let us say that a person has a credit card balance of $3900. People may say that that is not a problem and I believe that our current national average balance is normally far higher than that. Apparently our national average credit card debt today is around $4500 to $5000 but I have done my calculations to be conservative on the amount of $3900. The person will make just the minimum monthly repayments until the balance is paid off. Those minimum monthly repayments will be at the rate of 2 percent of the unpaid balance. How long do members think it will take to pay off that amount at an average interest rate of 18 percent? Most interest rates on our major cards are still around the 18.75 percent mark. Well it would take 37 years and 7 months to pay it off—if that person were still alive. He or she would have paid a total of $10931 of which $7931 would be interest and $3000 principal. If that person were educated to pay even at the rate of 4 percent of the minimum balance the time factor for paying off that card would be reduced to 10 years and he or she would save $6200 in interest. 
Interest is an incredible cost to people. If we could just encourage them as many have spoken of to start saving—and I realise that this is not to do with the bill—and if they managed to put that same $3000 into a bank account at 10 percent interest without adding anything else to it at the end of the same period of time they would have $126454. People need to understand the cost of interest in their consumer contracts when they enter into them. Most people never ponder the power of interest. 
Another trap and I do not know whether we can cover it adequately in legislation is that many people will top up their home mortgage as the next-best thing to free money. A person who has a $150000 mortgage at an interest rate of 11.5 percent can go to a bank and say that he or she wants to borrow $10000 to buy a boat. The bank will say: “No problem at all. You don’t even have to increase your repayments. We will just extend the length of your mortgage by 9 months.” People often think that that is the nearest thing to free money they will ever get but what actually happens? 
Deborah Coddington 
: Do banks do that? 
PAUL ADAMS 
: Most banks will do that. Let us have a look. The mortgage repayments would be about $1600 per month so someone who borrowed an extra $10000 would have already paid $51895 in interest at the end of the third year and only $2674 in principal. When the bank gives the person the $10000 sum the mortgage repayments remain the same. Before the mortgage is altered the total interest to be paid over the whole contract would be $234064 but because the person has now topped up the mortgage the interest paid over the 20 years and 9 months will be $314948. I hope that the person who buys a boat with an extra $10000 catches a lot of fish because the extra borrowing is going to cost $90884! 
We really need the legislation we are dealing with now to try to show people the true cost of interest. We have educated them to be borrowers instead of savers and I think many would agree that that is a mistake. United Future believes that this legislation goes a long way to showing people the pitfalls and traps in borrowing. 
BRENT CATCHPOLE (NZ First) 
: 
 The first point I would like to raise with the Minister has to do with the commencement date. The Commerce Committee heard a large number of submissions from the banking industry the finance industry and all sorts of major industries in this country to the effect that the commencement date needs to be extended for 2 years minimum so that they can get their software installed and their systems in place and so be able to handle these changes. I hope that the way this bill is written means that the Order in Council will allow a 2-year delay. 
Mark Peck 
: Have you read the Supplementary Order Paper? The Supplementary Order Paper actually does it. 
BRENT CATCHPOLE 
: That is wonderful. I thank the member. It sounds like we might be doing that but I am just making the point that—[ 
Interruption 
] I will not take his word for it at this point. I am making the point that a delay of at least 2 years is needed to allow the finance industry to bring in these changes. 
The next part I would like to refer to is the definition of credit contract. For some reason that definition has been removed from the definitions clause and put into a new clause—clause 6A. This clause precedes clause 6B which defines buy-back transactions. Why these two definitions were separated from the definitions clause and put into separate clauses I am not quite sure. I would like the Minister to clarify that for us. It seems a rather odd way of doing it but I hope the Minister will take a call and give us an explanation. 
I refer now to the definition of cash price. Cash price as stated in the bill is the lowest price at which a person could have bought property or services had he or she paid cash or if a person could not pay cash it is the fair market value. We all know how cash deals can be discounted but a fair market value is something that could be disputed. A clearer description should have been given. Also we have heard quite a lot about compliance costs. This bill does require quite a lot of compliance costs but I think that the way the legislation is going to handle a number of very serious credit issues is good. Therefore compliance costs will probably be balanced out with fewer loans being forfeited. 
 I have been searching through this bill and I find that there is one more issue that has not been raised—that is loans to students. Student loans are not covered in this bill and surely students should have the interest rate on their loans explained to them right upfront. Many of them are paying off the interest and are not getting anywhere with the loan itself. That is a huge millstone around students’ necks. It is something that I think should have been incorporated in this bill so it is made very clear to students how much their loans will cost them in the long term. We heard some extensive figures from Paul Adams. I am not quite sure that those figures are correct but certainly I know that the figures in relation to student loans mean that students are left paying off just their interest for a long time before starting to get on top of their actual loan. That is a huge disincentive for them to stay in this country and to continue to work here. 
So I summarise by saying that this part of the bill could have had a few improvements made to it. If those improvements had been made the bill would have been a lot better. However I am glad that the meaning of the buy-back scheme is covered because that is an important and a serious part of the bill. 
MARK PECK (NZ Labour—Invercargill) 
: 
 I move  
That the question be now put 
. 
DEBORAH CODDINGTON (ACT NZ) 
: 
 I rise to address Part 1 which deals with the purposes of this bill. One of the purposes—and I have to agree with the National Party on this; it has discovered a serious loophole in this legislation—is to provide for the disclosure of adequate information to consumers. What that does not deal with is a situation where a broker is involved in a deal. Let us suppose that a consumer wants to borrow $5000 and goes to a broker. The broker takes 10 percent—$500—and the borrower or consumer gets $4500. How that works is that the person who is actually lending the money sends a cheque for $500 to the broker. That $500 does not get declared so the purposes clause is inadequate. There is no ceiling on the percentage commission a broker can charge. 
I have been told of a brokerage in Hawke’s Bay that routinely charges 20 percent commission. That 20 percent commission will never be declared so there is no way that this bill should proceed as currently written because every small finance company will now set up its own brokerage. 
Mark Peck 
: No we won’t. Has the member read the bill? 
DEBORAH CODDINGTON 
: The little member over there says: “No we won’t.” Perhaps he can take a call. [ 
Interruption 
] If he would like to wait he could take a call and explain to the Committee why they will not want to do that. If I was a small finance company that is exactly what I would be doing. Those percentages will not be declared and this bill will not protect consumers. The Hon Tony Ryall raised a very valid point and that is why we have the Committee of the whole House to address these matters clause by clause. It is not for the chairman of the select committee to pipsqueak away saying: “No we won’t! No we won’t!” 
The other issue I want to deal with under the purposes clause is the hardship provision. The select committee wrote to all submitters and asked them to come back on that provision. The creditors were uniformly opposed to it but we have seen it come through anyway. That is increasingly how this Labour Government operates. It has a farce of a submissions process and the submissions are ignored. What we will see is a drastic change to credit in this country whereby if debtors decide that it is all just a bit too hard and they cannot pay back what they borrowed then they can apply to have the terms of their contracts changed. 
Darren Hughes 
: What are the rules in Cambridge? 
DEBORAH CODDINGTON 
: That member talks about Cambridge. I do not think that he would ever be invited to go a university like Cambridge or Oxford. 
The bill refers to any hardship such as illness injury—[ 
Interruption 
]—what is more they want me to go back—loss of employment or the end of a relationship. United Future the family party supports this bill. 
What will we see from this bill? We will see more relationships ending so that people can claim that as a reason for getting out of paying their debts. If the creditor declines their application what do they do? They can claim— 
Darren Hughes 
: We’ll show this  
Hansard 
 to your husband. 
DEBORAH CODDINGTON 
: I do not have a husband. They can apply to the court to have the terms of the contract set aside. This Labour Government might be genuine; I will give it the benefit of the doubt. Those members might be genuine in trying to help consumers but in the long run those hardship provisions will not protect consumers. The cost of credit will go up and consumers will be hurt by that. 
DARREN HUGHES (NZ Labour—Otaki) 
: 
 I move  
That the question be now put 
. 
Sandra Goudie 
: This is an important debate. 
The CHAIRPERSON (Hon Clem Simich) 
: Yes. I call Sandra Goudie. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 Thank you Mr Chairman. 
Darren Hughes 
: I thought you said it was important. 
SANDRA GOUDIE 
: Absolutely! Every contribution made in this Chamber is important particularly in light of the fact that some very substantive points have been raised by a number of people on this side of the Chamber. The Minister and her colleagues would do well to listen to what is being said and maybe seriously consider the recommendations of Supplementary Order Papers on this bill. 
I refer to the purpose of the bill. After all it is all about disclosure and I made that point in my speech on the title. The whole deal around this bill is about full disclosure but that is not absolutely apparent. When we look at the definition of “full costs” we see that it does not necessarily include the brokerage fee. The opinions we have sought to substantiate the points raised by my learned colleague the Hon Tony Ryall say that brokerage fees are excluded from the definition of “full costs”. 
David Benson-Pope 
: Oh! Ten-dollar Ryall! 
SANDRA GOUDIE 
: I invite the member to read the bill and take a call. Perhaps the Minister would care to take a call and give us her interpretation of the definition of “full costs” and whether it includes brokers’ fees. That is a fundamental point. I see the Minister nodding so it is great that she is taking that on board. Hopefully we will see a more positive response to the Supplementary Order Papers from my learned colleague the Hon Tony Ryall. 
Darren Hughes 
: Nobody takes him seriously. 
SANDRA GOUDIE 
: QC! 
I want to raise another aspect of the purpose of the bill which is to protect the interests of consumers in connection with credit contracts. What we are looking at doing is providing full disclosure to persons entering into consumer credit contracts because often they do not understand what they are entering into. As a result community law centres are being inundated with people who are unable to fulfil their obligations to the consumer credit contract. There are times when they are being ripped off and they do not understand. 
Kingdom Resources was one of those who mentioned the need to educate these people. Legislation will protect them from themselves only to a certain degree—at the end of the day it is their responsibility so consumer education has been identified as an ongoing issue. Although disclosure is great how will that information be relayed to consumers so as to educate them about the broader services that will be available to them? That has not been clearly expressed in the purposes clause of the bill in the overview or the interpretations. One wonders what consumer education will be entered into and what funds will be put aside to provide some sort of educational services for consumers entering into consumer credit contracts. 
I notice that substantial funds have been put aside so far for the Commerce Commission but I do not believe that any of it relates to the education of consumers. It is an ongoing issue and it will continue to be an issue with the introduction of this Act despite the best efforts of many people to try to protect these people from themselves. Essentially it is protection from themselves because they do not necessarily have the education the understanding or even the language skills to protect themselves when entering into these contracts. 
Will this bill really do it for them? At the end of the day what will be materially different for them—apart from the fact that they will be able to challenge a contract through the hardship provisions or if there is a lack of disclosure? I put it to the House that in so far as it is provided by this bill disclosure will be there but those people will still have a problem. There will still be people entering into consumer credit contracts who do not understand what they are doing. There will still be a continuing problem because they do not understand the cost of what they are purchasing. 
One example was given of a lady who went to what is called a “beat the budget blues” course. She did not believe what she was being told— 
DAVID BENSON-POPE (Senior Whip—NZ Labour) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 69 
Labour 52; Green Party 9; United Future 8. 
Noes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Motion agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 2 be agreed to: 
to insert in subclause (2)(b) after the word “Council” the words “but no sooner than two years after the Royal assent”. 
A party vote was called for on the question  
That the amendment be agreed  
to. 
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 141 in the name of the Hon Lianne Dalziel to clause 2 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Amendment agreed to. 
The question was put that the following amendment in the name of Hon Tony Ryall to clause 3 be agreed to: 
to omit from paragraph (a) the word “protect” and substitute the words “improve the protection of”. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 3 be agreed to: 
to add the following paragraph: 
(e)to ensure creditors’ rights are also respected. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 5 be agreed to: 
to add to the definition of  
credit fees 
 the following paragraph: 
(f)any commission or fee charged by a broker and known to the creditor. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
A party vote was called for on the question  
That Part 1 as amended be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Part 1 as amended agreed to. 
Part 2 Consumer credit contracts 
Hon TONY RYALL (NZ National—Bay of Plenty) 
: 
 The National Party in Opposition is very concerned about Part 2 because it will increase the cost of borrowing for the people least able to carry that additional cost. The burden and the risk to the value of the debt will be reflected in a higher cost for people to borrow money. The most offensive clauses are the clauses with regard to unforeseen hardship whereby people will be able to go to the court for anything called a “reasonable cause” to have the terms of their loans set aside by the court. What does “reasonable cause” mean? Is culturally insensitive borrowing a reasonable cause? 
Sitting suspended from 6 p.m. to 7.30 p.m. 
Hon TONY RYALL 
: After the Committee rose at 6 o’clock my colleague Mr Connell the MP for Rakaia and I had a brief discussion with the Minister in the Chair Judith Tizard on our concerns about the absence of the coverage of brokers. The Minister’s explanation—and we spent quite some time over the dinner break looking at it—makes us think that the officials have got this wrong. The Minister told us that the meaning of a credit contract is that any payment made out of proceeds to any party has to be declared as part of that credit contract. 
Hon Judith Tizard 
: Not “any” party. 
Hon TONY RYALL 
: That is what you said. 
Hon Judith Tizard 
: No I said “as defined in the Act”. 
Hon TONY RYALL 
: OK but the way the Minister described it to us was that officials had told her that under the meaning of the Credit Contracts Act any payment made to other parties under the contract would make it a credit contract. We have gone through that provision and it refers to interest charges credit fees or both payable under the contract. Obviously a broker’s commission is not an interest charge. The point we are making for the Minister of Commerce is that brokers’ fees are not included in what has to be declared as part of the cost of the credit. 
If we are to accept the officials’ advice a broker’s commission under this bill has to be either an interest charge or a credit fee. It is obviously not an interest charge so I ask whether it is a credit fee. The definition of credit fees in clause 5 is “fees or charges payable by the debtor under a credit contract … or for the benefit of the creditor in connection with a credit contract …”. The operative word in the definition is “creditor”—that the credit fee goes to the creditor. That is the issue. It is for the benefit of the creditor. A broker’s fee is not for the benefit of the creditor; therefore a broker’s commission is not a credit fee. 
The reason I am raising this—and Minister Dalziel should be aware of it—is that the Government is making a big thing of the fact that all key information will be declared so that borrowers know the facts of what their debts and obligations are. We are making the point that brokers’ commissions will not be declared. The Minister says they will because her officials have told her. We are telling the Minister that her officials are wrong. With respect for the officials I say that the Ministry of Consumer Affairs is not one of the senior ministries in the public service. I also say to the Minister that we have been advised by people who have used the best legal advice they can buy in order to tell us that there is a big loophole here and that brokers’ commissions are not included in the bill. 
I do not know what more the Opposition can do to tell the Government that this is a problem because the Government is saying in its very purpose—and we support the intention of the purpose—that people should have disclosure. They should know the full cost of their borrowing. We support that 100 percent. But we say to the Government that it is not working. Brokers’ commissions are not included. We base that on the fact of the wording in the bill. A credit fee is the result of a contract and is to the benefit of the creditor. Members should read the provision. A broker is not the creditor. The broker is not part of the contract. The Government admits that because it refers in another provision to the broker as the person who arranges the contract—not being party to the contract but arranging the contract. 
We are making the point that the purpose of the bill is to declare to the borrower where the money is going. The point is that a broker’s commission has to be declared. If a person went to say Wanganui Finance and borrowed $5000 and if that transaction was organised by a broker then the borrower might find that $500 is taken off that amount and sent to the broker or that $500 is added on to his or her debt. That money does not go to the borrower; it goes to the broker. We say that is key information that should be included in schedule 1 and it should be declared because it tells the person where the money is going. 
The purpose of this bill is to enable a borrower to go to different lenders get their offers look at where the money will go and at the interest rate and work out where the best deal is. Surely knowing how much money will go to the broker is part of making the best deal. I can understand that the Minister has to accept her officials’ advice—and she might be asking for it in writing—but if people read the letter of the bill clause 9(1)(c) say that they are relying on a broker’s commission being a credit fee and then look at what a credit fee is they will find that the two do not match up because the definition of credit fees in clause 5 is that they are “fees or charges payable by the debtor under a credit contract ... to ... the creditor in connection with a credit contract ...”. 
Hon Judith Tizard 
: “or payable by the debtor”. 
Hon TONY RYALL 
: —“or payable by the debtor ... to … the creditor”— 
Hon Judith Tizard 
: “or for”. 
Hon TONY RYALL 
: —“or for the benefit of the creditor”. A broker is not the creditor. 
Hon Judith Tizard 
: No but if you’re using a broker and you’re paying the broker directly—not through the creditor—then you know perfectly well what you’re paying because you’re paying it directly to the broker. 
Hon TONY RYALL 
: But that information is not being required to be declared. That is the point. 
Hon Judith Tizard 
: But you’ve got to write the broker a cheque. 
Hon TONY RYALL 
: The Minister should take a call. The definition in clause 5 states that credit fees “means fees or charges by the debtor under a credit contract or payable by the debtor to or for the benefit of the creditor”. The creditor is the loan company. 
Hon Judith Tizard 
: Yes. 
Hon TONY RYALL 
: I know what the problem is here. The Minister thinks the broker is the loan company. The broker is not the loan company; the broker is— 
Hon Judith Tizard 
: The broker is the person getting business for the loan company. 
Hon TONY RYALL 
: That is right and the legislation is not requiring— 
Hon Harry Duynhoven 
: Is this member meant to be a lawyer? 
Hon Lianne Dalziel 
: He’s an accounts clerk from a bank. 
Hon TONY RYALL 
: That Minister should take another pill. 
Hon Judith Tizard 
: That is absolutely out of order. 
Hon TONY RYALL 
: Look we are trying to help the Government on this bill! I am telling the Minister that the advisers are wrong and that she should get another legal opinion. It is not too late. She can cackle away but the point here is that when the Opposition makes an important point about what is wrong with this bill the Government is not prepared to listen. 
I tell members that this Government is not telling poor people the full cost of their borrowing even though it says it is. There is no way in which brokers’ charges will be declared through this legislation and that is the loophole. I say to the Minister that businesses will rearrange their affairs on the basis of that loophole so that they do not have to declare the cost. What will happen when that occurs? Will the Minister say: “I’ve got a letter from Consumer Affairs saying that was never going to happen.”? Well that is not going to wash. The fact is that the responsibility of Ministers is to weigh the advice they receive and get further advice if necessary. Just because the advice comes from one set of officials does not mean it is right. I have been in the Minister’s position and can tell members that sometimes Ministers have to go and get advice from somewhere else when they know that a valid point has been raised and they want reassurance. 
I tell the Minister that there is no coverage of brokers’ fees in this bill. A broker’s fee is not a credit fee because a broker is not the creditor. The operative word in the definition of credit fee is “creditor”. We accept that they might be able to make a payment but that payment does not have to be declared—and that is what we want. If the Minister had that in schedule 1 “Key information concerning consumer credit contract”—and we would like to support that schedule—then people would declare the broker’s fee if they knew it so they could work out where all the money has gone and make comparisons. At the moment that is not there. 
Hon JUDITH TIZARD (Minister of Consumer Affairs) 
: 
 I think the member is trying to be helpful but I also think he is not reading the bill very carefully. I do understand that he was not on the Commerce Committee. I need to point out to the Committee that this bill does not require disclosure of any commissions. Brokerage fees are included in the definition of credit fees and are required to be disclosed if they are payable under the credit contract and are payable to the creditor or payable for the benefit of the creditor. If those conditions do not apply the creditor does not necessarily have a way of knowing the brokerage fee because the debtor has gone to the broker. The debtor would find it out directly from the broker because that would be part of the service. 
Hon Tony Ryall 
: Brokers often pay the commission because they have a letter of engagement and if they’ve got knowledge they should have to declare it. 
Hon JUDITH TIZARD 
: I am happy to accept the officials’ advice that obviously if those conditions do not apply the creditor has no way of knowing the brokerage fee. We do have a provision in the bill under which extra disclosures can be required by regulation if necessary and I am very happy since we do have a long run-up on this for those extra disclosures to be required. But the point of this bill is that commissions are not included in the disclosure. 
Hon Tony Ryall 
: Well they should be. The importance of— 
Hon JUDITH TIZARD 
: Perhaps the member should have brought that up at the select committee. It is a fairly fundamental issue. I thank the Committee for its assistance. 
DEBORAH CODDINGTON (ACT NZ) 
: 
 I rise to address Part 2 of the Credit Contracts and Consumer Finance Bill. In particular I want to speak to clause 9 “Meaning of consumer credit contract” which states: “(1) A credit contract is a consumer credit contract if—(a) the debtor is a natural person;”. That is the provision that excludes businesses from the bill. As Simon McArley a senior partner in KPMG Legal wrote in the  
National Business Review  
in October last year: “Small business appears to be the loser in this review of credit legislation.” That is a really important point because we have heard a lot of talk about compliance costs. The Minister in the chair Judith Tizard will say that small business was left out of the provisions in order to reduce compliance costs but that is simply not the case. After six discussion papers we still cannot get this legislation right. 
The Government sees that there is a power imbalance between lenders and borrowers and it wants to redress that so-called imbalance and provide the vulnerable with more clout. Of course there is a power imbalance between lenders and borrowers. Lenders should always be in the more powerful position when they lend money. Often it is not their money. It often belongs to a bank or a finance institution and is money that people have invested. Often those people are mum and dad investors who are investing money for their retirements something that this Government is deemed to be encouraging and which other parties in the Chamber say they are encouraging. When money is lent there is always a lender of that money. There is never a borrower without a lender. The lender should always be in the more powerful position. 
I go back to my point that this bill excludes those who borrow for business purposes. They are left to fend for themselves. It is often said that New Zealand is a country of small businesses. Some 80 percent of businesses in this country employ fewer than five people. Those businesses share the same concerns and problems as the average consumer in New Zealand. What is so different about the concerns of the average consumer from small businesses? Most small-business people borrow money as a consumer in order to support their businesses. What about the small-business person’s spouse? As Simon McArley wrote: “Ignorant of the inside workings of the business [they are] asked to incur personal liability for the business debt.” The courts have long recognised that those guaranteeing spouses required special protection but that is not provided by this legislation. Perversely even the limited guaranteed disclosure provided by the Credit Contracts Act will be taken away as Simon McArley noted. 
As I said earlier in the debate on this bill the bill protects big business as they have the resources to hire hard-nosed lawyers and engage them to ferret out unfair terms and wield commercial leverage but I say that the reality is that mini-businesses—80 percent the vast majority of businesses in this country—are in no stronger position than the average consumer and this legislation leaves them to fend for themselves. It does not reduce compliance costs. It is difficult to see how leaving small business out in the cold is a consequence of making big business seek legal advice rather than providing clear and practical disclosure from their banks. 
Can the Minister explain that? How does exclusion from a simplified statutory procedure for obtaining remedies as that is meant to be reduce costs? It does not. It increases compliance costs. 
This is typical of this Government which talks about reducing compliance costs on the one hand and on the other hand works so hard behind businesses’ backs at increasing compliance costs. We see it again and again with legislation that comes before the House. 
BRENT CATCHPOLE (NZ First) 
: 
 First of all I would like to pick up on the required disclosure standards. The initial disclosure requirement is set out clearly in clause 15 but in the clauses dealing with continual disclosure there is a provision that they will be removed if there are no variations. We heard a number of submitters who wanted to see the removal of continual disclosure if there were no variations but to me a change in interest rates is a variation. I think if an interest rate is changed because the Reserve Bank has changed its interest rate it is a variation to the interest rate being charged. Therefore people need to look very closely at that provision and treat it with caution. If that variation is not being disclosed during the process or at a later stage when the interest rates rise the debtor is at a disadvantage. 
I would like to touch on clause 24 “Right to cancel consumer credit contract”. This clause contains the phrase “within 3 working days”. Members can imagine that 3 days is a long time. For example a student can buy a stereo on Saturday morning rev it up for a party on Saturday night and take it back on Monday morning saying: “I want to cancel the contract.” That is a rather bizarre example but it was one that was raised at the Commerce Committee. Even more bizarre might be the other example that was given to us at the committee of somebody taking home a bed sleeping in it for 1 night and then taking it back. Nobody would want to buy that bed after that. One could consider those 3 days to be an awfully long time. 
I would like to raise the issue of the fees. The Minister in the chair Judith Tizard has stated that commissions are not counted. I ask her whether she was saying that commissions are not counted in this legislation. The Minister is not saying that. I am pleased about that. Clause 40 “Fees or charges passed on by creditor” is about the that are charged by the agents that negotiate the contracts. There is a provision that the fees do not have to be disclosed but the creditor cannot collect more than the amount being passed on to the agent. But if the fee is not disclosed how does the debtor know how much is being charged and how much is being passed on? It would be very difficult for the debtor to work that out if it is not being disclosed. 
I will be disappointed if the Minister does not have another look at this. If the debtor has no knowledge of that amount the creditor could be collecting a percentage over and above for the service. That would be totally against the intent of the bill. I would like to hear the Minister’s comments because I am sure she was saying that commissions are not counted in the whole contract because they are being passed on to somebody else. If fees are not being disclosed then we have a serious problem. 
The debtor has the right to repay the full amount but it is not clear to me whether there is a huge service fee included in that repayment. I would like to see the bill tightened up in that area because I believe it does allow commissions on that service fee. 
DAVE HEREORA (NZ Labour) 
: 
 I move  
That the question be now put 
. 
PAUL ADAMS (United Future) 
: 
 I was not going to take a call on this part but I will do so to enlighten my friends in the National Party and the ACT party on this matter. I would have thought they would accept that it is OK for a business to make a profit and they are becoming very confused about this fee. Let me give members some practical examples. A commission is allowed—in other words a brokerage fee. So if someone goes to a mortgage broker and he negotiates a mortgage on behalf of a client it is quite acceptable that he gets a fee for doing that. 
I will give an example of this type of fee in the car industry. A car dealer may have an arrangement with a finance company whereby it can buy money at say 8 percent. Therefore when the company sells that money to a client at a 1 percent mark-up it is making a 1 percent profit—in other words a brokerage fee. That amount is completely disclosed to the consumer. Consumers will see exactly what interest rate they are paying but this legislation does not state that consumers must be informed of the profit that the seller is making on selling them the money. That also applies to many extended warranties—such as when a customer buys a fridge or a television or even a car. 
Customers will often be asked whether they would like to pay a $200 fee or whatever to extend the warranty on that purchase. The total cost they are paying for the warranty will be completely disclosed in the contract. What will not be disclosed—and this is where the confusion has arisen—is the proportion of that $200 that is profit for the business that is selling that money. I personally and as a United Future member do not see any necessity for disclosing to a purchaser the profit margin made by various segments involved in a purchase. What is important and what this legislation does cover is that purchasers know exactly what interest they are paying and what interest they are paying if they have an extended warranty and have hire purchase on that extended warranty. The amount of interest is totally disclosed. I think the confusion has arisen in terms of the profit in the brokerage fee. It is not a necessary part of what needs to be disclosed to consumers but all the interest they are paying for the purchase is completely disclosed. I think that is very fair. 
Dr ASHRAF CHOUDHARY (NZ Labour) 
: 
 I move  
That the question be now put 
. 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 The issue of brokerage is so important I want to revisit it. I refer the Committee to Subpart 2 “Required disclosure”. Clause 15 states: “Every creditor under a consumer credit contract must ensure that disclosure of as much of the key information set out in Schedule 1 as is applicable to the contract is made to every debtor under the contract”. For a moment I want to skip back to clause 3 “Purposes” which states: “The purposes of this Act are—(a) to protect the interests of consumers in connection with credit contracts consumer leases and buy-back transactions of land; and (b) to provide for the disclosure of adequate information to consumers under consumer credit contracts and consumer leases”. I ask the Minister in the chair to think about this: the purpose is defeated if brokers’ commissions are not declared because they do not form part of the contract. 
Hon Judith Tizard 
: They do. 
BRIAN CONNELL 
: They do not. They are simply a fee for service. They do not form part of the contract. I have been in the industry and I ask the Minister to have a look at this again go back to her advisers and say that she thinks they may have it wrong. I fear that some of the finance companies will change their constitution over night and will start becoming brokerages. That will simply defeat the purpose of what the legislation is trying to do. It will avoid disclosure and the very people whom this bill is trying to protect will escape this clause. If we are dealing with this as a very serious matter then I ask the Minister to rethink it. I understand from the Minister that there is an opportunity to revisit this. My passionate plea is: “Let’s do it once and let’s do it right.” There is no need to go back to this if we address this issue seriously and deal with it right now. 
The other issue that concerns me—and others have mentioned it—is that of compliance costs. Having worked in the industry I know that what has been suggested here particularly under the hardship provisions is going to drive the industry mad. It will not be enforceable unless there are huge changes to forms to audit systems and to financial systems. Imagine the back-office systems that are in play here! Imagine trying to deal with systems—hard-drives and floppy discs. The whole thing will need to be reworked. Back-office functions have been established and set up under a technology called credit scoring. Credit-scoring systems are very complex yet this bill is undermining the industry because it will not be able to price for risk—because it will not be able to evaluate the risk. How does the industry evaluate the risk that suddenly someone will say: “I’ve had a bad-hair day and I want to get out of my contract.”? How does it deal with that? How does the industry evaluate the risk of someone saying: “He doesn’t love me any more so I want to get out of my contract.”? We are simply not constructed as an industry to be able to deal with that type of issue. We need to think this through. Again I go back to the point I raised in an earlier call when I asked the Government to go back to the steering committee with this and rethink the issue. It is a very very important issue. 
Hon Judith Tizard 
: The select committee went through it in some detail. 
BRIAN CONNELL 
: Well if it did I can only assume the issue was not clearly understood because it is still on the table for debate. [ 
Interruption 
] There is “one rule for MP Harry Duynhoven and one for the rest of us” calling out again. There he goes again. 
 Why does he not do something constructive—like resign? Oh he did did he not? We forgot about that. [ 
Interruption 
] 
The CHAIRPERSON (Ann Hartley) 
: Order! 
BRIAN CONNELL 
: I think the member was inviting me to take out dual citizenship. I refer now to compliance costs and I know the member is upset because it is a very sensitive issue for him. He does not really understand it. He has been a ticket clipper all his life. I can tell the Committee that this is an issue—[ 
Interruption 
] I raise a point of order Madam Chairperson. I understand that a running commentary is outside the Standing Orders. 
The CHAIRPERSON (Ann Hartley) 
: Yes it is. I have called for order. 
BRIAN CONNELL 
: I am simply trying to say in a constructive way that the issue of compliance is something that has not been thought through and clearly understood. The issues around the operations of back-office systems the complex computer systems and credit-scoring systems that underscore that are important. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the question be now put 
. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 I want to raise a matter under Part 2 that is completely different from what we have been debating. Members have been talking about required disclosure and disclosure standards. It is clear that the whole point of having disclosure standards is to protect consumers who are entering into credit contracts. Clause 29(1) states: “Disclosure must—(a) be in writing in a disclosure statement; and (b) contain the information required by this Act;”. Further subclause (d) states: “not be likely to deceive or mislead a reasonable person …”. How far do we go in trying to ensure that every person entering into a credit contract is a reasonable person? I have already talked about the concerns expressed by some submitters about trying to protect people to the nth degree from entering into contracts they do not understand. Who defines a reasonable person? Can they then go— 
Hon Judith Tizard 
: The court. 
SANDRA GOUDIE 
: The court. Well I want to follow up on the provision about not deceiving or misleading a reasonable person. I refer members to the comments I made earlier about the Kingdom Resources organisation which recently offered a course “Beat the Budget Blues” attended by a lady who simply did not believe what she was being told about hire purchase agreements. So she went back and checked her agreements. To her amazement she found that the information given at that course was correct. I put it to the Committee that she was a reasonable person but did not understand the credit contract even though she believed that she did. 
Other people out there will believe they are reasonable people and that they understand these things but under the definition of “reasonable person” and if they feel they have been misled they can seek a remedy under the oppressive conduct provisions. The Committee will be debating those provisions later on in other parts of the bill. This is a concern and it should not be a subjective test about who is a reasonable person. 
Hon Lianne Dalziel 
: It’s an objective test. 
SANDRA GOUDIE 
: No it is not. There is no definition covering it. It becomes subjective. Everyone could be deemed a reasonable person and could interpret whether he or she has been misled and then call in the oppressive conduct provisions. We will discuss that issue later and perhaps the Minister in the chair the Hon Lianne Dalziel will take a call and expand on that a little bit more. We would certainly appreciate that from the Minister. 
Hon Lianne Dalziel 
: I’ve already taken a call. 
SANDRA GOUDIE 
: We have not seen the Minister take a call on this provision. 
Hon Tony Ryall 
: Yes she did. She moved a closure. 
SANDRA GOUDIE 
: Is that the best she can do? Perhaps she could give us the benefit of her legal expertise and explain the meaning of “reasonable person”—given the absence of a definition in the bill. 
I would like to talk about compliance costs. They are jolly substantial especially if— 
Government member 
: They’re not. 
SANDRA GOUDIE 
: The member says they are not but that is because the Government does not understand the costs associated with business. Many of the submitters outlined the figures involved. For example the big banks said that costs would run into millions of dollars. They will have to provide new forms modify their procedures make systems changes and train staff. They will probably have to give some sort of outline and assistance to people who seek their services. This bill will not stop loan sharks. They will still be out there. That problem has been referred to in earlier speeches. 
If members look at the business compliance cost statement in the explanatory note of the Consumer Credit Bill as introduced they will be able to answer: “Yes” “Yes” “Yes” to most of the questions raised about where the costs will be incurred. They will see under documentation requirements that there will be compliance costs and they will vary depending on the lender. I put it to the Committee that all lenders who have those forms will have to modify their procedures and as we all know information technology is pretty expensive—certainly for the bigger providers. 
Staff training will be another cost. There will be an increased need in the short term but staff movements will incur ongoing costs in training and retraining. It will not be just a short-term cost as predicted in the business compliance cost statement. The cost statement mentions required calculations for finance rate and total cost of credit. It is estimated those costs will decrease but I put it to the Committee they will not. 
JILL PETTIS (Junior Whip—NZ Labour) 
: 
 I move  
That the question be now put 
. 
STEPHEN FRANKS (ACT NZ) 
: 
 I am driven to comment on this legislation purely for the sake of placing a mark in the ground. Some law changes are made out of a strong sense of commitment and ideology that in hindsight look absolutely stupid. Some are made out of simple stupidity. There has to be something absolutely stupid to be following an Australian precedent into Australian-style cost levels into generating Australian-style levels of income for lawyers. They come from something that is supposed to be to the advantage of consumers; a subpart called “Changes on grounds of unforeseen hardship”. 
In this Credit Contracts and Consumer Finance Bill this flagship reform that some utterly stupid Ministers are putting through we have provisions that state that if a debtor experiences the end of a relationship or an illness or injury or loss of employment then he or she may apply to the lender to get a change in the terms of the deal. Of course they can. However this Government thinks there are free lunches everywhere and Father Christmas exists so do fairies at the bottom of the garden. The Government thinks that a lender can be exposed to the risk of having a scumbag debtor fend off enforcement and fend off the collection of the debt by going along to the court and saying: “I’m in hardship. My marriage has broken up. I shouldn’t have to pay this back.” 
Of course people can do that but someone bears the cost. Every debtor bears the cost. It is built into the interest rate into the charges into the documentation fee and into the credit assessment. What does it do for a start to people who are in a relationship? It makes them slightly less desirable than those who are not. What does it do to the provisions in the agreement about meeting costs on enforcement? It means there is more enforcement cost to be spread across all those decent folk who want to borrow money and who are not in the category that causes this risk. 
We are looking at a bill that deals with a non-problem. Have any of us been besieged by legitimate concerns about the existing Credit Contracts Act? 
Hon member 
: Not one! 
STEPHEN FRANKS 
: Not one! I spent 22 years as a commercial lawyer and I think I would have seen one or two in all that time where I thought the creditor had been a bit harsh. Indeed they leaned over backwards. After this they will stand on their rights and of course they will do all the back-covering steps. They will send all the letters at the expense of borrowers. There is nothing free. There will be a whole category of borrowers who simply cannot get finance because they will be priced out or they will look too risky. Why would people lend to someone who is sick if later on that person could say that because of the illness he or she does not have to repay on time or that the interest rate is too high? Why would they lend to someone in a wheelchair if that person could then say that injury is a problem? Why would they lend to someone who is in a threatened level of employment if they had a choice knowing that the person could come along and hold up the enforcement of the debt? 
 This provision is typical ignorant socialism. This is the kind of stupidity that a giggling Minister of Commerce—also a Minister of Immigration who cannot run that portfolio—shows when she is trashing a perfectly sound Credit Contracts Act. The Minister is giggling because she has no answer. She will not take a call she will not speak and she will not answer the arguments. She has no evidence that this bill will do a thing. Why did every creditor—the good ones and the bad ones—oppose this bill? This Minister will go down in history as one of the most stupid Ministers not just doctrinaire not just ideological but simply stupid. 
This stupid Government has caused enough grief for ideological reasons. It has the Resource Management Act. It has the Employment Relations Act. It has enough anti-business yet it comes in with this bill and starts stuffing up the loan market for consumers. It was said during the introduction of the bill that there has been a huge expansion in access to credit. Does that say there is a problem? Does that say the market needs this intervention? 
Hon HARRY DUYNHOVEN (Minister of State) 
: 
 I move  
That the question be now put 
. 
LINDSAY TISCH (NZ National—Piako) 
: 
 I want to pick up a very important point that my colleagues Sandra Goudie Brian Connell and Tony Ryall have brought to the Committee’s attention and that relates to clause 9. It is in clause 9 that we look at the meaning of “consumer credit contract”. The issue was very evident in the speeches of Tony Ryall who has an understanding of financial matters and of Brian Connell who in his work in the finance sector has for many years worked with credit contracts variations of contracts and other contracts of various sorts. 
I was not happy with the Minister’s response and I ask that she take a call on this very important part about the broker’s commission. The point I make is that when borrowing money the borrower wants to know what it actually costs. When a person is borrowing X dollars there could be insurance charges associated with that and establishment costs to set the loan up. Those costs are acceptable and are happening all the time but if a borrower is dealing with a broker there is also a broker’s charge associated with that. That is what we are talking about—the total cost. 
In the days when I worked for the Rural Bank we had to look very closely at the contracts. At that stage back in the 1980s we were lending concessional money because the bank was a Government-owned agency at that time but the bank moved into a commercial environment when the Rural Bank was sold and the National Bank took it over. I was there when we moved from concessional interest rates through to market rates. Interest rates shot up very quickly and there had to be disclosure. That is the point I am making and the Minister has an opportunity to comment. If I am in a position where a broker is involved why is the broker’s commission not included in the meaning of “consumer credit contract”? Why has it been discarded? 
This bill is about protecting people who want to borrow and that is fair enough. The question earlier on—and Stephen Franks made this point—asked what was new about this bill that was not in the current Act? Because if one has been dealing with credit contracts over a number of years one would realise that the bill we are dealing with here does not substantially change things. In fact if we look at some of the submissions that came in it does not substantially change what was wrong with the Act under which we now work. So the question is: what is wrong with the existing Act? 
Sandra Goudie 
: There is no evidence that it is wrong. 
LINDSAY TISCH 
: There is no evidence in the submissions and I have read through them. What is actually wrong with the current Act? 
The point my colleague Sandra Goudie made which is very important when dealing with business was about the huge compliance costs that all businesses are having to deal with—“regulatory creep” I call it. Businesses will have to face huge compliance costs if we implement this bill in its current form. We are a party that is opposed to huge compliance costs and to regulatory creep. We want to limit those costs and that is why we will be voting against Part 2 of this bill. We do not agree with it. The concept of the bill overall is fine but Part 2 misses the point that we think is so important for people who are borrowing—the creditors the debtors lessees lessors and people involved in the finance industry. 
I will bring members back to the point and read out Clause 9(1)(c) because it is significant. It states: “A credit contract is a consumer credit contract if—(c) interest charges credit fees or both are or may be payable under the contract …”. It does not include brokerage and that is the point I keep making. If we are talking about the one-stop shop and about the total costs that will be involved for the borrower—and that is what I am interested in: what will it cost me to get into this contract?—then the clauseshould include the brokerage fees. Speakers on this side have clearly articulated that if we want to protect the interests of the borrower then we need full disclosure. That is why we are voting against Part 2. 
JUDY TURNER (United Future) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 69 
Labour 52; Green Party 9; United Future 8. 
Noes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Motion agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 47A be agreed to: 
to omit this clause. 
A party vote was called for on the question  
That the amendment be agreed to.  
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 47B be agreed to: 
to omit this clause. 
A party vote was called for on the question  
That the amendment be agreed to.  
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 47C be agreed to: 
to omit this clause. 
A party vote was called for on the question  
That the amendment be agreed to.  
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 47D be agreed to: 
to omit this clause. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the following amendment in the name of the Hon Tony Ryall to clause 47E be agreed to: 
to omit this clause. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Noes 69 
Labour 52; Green Party 9; United Future 8. 
Amendment not agreed to. 
The question was put that the amendments set out on Supplementary Order Paper 141 in the name of the Hon Judith Tizard to Part 2 be agreed to. 
A party vote was called for on the question  
That the amendments be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Amendments agreed to. 
A party vote was called for on the question  
That Part 2 as amended be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Part 2 as amended agreed to. 
Part 3 Consumer leases credit-related insurance and buy-back transactions of land 
JUDITH COLLINS (NZ National—Clevedon) 
: 
 We in the National Party always like to be positive. In this part we can be positive and that is always such a joy for us. 
Just like the previous speaker from the ACT party Mr Franks I have spent 20-odd years as a lawyer. The Credit Contracts Act was brought into Parliament in 1981 and stood the test of time for 20-odd years. I remember when that Act came into play. Before that we had the Moneylenders Act which was much more cumbersome much more difficult and very easy to offend against—supposedly without any great harm to the person at the receiving end of it. It was great to have the Credit Contracts Act and it is with some sadness that I see that it will be done away with by this legislation. 
Part 3 deals with some of the issues relating to that. In particular I would like to speak about the buy-back transactions in respect of land. I take that matter very seriously and I see that the Minister does too. One of the odd idiosyncrasies of life is that whenever Parliament feels it is taking a step towards stopping some great unfairness methods are brought into play to work around that unfairness and create another one. Unfortunately that has happened in the south Auckland area where my electorate is. A significant number of people there prey on the less fortunate—I see the Minister agreeing and I thank her for that—by coming along with an offer that is just too good to be true. Quite often people have trouble paying their mortgage paying debts or as often happens particularly with Pasifika families there is a funeral overseas and suddenly they need money and someone comes along with this great offer and the offer really is just too good to be true. It is: “I will take away the mortgage for you. I will take away these problems and now you can go back to renting. When you feel better about it all and you’re in a better state of mind and the husband wife or somebody is back working again then you can buy back the house.” 
There are all sorts of problems with that; the Credit Contracts Act does not really deal with them and that is why this part of the bill is one we feel we can support. It applies the credit contract provisions to those buy-back agreements. They almost always involve a situation whereby the person who is selling or entering into the buy-back agreement—the person who originally owned the home—is in a state of distress. Very often those people will never ever be able to buy back that home. Unfortunately the person who helps them to enter into that just-too-good-to-be-true offer knows that and that is one of the problems. I am really pleased that the Minister is supporting me on that issue with her nods. 
Another issue we could look at here is consumer leases and I am just a little bit concerned about that. As I have said before whenever there is a law to protect people people will work out a way to get around it and it has happened here. That will apply to consumer leases of 1 year or more or where there is an option to purchase the goods. 
One thing we believe in and it is in this bill is that there must be good disclosure of the facts. Unfortunately sometimes those facts are not particularly well disclosed and the Credit Contracts Act did a very good job particularly with the finance rate it brought in. Those of us who were lawyers many people in the finance industry and I am sure in the car resale business and many others understood what that finance rate was all about. It was all about putting the true cost of interest into transactions so that people no longer ended up thinking that they were paying 10 percent interest when with application costs and everything else put on they were often paying a true rate of interest in the late 20s or 30 percent area. That is what had been happening but at least under the Credit Contracts Act that issue was addressed. This part will bring those provisions into consumer leases and that is a very good thing. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 I would like to follow up on the words from my esteemed colleague Judith Collins and say that it is good to see that the finance rate has been included. A lot of submitters were incredibly concerned that it had been omitted and I remember a deliberation in the House in which Paul Adams from United Future applauded the fact that it had not been included. It is quite interesting to see that the finance rate is now there and I applaud the Minister for recognising that it is an important aspect of the bill. 
One of the other things I would like to talk about is that the disclosure requirements for lease arrangements are to a degree the same as those in schedule 2 for consumer credit contracts. Again the disclosure requirements are important. One submitter said that one of the starkest ways to bring home to consumers the meaning of a credit contract or credit lease or whatever would be to have nothing on the first page of the contract other than the total sum payable—in large black letters. Members heard my esteemed colleague Judith Collins explain the difficulties that people can get themselves into. Any reasonable person—and we certainly have some concern about the definition of that because there is not one—can get himself or herself into difficulty. If the total sum payable is printed in large black letters on a blank page then that gives people a very clear message about what they are getting themselves into. A number of people out there do not have the knowledge or indeed the literacy or numeracy skills to fully appreciate what sort of transaction they are entering into. It is a major concern. 
No research has ever been provided to show why this bill is necessary and why it has been necessary to legislate to the degree attempted in order to protect people from themselves. Nothing has been provided in the way of research to show that a new bill or Act is justified and that issue has been raised by a number of submitters this evening. It is a material omission that the bill is not based on sound research but on someone’s concern that consumers were not being protected enough and who wanted to strengthen the protection provisions through this newly named Credit Contracts and Consumer Finance Bill. 
I would like to raise the issue of compliance costs yet again because it is a significant part of what is happening with regard to this bill. I did not cover all the business compliance cost statements that were identified in the preamble to one of the original bills but as Stephen Franks has already said those costs will be passed down to consumers. Dealing with claims by consumers will be a cost but at the moment there is no way of knowing to what degree that will impact on businesses. The “oppressive” provisions will place a cost on both consumers and lenders but no one has any way of calculating it. It is one of the risks imposed by the bill and it could be incredibly substantial. 
There will be a cost to lenders in monitoring the compliance of their programmes with the law and due to stronger enforcement that could again be substantial—a fact that has been noted by a number of submitters. There is real concern about increased costs because of unknown factors in relation to what is “oppressive” and what that will mean in terms of litigation. There are significant opportunities for people who are not satisfied with the contracts they have entered into to bring about litigation by saying that they were misled. It could be as simple as them saying that they are reasonable people and that they were misled when they entered into the contract. We will get into that issue further as we debate the other clauses of the bill. 
Hire purchase providers have also identified increased short-term costs but I put it to the Committee that those costs will be ongoing. 
DEBORAH CODDINGTON (ACT NZ) 
: 
 I will take just a short call on this part because sense seems to have prevailed with Part 3. I would like to ask the Minister in the chair the Hon Judith Tizard whether she could clarify what I think is the confusing issue of the “occupier” in buy-back transactions of land. There is a definition of “occupier” in clause 6B of an earlier part which I will refer back to even though we have already debated it. It sets out that the occupier is the person who agrees to transfer an estate in land to another person in exchange for borrowing money from that person. That is fine so far. The land handed over is security for the money loaned and is the principal place of residence for the occupier at the time the occupier enters into the transaction. That is all fine. 
But clause 58B sets out the disclosure provisions of buy-back transactions. The onus is very much on transferees to disclose and to make sure that occupiers understand the transactions they are getting into and all details of those transactions. In fact the onus is on the transferee to ensure that the occupier has independent legal advice and so on—which is fine—but then clause 58B(2) states that every transferee must ensure that a copy of the terms is given or sent to every occupier under the transaction. I find that confusing because up until that point we had been dealing with “an occupier” but suddenly we get to “every occupier”—presumably under the one transaction therefore one piece of land is being dealt with. 
That raises the question of how the transferee is to know—or is he or she presumed to know—whether there is one occupier or more of the land in the transaction. Is the transferee liable because he or she did not know or did not try to find out? That also raises the question of what happens when the hardship provisions are enacted by the occupier or whoever the occupiers are. Can one occupier try out the hardship provisions or can every occupier use the hardship provisions as an excuse for not paying back the debt or whatever is owed under the terms of the contract? I consulted the expert Judith Collins who is a lawyer—because I am not—and she was confused too. As I said this is just a short call and perhaps the Minister in the chair could take a call and explain whether it should be one occupier or several occupiers. 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 Thank you for choosing me Madam Chair. I appreciate it. It is a first that seniority is being— 
Lindsay Tisch 
: She didn’t see me standing. 
BRIAN CONNELL 
: I am sure that you did not overlook my colleague Mr Tisch Madam Chair. I want to take a relatively short call on this part as well because I also find myself agreeing with the Government on this part. I will not go so far as to say that I am giving out bouquets but I think it is sensible. However for the sake of the  
Hansard 
 record I want to deal with the issue of buy-back transactions and to make it very clear what I am talking about. 
A buy-back scheme is a transaction whereby the title to a home is transferred to a company or an individual and the original owner enters into an agreement to stay in the property usually by paying rent. The person who transfers the title also has the right to buy back the property at a later date if he or she can. That part is not included in the definition but it is of course the issue. I believe that the provision in the bill is dead right. It is really an issue of trust because the people who parade such schemes generally fit into the category of “loan shark”. They prey on people who generally are ignorant of finance. To those people finance is simply another world and they rely on others for their advice. To abuse that trust describes the worst kind of individual I can think of. That is simply preying on the weak who should be protected in law. Therefore I commend the Minister for the clause. 
The people who enter into those agreements should also be getting advice by going to people like my colleague Judith Collins—in her former life of course—to seek independent legal advice. The key is that it has to be independent legal advice and people need certainty that that is what they are obtaining. But of course on this issue the legal profession also has a responsibility. Like seeking finance going to a lawyer is also a unique and sometimes a frightening experience for those folk. The cost of obtaining legal advice is an issue that I will flag as part of the compliance cost concerns I have about this bill. With that said I believe that another part of the key information that should be disclosed is whether the advice that people receive is independent and of sufficient quality to walk people through this complex area with some certainty. 
Another clause I would like to talk about very briefly is clause 57(2) which deals with insurance. The test of whether something is reasonable has already been raised. But I can say without fear of contradiction that insurance will be paid for in some form somehow. That will occur either through an insurance policy that the lender insists on or by including insurance in the price of the finance. Those who understand financing and pricing will understand the concept of pricing for risk. All lenders have a risk profile and across that credit fits into categories ranging from “A” being a credit that has a low risk and therefore is marginally priced right through to “F” which is high risk and therefore carries a very high pricing structure. Somewhere in between of course is Utopia where shareholders’ funds are being protected because the risk profile is medium around the “B” and “C” areas and while those areas are less aggressively priced than in the case of the lower categories the price is enough to be profitable. That of course is how the finance companies build shareholder wealth and profitability. 
I reiterate that the clause relating to whether something is reasonable will give people false hope because somewhere in the contract there will be a cost for insurance. 
DIANNE YATES (NZ Labour—Hamilton East) 
: 
 I move  
That the question be now put 
. 
BRENT CATCHPOLE (NZ First) 
: 
 Part 3 is the real guts of the bill where the Government had to act swiftly because of the buy-back schemes. Those schemes came about in fairly recent times and they hit with a vengeance. I am pleased to observe tonight that a large number of members both in the Opposition and in the Government are supporting this part. It is a very important part intended to protect the unwary from the extraordinary lengths to which some people will go to in order to trap them into a situation that they will have no way of getting out of. That is basically what the buy-back transactions of land are all about. They are set up in such a way that the individual who borrows the money against his or her property has no way of refinancing it and getting the property back. 
Hon Lianne Dalziel 
: They have transferred their property. 
BRENT CATCHPOLE 
: The person has transferred his or her property and basically the conditions are set so that it makes it very very difficult for the person to get it back. 
I would like to touch on the point concerning independent legal advice. We agonised for quite some time in the Commerce Committee over how we could ensure that a person who was trying to borrow money would get independent legal advice. In many cases a person has turned up with perhaps a parent or a friend who has tried to assist the borrower and in those cases neither person has had financial or legal knowledge. We have put in a clause requiring that there must be legal advice. Sometimes the person lending the money recommends the legal advice and that is an area where a person can fall into a trap. If the borrower accepts that advice then he or she is in dire straits. We agonised over that provision to try to make sure that that situation did not happen. I certainly hope it does not happen under the circumstances provided for in the bill because it is a very serious issue. 
With that I say New Zealand First strongly supports this part of the bill. We support the bulk of the bill but this is a very important part that needs to be acted on quickly because of the circumstances that have developed very recently and very swiftly. Unfortunately I do not see any remedies in this bill that will solve the existing problems that people may have. Although the Minister has stopped any further transactions like that I believe that this legislation will not resolve the situation for those who have already lost their homes or are already tied up in an existing agreement under the previous Acts. Unfortunately I feel that this legislation does not quite capture those people. I would like to get an assurance from the Minister that it does but I have a feeling that this part is weak and does not quite resolve that problem. 
Another issue is the cost of getting legal advice. The cost of approaching a lawyer adds to the cost of the money that a person has to borrow. That is where independent legal advice will sometimes fall down and the person will try to rely on a relation who has some legal knowledge. But occasionally that will fall down too. 
Deborah Coddington raised an interesting point about the hardship provisions. According to the way that a buy-back scheme is set up if a hardship provision is invoked under the bulk of this legislation then there will be some serious difficulties for the people who have lent the money. 
DAVE HEREORA (NZ Labour) 
: 
 I move  
That the question be now put 
. 
LINDSAY TISCH (NZ National—Piako) 
: 
 I have a question for the Minister about clause 48 in particular which relates to consumer leases. Clause 48(1)(d)(i) and (ii) refers to the lessee having an option to purchase the goods. I want to question the Minister specifically in relation to leasing a car in a situation where at the end of the lease the person does not have the opportunity to purchase the vehicle. I have always operated leased vehicles so I can use that as a specific example. 
I have had an option to be able to buy a vehicle by putting some money down and having the lease spread over maybe 3 years. At the end of the 3 years there has been a residual value and at that time I could then buy the vehicle. That has been an option. The other option which I have always exercised has been to lease the vehicle just on a monthly payment basis which includes the lease per month plus GST. Then at the end of the period after I may have had the vehicle for 2 years and done 60000 kilometres or whatever the lease arrangement is I can then hand back the vehicle and drive out with a brand new car. I have had the option of choosing a vehicle that has a residual value or a vehicle that does not. Many people do that so maybe the Minister or her advisers can help me. In the situation that I am referring to does the circumstance arise whereby at the end of the lease period I will not have the option of buying the vehicle at the residual value? Is that covered by the bill? 
Clause 48(1)(d) states: “when the lease is entered into 1 or more of the following applies: (i) the term of the lease is for 1 year or more:”—that is fine; it is very clear—“(ii) the lessee has an option to purchase the goods.” The question is whether the lessee has the option to purchase the goods. That is what I am asking. I know that there are a number of individuals—business people—who fall into that category. I do not know from reading clause 48(1)(d)(ii) whether those people are covered specifically by that provision. 
Leasing is big business. A lot of my work before I came here to Parliament was in restructuring businesses. One of the things we did was to look at leasing as an option. We looked at leasing computers fax machines and Eftpos machines for example. Why would people want to spend $3000 on buying an Eftpos machine when they could lease one for about $65 a month? As technology has moved so quickly why would anyone want to have a depreciating asset when that person could lease it and claim the total cost back as a cost against the business or even lease it for personal use? There is also though with some of those lease arrangements the opportunity to purchase the equipment which takes us back once again to clause 48. I do not know whether that is covered by clause 48. 
I am asking the Minister a very simple question. The advisers could say yes or no just to that question; I would be comfortable with that. 
Hon Judith Tizard 
: Businesses aren’t. 
LINDSAY TISCH 
: OK. But a lot of individuals fall into that category; a lot of individuals lease vehicles. Why would people want to spend $30000 or $40000 on buying a car when they can lease one for $300 or $400? Even if they are not in business that is still a cheap option. Leasing is an optional way of funding one’s operation whether it be for personal or business use. We can look at a number of examples of that. Computers and fax machines fall into that category.It covers other equipment as well and a lot of the vehicles on the road today are not owned by the people who drive them. Leasing is an absolutely huge business. 
So the point I make to the Minister is this: if there is no residual value at the end of the lease period that gives me the opportunity to buy the item am I actually covered by clause 48? I am quite happy to sit down if the Minister can answer that question for me. 
Hon RICK BARKER (Minister for Courts) 
: 
 I move  
That the question be now put 
. 
LINDSAY TISCH (NZ National—Piako) 
: 
 I want to carry on speaking about this issue because I have not had an answer. I will take a break while the Minister confers with her advisers and then I will sit down. I am asking a very simple question: if there is not a residual value at the end of the lease—[ 
Interruption 
] Why does Mr Benson-Pope not stand up and take a call himself? If there is not a residual value at the end of the lease does clause 48(1)(d)(ii) cover the situation where I do not have the option to purchase the goods at any time during the lease or at the expiry of the lease for the residual value? That is the question. 
Hon Judith Tizard 
: I think that the member needs to read clause 48(1)(d) carefully. The legislation will apply when the lease is for a term of 1 year or more. Other circumstances may or may not apply but that does apply because clause 48(1)(d) actually states: “ 1 or more of the following applies:”. 
LINDSAY TISCH 
: That is right and “the lessee has an option to purchase the goods.” My question is about what happens if I do not have the option to purchase the goods—and there are a lot of leases where people do not have that option. I ask that question. 
Hon Judith Tizard 
: It does not matter. The issue is whether the lease is for more than a year. 
LINDSAY TISCH 
: That is part of it. That is in subparagraph (i): “… for a year or more:”. People can have leases for 2 or 3 years. If I lease a car for example I go for a 2 or 3 year lease but I do not have the— 
Hon Judith Tizard 
:Then it is covered. 
LINDSAY TISCH 
:It’s covered? 
Hon Judith Tizard 
: If it is for 2 or more years it is definitely covered. 
LINDSAY TISCH 
:So the Minister is saying that I am covered? 
Hon Judith Tizard 
: The member is covered if the term of the lease is for 1 year or more. 
LINDSAY TISCH 
: But a lease of under 1 year is not covered? 
Hon Judith Tizard 
:No. 
LINDSAY TISCH 
:It is not covered if it is under 1 year? 
Hon Judith Tizard 
:Not unless other provisions apply. 
LINDSAY TISCH 
: OK. So if I lease a vehicle for less than a year I am not covered. 
Judith Collins 
: What about a renewal? 
LINDSAY TISCH 
: Yes. What about renewals? A lot of leases are actually for less than 1 year. So those people are not covered by this particular clause. 
Hon CHRIS CARTER (Minister of Conservation) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 69 
Labour 52; Green Party 9; United Future 8. 
Noes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Motion agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 141 in the name of the Hon Judith Tizard to clause 58 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Amendment agreed to and Part 3 as amended agreed to. 
Part 4 Enforcement and remedies 
JUDITH COLLINS (NZ National—Clevedon) 
: 
 This part deals with enforcement and remedies. I have had a look through the provisions and they are quite substantial. I think the Minister is trying very hard to make sure that the penalties are substantial enough to stop the crooks out there from trying to rip off the people who are in fact the least able to look after themselves and that is very good. 
Brian Connell 
: The most vulnerable. 
JUDITH COLLINS 
: They are the most vulnerable as my colleague says. The only problem is that the people who will get hit by the greatest force of these provisions are the people who set themselves up in business or try to get into the business of hiring or buy-back schemes but who are not necessarily the crooks. The crooks are the people who will operate through corporate identities. They are often based off shore they will not be here and in fact will not be worth suing when they are sued. That is one of the big problems. When I look at the provisions in this part and agree with many of them—and I absolutely agree with the intention of the part—the fact is that this will not catch the real crooks and that is a shame. 
When we look at the costs involved for the individual person who has been cheated out of his or her money or who has been the victim of a scheme that does not comply with this bill we can see that the ordinary person will not be able to afford to take a case to court. I note that there is provision in the bill for the Commerce Commission to take prosecutions and I think that is great—except has anybody in this Chamber ever tried to get the Commerce Commission to take a case? I can tell members that it is quite hard to do unless one is a Minister. That is because of course most of the people we are dealing with here are the little people of the world who are not in fact able to trot along to the Commerce Commission have a wee word and say: “Now this is a big issue for you.” They are not the people who will ring the Sunday newspapers and say: “Boy have I got a story for you!”. 
 The fact is these are the very people who will never be able to take this matter to court who will never be able to get the Commerce Commission to raise an eyebrow and who will never be able to get even anybody other than their good hard-working MP to take a scrap of notice. That is because they are the people who will always be the subject of these sorts of scams and schemes. It worries me that we have this. 
I was chatting before to my colleague Sandra Goudie about this and she said: “Well what about legal aid Judith?” and I said: “Well that would be a fine thing.” That is because legal aid in a civil matter like this would be available only if the legal aid subcommittee felt there was a very good chance of getting the money back. When one is dealing with fraudsters and scam artists there is almost no chance of ever getting the money back. So reality tells me and experience tells me after 20-odd years of experience as a lawyer that for most people there is no chance at all of getting any money back under these provisions—no matter how hard we in Parliament try to get people to understand what is going on here. 
That is why it is so important that no matter what we do with this bill once it has passed into law—as I am sure it will be—we have in place proper provisions whereby we advise people what they must be aware of. If we have to go into their churches if we have to go into their communities or if we have to go to the newspapers or on television in order to let people know that these sorts of schemes are out there that they are abounding and that they are ripping people off then that is the best way to stop people from being taken to the cleaners. We have to let them know those sorts of schemes are out there and if the deal looks too good to be true then it is too good to be true. If we let people know that that is of more use than any of the provisions in Part 4 or any of the provisions about enforcement remedies. I absolutely believe there is little or no hope that people will be prosecuted under these provisions unless they happen to have fallen foul of the provisions because they thought they were doing the right thing—but they were not—and so the real crooks will get away. 
One of my big concerns is about the cost and the ability to bring the cases. We can bring all the cases we like and we can impose all the fines we like but if the fines cannot be paid the people will not get paid. 
BRENT CATCHPOLE (NZ First) 
: 
 I raise a point of order Mr Chairperson. I would just like to bring to your notice that there is some feedback in the House and it is getting a little bit louder and louder. While my colleague was speaking there was a buzzing sound and a whistling sound starting to come through. I just bring that to your notice. 
The CHAIRPERSON (Hon Clem Simich) 
: I thank the member for raising that matter. 
PAUL ADAMS (United Future) 
: 
 Just before I begin on Part 4 I ask to be given the liberty to cover a couple of points that Lindsay Tisch mentioned under the last part. On this whole bill we are dealing with financiers who are people in the business of selling money. As I said in debating the first part this is where I think we sometimes need to educate the public and that is part of what this bill is attempting to do. 
For example the member mentioned leases. Whoever is leasing a car is just selling money. The residual value of a vehicle establishes the price the lease company will receive for it at the end of its contract. That takes out a lot of risk for the company because it knows the price it will get for that car instead of having to take the risk of getting what the market may pay in 3 years’ time. There is a huge difference between repayment amounts and the cost of a contract. 
As I touched on in the earlier debate if the sum of $10000 was borrowed on a house the total cost with 17 years remaining on the mortgage was $80884 whereas a hire purchase agreement taken out for 3 years cost an extra $375 per month and the total interest to be paid was $3450. Those are huge amounts and I would like to see the public educated further on what those sorts of transactions actually cost them. 
I have a Supplementary Order Paper on Part 4 relating to buy-back schemes. I think that a majority in the Committee would agree that those schemes have been a disaster for people who have had their houses taken away from them through virtually no choice of their own because they have not had information or they have been deceived. Unfortunately we are also aware that a lot of cases involve family members or people who are very close to the families concerned. 
But my comments really are with regard to Part 4 and specifically toclause 77(1A) which deals with offences. I intend to move a Supplementary Order Paper to amend this clause. As it currently reads a conviction for the offence of breaching clause 58E could bring a term of imprisonment of a period not exceeding 3 months. Given the weight of the offence I argue that this penalty provision is totally inadequate. I therefore propose an amendment that the term of imprisonment be increased to a term not exceeding 1 year. 
My amendment is based on the reasoning of consistency under the law. When one considers that the penalty for a similar offence relating to the fraudulent procurement of title such as a breach of section 225(1) of the Land Transfer Act is imprisonment for a term not exceeding 3 years the present penalty provision in clause 77(1A) is clearly deficient and incompatible. 
Secondly the need for a more stringent penalty is further underscored when one compares it to the penalty for an offence of arguably less weight and when one considers that the penalty for theft of an object not exceeding the value of $100 is the same as the penalty for someone convicted of a fraudulent title grab. That is patently disproportionate and I hope the House agrees undoubtedly that the penalty needs strengthening. 
The financial and emotional consequences for the consumer after being ripped off by a buy-back scheme swindler can be extremely harmful and long term. This bill needs a punishment to fit the crime. The amendment I put forward in my Supplementary Order Paper meets this need and provides a greater deterrent for those contemplating this devious and malicious crime. I ask the other parties to support my Supplementary Order Paper. 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 We open the bill at Part 4 “Enforcement and remedies” and under Subpart 1 “Preliminary provisions” the first thing we see is compliance programmes. So here we go in Part 4 we immediately get into the costs—the compliance costs—for lessors. Clause 59 provides that they must have a compliance cost programme to ensure that their employees and agents are following the procedures or have implemented automated procedures that are designed to ensure compliance with the Act and the regulations—we must not forget the regulations—and to ensure that there are in place methods for systematically identifying deficiencies and the effectiveness of the programme. Here we have a direct compliance cost staring us right in the face in this bill. This will be substantial because this is an ongoing cost not just a one-off cost. It is not just an interim cost but is an ongoing cost for monitoring the effectiveness and compliance in accordance with the Act. 
Then further on in Part 4 clause 62 deals with the jurisdiction of disputes tribunals. Given some of the complexities of these issues we are concerned about the capability of those people taking part in a disputes tribunal and dealing with some of these issues. I am aware of the effects of disputes tribunals—particularly in the agricultural sector—and they are not always as judicially objective as they might be. The experience of participants adjudicating through a disputes tribunal is sometimes questionable. There has been considerable concern expressed through my office about the way and the manner in which disputes tribunals operate. That is certainly an area that I would say needs to be addressed and probably given an overhaul in time to come. 
The other matter I want to refer to is clause 69(2) and the ability to take a person to court. One of the submitters actually talked about double jeopardy. This concerns clause 69(2) which talks about persons being able to take a provision to the courts. Anyone can take an objection to the courts in relation to the courts’ general power to make orders against a person. It talks about double jeopardy by making clear that exemplary damages cannot be awarded in respect of a breach that has already been the subject of a statutory damages order. Inappropriate risk of double jeopardy continues to exist because it would still be possible for non-compliance to result in a criminal law sanction as well as in either exemplary damages or statutory damages and that was a concern. 
It was felt that it was not appropriate for clause 83 to give “Any person”—and that is the term used in this bill—the ability to seek a banning order given that the bill already makes ample provision for enforcement by borrowers and by the Commerce Commission. It is laudable to see that the Commerce Commission has been strengthened. I note that the Minister sought an additional vote for 2003 with regard to the Commerce Commission and that is a laudable effort. There is a concern which I have already expressed about needing more vote for educational purposes but that might come in time. 
However in coming back to this part I say that it is not desirable for the provisions in clause 82 for example potentially to be able to be used by one lender against a competitor and that is a possibility. It may be that groups and organisations representing self-appointed guardians of the public interest could be in such a position to seek such orders also because the provision could be used spuriously. It may be that someone has been convicted previously and that was an error on the person’s part but he or she has seen the light. I tell Mr Adams that perhaps that person has come to God and realised there are better more honest ways of functioning in his or her life. Although that person is going to operate in a much more socially conscious and morally based manner he or she could still be victimised by the provisions of this bill. 
BRENT CATCHPOLE (NZ First) 
: 
 Part 4 deals with enforcement and remedies and I would like to touch on clause 76A “Enforcement of buy-back transaction prohibited”. I am pleased that the enforcement of buy-back schemes is prohibited but I wonder whether this clause actually picks up those people who are already trapped in a buy-back scheme. Such schemes have been set up under a previous Act and I wonder whether this provision will protect those people. I have the feeling it will not. 
The next point I would like to raise relates to clause 80 “Reasonable mistake defence”. It is quite easy to claim a reasonable mistake if people have it planned the right way. When people are caught they can plead there was a reasonable mistake. There are ways of proving that even though they had set out deliberately to make a mistake. I have the feeling that that provision is a let-off for some people particularly those people dealing in financial areas. They are the ones who have no scruples and the ones who are likely to use that defence having set themselves up to deceive people and then claim it was a genuine mistake. That will be a tough one to police. 
The next clause I will look at is clause 82 “Power to order certain persons not to act as creditors lessors transferees or buy-back promoters”. Certain people and companies will be able to set themselves up with very complex schemes to avoid being affected by this provision. Once again it is those unscrupulous people who will have extraordinary ways of avoiding being detected and who will move on to another company or organisation—fronted by somebody else perhaps—to run exactly the same scheme. It will be very difficult to police. 
I come back to Paul Adams’ amendment. He wants to raise the penalty for an offence from 3 months to 1 year. That is commendable and as he says it makes the “time suit the crime”. Unfortunately this Government has a tendency to allow this sort of period— 
Brian Connell 
: Soft on it! 
BRENT CATCHPOLE 
: It is certainly soft on crime. This sort of period falls into the category of home detention. That is no penalty at all for this particular crime because people who have been convicted will sit at home and continue their transactions there. 
Judith Collins 
: Sit at home and do Internet gambling. 
BRENT CATCHPOLE 
: Yes they could sit at home and do Internet gambling as Judith Collins mentions. These people will be able to sit at home and continue their illegal transactions and schemes. It is no real penalty—3 months or 1 year is not a penalty particularly when people have the right to apply for home detention. The fine of $200000 or both penalties together might be a little bit of a slow-down but these people are dealing with quite extraordinary figures in their finances and I suspect that even $200000 would be a drop in the bucket for many of those operators and it may well miss the mark. I tell Mr Adams that it was a good attempt but unfortunately the law as it stands today will mean it will have very little effect as far as penalties of 3 months or 1 year are concerned. The important thing is that this part has a provision to enforce the fact that buy-back transactions are prohibited. We commend that provision and I certainly hope it is capable of protecting those who are already in such schemes. 
Hon CHRIS CARTER (Minister of Conservation) 
: 
 I move  
That the question be now put 
. 
Hon TONY RYALL (NZ National—Bay of Plenty) 
: 
 It is very clear from the debate from the Opposition side that we are mightily concerned about the compliance costs associated with this bill. Our concern is that compliance costs will add to the cost of finance for consumers—and it is quite clear that it always will as Mrs Collins said. The issue revolves around requiring extra burdens on lenders in terms of what they must be prepared to carry with legal sanction scrutiny from the Commerce Commission as proposed in this part or actions from other parties. All carry an element of risk and an element of cost. That cost will always be passed on to the consumer and that is the point the National Party in Opposition has been making throughout this debate. Compliance cost is a very big issue. 
Part of the Government’s claim that it is dealing with compliance cost issues is the regulatory impact and compliance cost statement that formed part of the explanatory note of the original Consumer Credit Bill as tabled in the House. I have to say to the Minister that that was a very poor exposition of the costs and benefits associated with this bill because not one figure is provided of either the financial costs or the financial benefits of this deal—not one figure. In the whole provision only one number is mentioned and that is in respect of the $250000 in the definition of what a commercial contract amount would be in terms of the level of disclosure. That is the only figure mentioned. If the Government seriously believes that Parliament should take notice of the compliance cost and regulatory impact statement provided to it then Parliament should be treated with respect and the Government seek to quantify those costs. 
Opposition members have taken quite a lot of time in the last few weeks to go and talk to a large number of these consumer lenders. They are not just the major banks which the Ministers might wine and dine; they are a whole lot of people who run small localised finance companies that provide credit to New Zealanders. The average amount that those people lend might be $3000 to $5000. They might employ two or three staff. The capital is essentially the owner’s plus some— 
Hon Chris Carter 
: This is exciting stuff. 
Hon TONY RYALL 
: It is exciting because it is quite an important point. It should be exciting for the Government because we are saying to the Government that we should get the full costs and benefits in this bill. 
The issue is that we have talked to a whole lot of consumer finance companies around New Zealand and it is quite clear from them that there will be significant costs associated with this bill. I suspect that is the reason the Government has not provided any figures in this legislation. Some of the costs associated with this part will require additional forms to be printed additional staff training to be undertaken and additional compliance regimes to be implemented by the various businesses. All that costs money. 
People who run a finance company have to take into account a whole lot of risk. One of the risks that Opposition members of the Committee are not happy with is that the Commerce Commission might be able to take a class action against all lenders. We think that the Commerce Commission should have to act on the specific offenders. It is clear that the Government is seeking to target unscrupulous moneylenders. It is going to target what I would refer to as the second-tier moneylenders. The “pay-day Charlies” who stand at the gate to the factory and collect the loan repayments on pay day are not going to be controlled by this legislation. 
DIANNE YATES (NZ Labour—Hamilton East) 
: 
 I move  
That the question be now put 
. 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 I would like to start by making a comment on the amendment that Mr Adams has put forward. One year hardly seems enough and I question why we would bother. We know that this Government is soft on crime. I do not think a sentence of 1 year which would mean that people would be out in 2 months—if they even get to jail; they would probably be on home detention along with Mr McDonald—would keep those types of people awake at nights. If Mr Adams is to do it he should do it seriously and I suggest he talks to his colleague Mr Alexander about what a real sentence means. 
The issues I want to raise are contained in clause 59 “Compliance programmes”. In particular there is a misconception that the compliance costs will be something that organisations carry easily. Most finance companies that I have experience of whether they are big or small businesses have structured themselves to get economies of scale. Most often they have combined their resources and established back-office functions. Those functions are essentially all those functions that used to be done in the branches or at the back of the shop. They have now been put into a centralised site and are highly automated. I am concerned if we go down this track that there will be a huge amount of reprinting of forms that new systems will have to be created and that once those systems and forms are in place there will have to be training of staff. Because most of those programmes are automated there is no human input. Once people have restructured and have had to print new forms and create new systems there will have to be training of staff. The compliance costs associated with employing more staff and training them are extremely clear. Then there will have to be a new audit process to satisfy consumers and those who administer the law that those things are in order. 
Establishing back-office functions is not something that is done easily. In most cases they are multimillion dollar sites. Most of the major banks in this country operate out of one site and work collectively. It is not just one site per bank but one site for many banks. 
Hon Chris Carter 
: He should get a life. 
BRIAN CONNELL 
: It is an issue that Mr Carter does not understand and will never understand but it is a real issue for those organisations. Of course what will happen to consumers is that the cost of this compliance will be priced into the loan. The compliance costs will be passed on to consumers and I fear that the very people we are trying to protect will be priced out of the marketplace. 
The other issue that concerns me is the hardship provisions. Of course the compliance costs that run with those are enormous. Banks price for risk but where there is uncertainty—and this will lead to uncertainty because security will be eroded—price will be factored into the loan and the consumer will be the worse for wear. Some people will not get finance. Banks finance companies and consumer credit companies will simply become risk adverse and they will take the easy option of telling consumers that they are not worth banking not worth lending to; they will tell consumers that they cannot take the risk and will say no. That is exactly what will happen. 
The next thing I want to raise is legal recourse. The bill calls for jurisdiction of the district court and of the High Court. That is all very commendable but the reality is that it is good in theory not in practice. The very people who will be seeking redress—the very people who will be ripped off by the loan sharks that we are seeking to deal to—will be the people who (a) are too frightened to go near a lawyer (b) do not have the money in the first place and (c) do not have the aspiration. 
DAVID BENSON-POPE (Senior Whip—NZ Labour) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 69 
Labour 52; Green Party 9; United Future 8. 
Noes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Motion agreed to. 
BRENT CATCHPOLE (NZ First) 
: 
 I raise a point of order Mr Chairperson. During the vote members of the Government were calling out across the Chamber. That is against the rules of the House. 
The CHAIRPERSON (Hon Clem Simich) 
: The member is quite right and I am sure that member has learnt if not his lesson the way it should be done. 
The question was put that the amendment set out on Supplementary Order Paper 141 in the name of the Hon Judith Tizard to clause 77 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to. 
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Amendment agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 139 in the name of Paul Adams to omit and substitute subclause (1A) in clause 77 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to 
. 
Ayes 60 
Labour 52; United Future 8. 
Noes 57 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8; Green Party 9. 
Amendment agreed to. 
The question was put that the amendment set out on Supplementary Order Paper 139 in the name of Paul Adams to add new subclause (3) to clause 77 be agreed to. 
A party vote was called for on the question  
That the amendment be agreed to 
. 
Ayes 60 
Labour 52; United Future 8. 
Noes 57 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8; Green Party 9. 
Amendment agreed to. 
A party vote was called for on the question  
That Part 4 as amended be agreed to 
.  
Ayes 82 
Labour 52; New Zealand First 13; Green Party 9; United Future 8. 
Noes 35 
New Zealand National 27; ACT New Zealand 8. 
Part 4 as amended agreed to. 
Part 5 Reopening of oppressive credit contracts consumer leases and buy-back transactions 
JUDITH COLLINS (NZ National—Clevedon) 
: 
 Part 5 like many parts of this bill has some very laudable provisions and some laudable purposes but again we come to the reality of the situation. 
Clause 92 “Meaning of oppressive” states that oppressive “means oppressive harsh unjustly burdensome unconscionable or in breach of reasonable standards of commercial practice.” That is pretty much the same as in the 1981 Act. The fact remains that although that Act has been in place now for over 20 years there have been very very few provisions in contracts such that a court has held that the actions of the lender or the creditor have been oppressive. The reality is that as I have said before tonight and I will continue to say these sorts of provisions should be in place for the little people of the world the people who are most vulnerable when it comes to contracts but those very same people are those least likely to take these matters to court least likely ever to be able to afford to take these matters to court and least likely ever to be able to try to prove that something is oppressive or that a contract should be reopened. 
When the Credit Contracts Act first came into play there was a lot of concern expressed by lenders as there will be under this legislation as to the stand-down period in credit contracts—the period when people could reopen the credit contract or decide they did not want to go ahead with the financing. There was a great deal of concern as I recall among the banks that contracts might be overturned and for a little while they thought everyone would have to draw down their loans about 3 days before the settlement of a house purchase just in case the court were to decide that something was oppressive or unfair. There was all this uncertainty and I note that my colleague Mr Richard Worth who was also a lawyer by profession before coming into Parliament— 
Clayton Cosgrove 
: A bush lawyer. 
JUDITH COLLINS 
: No a very very good lawyer. The fact is the banks were very concerned that they were going to end up on the wrong side of the law and they said that that would have to happen. It took a couple of weeks as I recall for them to work out that one cannot do business like that. One cannot do business on the basis that something might go wrong. 
It concerns me and it concerns the National Party that no matter what we do with a bill like this we will constantly be encouraging an increase in compliance costs to the point of over-compliance of lenders/creditors taking extra care. Those costs will always be added on to the borrowers. The fact is that in any of these transactions any cost is always a cost to the borrower. It is a cost to the borrower by way of either a lending fee or a borrowing fee or it is a cost to the borrower by way of an interest rate. The fact is that the costs of the creditor of the financier are and must be added to those of the borrower. 
The reality is that as much as we try to help the little people of the world who are borrowing under these agreements all the people out there who need to go ahead and do business we will simply make it harder. We will make it harder for them firstly to get loans and secondly to pay them. That is the problem. Nobody is actually forcing people to take loans—unless one counts the Hon George Hawkins who is introducing Internet gambling through the State. All that will happen is that we will be making it harder for people to get loans to go about their business harder for them to get loans to buy cars and harder for them to get loans to buy houses and we are putting on to them extra costs. That is one of the tragedies of it. We are rushing around trying to be kind but we could have a programme of letting people know through schools television and radio what these issues are. If we want to stop buy-back schemes we should be educating people and we should be letting them know about the problems they will encounter. 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 I would like to speak to clause 93 which deals with the reopening of credit contracts and consumer leases. [ 
Interruption 
] Now that I have Mr Chris Carter’s attention let me continue. The clause states that the court may reopen a credit contract or a consumer lease if in any proceedings it considers that the contract or lease is oppressive. What does that mean? That opens the floodgates! The Government had advice from a number of submitters that it should not go down this track but did it listen? 
Richard Worth 
: No. 
BRIAN CONNELL 
: Can it listen? No. 
Richard Worth 
: Excellent advice ignored. 
BRIAN CONNELL 
: Excellent advice was ignored. The Ministry of Consumer Affairs told the Government that it should not do this. An article in the  
Independent 
 refers to these as radical hardship provisions. I think they are just stupid provisions. They will create uncertainty in the marketplace undermine the confidence of lenders who will increase costs by pricing for risk because they do not know whether they will get their money back and undermine shareholders’ confidence in the company and the people who most want the money will be priced out of the marketplace. The  
Independent 
 article that I referred to stated: “This could adversely affect a creditor’s ability to raise funds by selling the receivables generated by the consumer credit arrangements.” That is simply because they have been factored out. 
Richard Worth 
: Could the member read that again? It is a telling comment. 
BRIAN CONNELL 
: I certainly can. It is an extremely telling comment: “This could adversely affect a creditor’s ability to raise funds by selling the receivables generated by the consumer credit arrangements.” This is the worst type of nanny State socialism I have seen in some time. Mr Carter knows that I am right. That is why he has stopped yelling out. He is hanging his head in shame. He does not want to be associated with this type of nanny State nonsense nor do any other people in the Committee which is why it has suddenly gone quiet. 
The  
Independent 
 articles goes on to state that the provisions may increase costs. Let me make it perfectly clear: they will increase costs; they will increase compliance costs and increase them hugely. The article states: “They may allow debtors to frustrate legitimate creditors’ actions taken to enforce credit contracts and”—another telling comment—“unscrupulous debtors could try to take unfair advantage of these provisions to extend contracts for their own benefit.” It will be:“I have had a bad hair day. I do not like the contract any more. I want to get out of it.” 
The provisions get down to specifying relationships. If someone’s relationship has gone sour suddenly he or she does not have to front up to face up to his or her liabilities. What utter nonsense! It will do huge damage to the marketplace as security starts to dwindle. I have said it before and I will say it again: this will result in some institutions the decision makers in those institutions becoming risk adverse. They will simply say that no they would rather not take the risk than be exposed to this type of nanny State socialist nonsense. 
R Doug Woolerton 
: Sounds like a Clayton’s bill to me. 
BRIAN CONNELL 
: It is worse than that. I think the Government thinks it is doing the right thing; it is an issue of absolute ignorance. The Government could not be told. A number of submitters went to the select committee and said “Don’t do it!” but the Government ignored them. I have asked the Minister in the chair before and it would only be magnanimous of me to suggest again that we suspend this debate for a day or maybe 2 days while the Government gets its head around this issue and fixes up what is clearly an anomaly. I do not think the Government meant to do it. I think it is an oversight in drafting. Do members really think it is creditable that one gets down to saying that the Credit Contracts Act will deal with relationships that have gone sour? 
Hon CHRIS CARTER (Minister of Conservation) 
: 
 I move  
That the question be now put 
. 
BRENT CATCHPOLE (NZ First) 
: 
 Part 5 deals with the reopening of oppressive credit contracts consumer leases and buy-back transactions. When the Commerce Committee considered this part we were confident that this would cover buy-back schemes but I have my serious doubts that this does. Clause 91“ Application of Part” states: “This Part applies to—(a) every credit contract (whether or not it is a consumer credit contract); and (b) every consumer lease; and (c) every buy-back transaction.” That sounds great. 
 However if we read on we see clause 93 “Reopening of credit contracts consumer leases and buy-back transactions”. If we then move to clause 96 we can see that it is the one that traps us for existing buy-back transactions. Clause 93 “Time and circumstances relevant to reopening credit contracts consumer leases or buy-back transactions” states: “a buy-back transaction is not oppressive if the contract lease transaction term or act would not have been considered oppressive at the time and in the circumstances that it was made or performed.” Therefore this clause traps those people who are already in the buy-back schemes and unfortunately this clause gives the lenders the way out and those people basically suffer the loss of their property. Sadly that clause is left in there because it really does leave it wide open for those schemes. 
During our deliberations we considered that the Commerce Commission would be able to take proceedings on behalf of some consumers because the bill particularly Part 5 deals largely with commercial arrangements and commercial deals. If the Commerce Commission can take cases on behalf of small businesses then that is well and good. But sadly I think that clause 96 may well be the death knell for those people who have already entered those contracts before this bill comes into place as a transaction is not considered to be oppressive if it would not have been considered oppressive at the time the transaction was put in place. This section of the bill on buy-back schemes was put in at a very late stage during the Commerce Committee deliberations—after those buy-back schemes had been in operation for a number of months. A large number of people were trapped because it happened very quickly. They were genuinely under the consumer credit legislation previously. So this particular clause is giving the out to those contracts and it means that the 1981 Act is the one that was covering those—[ 
Interruption 
] I think I might have lost some of the Ministers over there! I would like the Minister to take a call on this and I ask that she check with her advisors because this clause here does not allow these particular contracts to be reopened because they were not oppressive at the time that they were set in place. This bill makes all sorts of attempts to try to capture them but it does not. This clause lets them out and it means that the people who have already been trapped in that situation do not have the recourse to recover their property. 
Hon TONY RYALL (NZ National—Bay of Plenty) 
: 
 This is a very important section and I shall pick up on a comment made by Mr Brent Catchpole of New Zealand First. Last month I received a phone call from some constituents in Mount Maunganui—[ 
Interruption 
] Unlike four of those five members opposite my home telephone number is in the phone book. Anyway those people rang me because they were victims of a buy-back. Labour members might think that is funny but those people were victims of a buy-back—a scam. They had been encouraged by a close friend of the family to enter into an arrangement whereby they would assign the title of their home to a trust of some sort or to a third party and in return they would receive a weekly income of $300. That may not sound like a lot of money to some members but when a person is on a pension $300 a week is an awful lot of extra money. They subsequently found out that the title to their home had been transferred from the company they had entered into this arrangement with to another party based in Hawke’s Bay—so it has got even more removed now—and subsequently the third party in Hawke’s Bay claimed that they had no knowledge that there was a rip-off involved in the buy-back arrangement. It is an absolutely dreadful circumstance. 
Fortunately we have been able to arrange for those people to have legal representation pro bono by a prominent solicitor in Tauranga and I do know that they are working with the Government’s agents to try to work through the situation. I acknowledge the excellent work the Government did in very quickly trying to attack the people behind the buy-back schemes. However Mr Catchpole suggested that people such as my constituents in Mount Maunganui would not be considered to be under an oppressive contract. I draw the Committee’s attention to clause 96. Mr Catchpole said that because the contract might not have been deemed to be oppressive at the time it was signed they would have no rights. But I would say particularly in the case of my constituents that that buy-back arrangement was harsh unconscionable and a breach of the reasonable standards of commercial practice. 
I tell members that my constituents are covered by this part of the law and they must be entitled as the Minister is indicating to the full force of the law. They are retired people who have saved up for their entire lives to have a house in a very nice part of Mount Maunganui and they were led to believe that their money would be safe by entering into an arrangement that transferred the title of their property. They have been duped and ripped off. The likelihood is that those people will lose their house. Those sorts of people should be taken to the cleaners and I tell Mr Catchpole that clause 92 applies to them. 
I would like to see this Government move to really rack up the penalties in respect of those people. The people who perpetrated that buy-back scheme are despicable deceitful dishonest and crooked. They should not be involved in any sort of commercial transaction like that again. 
 Never again should those people be involved in any arrangement like that whatsoever. So in supporting this part I say quite clearly that I do consider that the people who were subject to those unconscionable buy-back arrangements are covered by this part. The Minister agrees—no doubt with the support of official advice—and I think that the Committee should be very very determined to support the efforts of the authorities in cracking down on these buy-back arrangement people. 
Hon RICK BARKER (Minister for Courts) 
: 
 I move  
That the question be now put 
. 
A party vote was called for on the question  
That the question be now put. 
Ayes 69 
Labour 52; Green Party 9; United Future 8. 
Noes 48 
New Zealand National 27; New Zealand First 13; ACT New Zealand 8. 
Motion agreed to. 
Part 5 agreed to. 
Progress reported.