Jones Dail: Consumer Credit Bill — First Reading 
Jones Dail: Consumer Credit Bill — First Reading 
[Volume:606;Page:3515] 
DAIL JONES (NZ First) 
: 
 Speaking on behalf of New Zealand First I say that I was not too excited by this legislation until I heard the speech from Mr Adams from United Future. He suggested that the present credit contracts legislation does not seem to affect banks. That is absolutely wrong. Anyone who has been a lawyer as I have and dealt with hundreds if not thousands of credit contracts with loans from banks knows that every loan offer to a client has the finance rate on it. For that member to say that the finance rate is not applicable to banks destroys the credibility of Mr Adams’ comments on this legislation.  
I am interested in the fact that this legislation has removed the finance rate. When I look back to 1981 when I was in this House and we introduced the finance rate there was a reason for it. I am disappointed that the Labour Party has forgotten the reason for that finance rate. The late Arthur Faulkner who was here in those days as the Labour member for Mount Roskill rejoiced in this legislation. As a former creditor manager for the Farmers Trading Co. Ltd and a former RAF pilot in World War II Arthur Faulkner had a great social responsibility. I am disappointed that this Labour Party has lost that concept of social responsibility in its removal of the finance rate.  
The finance rate prevents front-end loading in contracts. A contract for $1000 can have an interest rate of 10 percent so 1 years’ interest might appear to be $100 but of course it is not. If that bill is paid over 12 months on a reducing basis it is not 10 percent interest it is closer to 17 percent. In addition there are extra payments of a $100 booking fee or $100 for insurance. The original legislation was really set to deal with car dealers—and I understand that Mr Adams was a car dealer so he ought to know. If on a contract of $1000 the interest is shown as 10 percent and $100 is charged for interest add to that a $100 booking fee and $100 for insurance and the borrower is forced to pay $300 on the $1000—the interest rate is not 10 percent. The finance rate takes into account the $100 interest the $100 insurance and the $100 booking fee. The borrower needs to know what the actual payout is that he or she needs to make. The actual interest rate or finance rate—or the true interest rate—takes it up to about 30 percent. 
For that reason it is important to retain a finance rate especially for people living in south Auckland or west Auckland or especially for solo parent beneficiaries who may not understand these things. When we talk about interest-free periods members of the public might think that it is only 10 percent. They might believe that because those people have big businesses they must know what they are doing and so they just go along with it.  
I can see the Consumers Institute of New Zealand and Mr Russell getting involved in a submission on this legislation very promptly so that somewhere in the contract it is made clear to the person borrowing the money from some car dealer that he or she is not paying an interest rate of 10 or 12.5 percent. The lender wants to know what it will cost him or her. That is what the finance rate did in the Credit Contracts Act which I was a very proud to be a supporter of when I was in the Government when we introduced it in 1981. That is one of the evils remedied by the Credit Contracts Act. This credit contract legislation introduced by Labour will leave it wide open for unscrupulous people to rip off the poor in our society.  
The Minister gaily read the speech that the department gave her to read but Miss Judith Tizard has no idea of what the bill involves. 
Darren Hughes 
: The Hon Judith Tizard. 
DAIL JONES 
: I am terribly sorry; she is the Hon Judith Tizard. I am sure that if the Hon Bob Tizard had still been in the House he would have ranted and raved and ripped into the Government member who introduced this bill. I can almost see the Hon Bob Tizard getting stuck into the Government on this type of legislation which does not protect the person in the street. In so far as the person in the street is concerned I am sure that every car dealer in New Zealand will be delighted with this legislation because it does not protect car buyers.  
The second area is the question of prepayment. If members read clause 46 on prepayment they will see that people have to be very very careful with this because it allows a lender to add in charges on repaying a loan if it is repaid earlier. Let us say that someone has borrowed $1000 and at about the 11th month of the repayments that person decides to repay it early. If the loan were allowed to go through for the full 12 months there would be no prepayment charges. But if it is repaid in the 11th month then there are prepayment charges. Nowadays banks will charge people $150 to $200 to repay a loan just ordinarily. They would then add that on to an early repayment charge This bill has not been thought through and the Minister obviously does not understand it. She has merely read what the department has provided. This is very dangerous legislation.  
The existing legislation under the Hire Purchase Act looks at the rule of 78. It is a rough rule but it has worked for more than 30 years. I am sure that Mr Adams is familiar with the rule of 78 as are most of us who have been involved in this area. The rule of 78 sets out the procedure and it seems to be fair. It has lasted 31 years and I have never known anyone really to complain about the rule of 78. It gives everybody a fair go. But now this bill seems to be setting up a system whereby if one repays early one has to work out what it is costing the lender.  
We know what happens today when someone repays a mortgage earlier. Say a person has taken out a mortgage for 3 years at a fixed rate of 7.5 percent and repays it in a 2-year period. The bank would charge that person $2000 or $3000 because of early repayment. This bill is saying that that early repayment charge would now apply to a car loan if it were repaid early. Surely the Government is not saying that because a finance company lent the money at 7.5 percent and the interest rate has then gone down and the finance company would lose money because it has to lend it out at a lower rate the borrower for the car has to pay the difference because that is the principle of contractual damages loss that the banks apply today. This bill has not been well thought-through.  
Let us look at the loose requirements such as creditors’ loss arising from full repayment. It has not been thought through. The rule of 78 has been rough and ready but on the whole a fair approach. What we are going to say to someone who has bought a car—and it does not matter whether it is a $4000 car or a $40000 car—is that his or her ability to repay is based on one’s income. It hurts one equally whether one is earning $15000 a year or $50000 a year. So if people go to the finance company and say they have had their holiday pay their bonus or whatever and they want to repay their loan earlier they get stung for charges and for any loss there might be on the reduction in interest.  
All I can say is that New Zealand First will support this bill going to a select committee. As I understand it this bill is meant to be only for improving disclosure but it has gone into so many other areas now that it will create problems. I strongly suggest that Mr David Russell of the Consumers Institute and all those others who have an interest in this area have a close look at it because it seems to be very much in favour of the banks and the lending institutions. Even the definition of “oppressive” in clause 92 is in favour of the banks and the lending institutions and does not take into account the requirements of the working person and the ordinary family person as much as it should do. I will be interested to see how the bill comes back from the select committee.