Foss Craig: Credit Contracts and Financial Services Law Reform Bill — First ReadingText is incorporated into the Bound VolumeFoss Craig: Credit Contracts and Financial Services Law Reform Bill — First Reading[Sitting date: 17 September 2013. Volume:693;Page:13404. Text is incorporated into the Bound Volume.]Hon CRAIG FOSS (Minister of Commerce): I moveThat the Credit Contracts and Financial Services Law Reform Bill be now read a first time. I nominate that this bill be referred to the Commerce Committee. This bill forms part of the package of reforms that are being progressed by this Government that are designed to promote confidence in our financial markets including the market for consumer credit. Rewriting the rules for consumer lending was one of the Government’s pre-election promises and forms an important part of the Business Growth Agenda which aims toboost confidence and trust in our financial markets. I am pleased to say that the Government is continuing to deliver on its promises.The Credit Contracts and Consumer Finance Act came into force in 2003. It has since been reviewed and was found to be generally working well in promoting competition and protecting consumers. However the review has also identified that some lenders have irresponsible lending practices and that some consumers are making poor decisions. This contributes to the dreadful cases of spiralling debt and financial hardship amongst vulnerable consumers that many of us see in our communities.Consumer credit is important and it is vital to the New Zealand economy. The consumer credit market must be effective and competitive to work effectively and in a way that meets the standards expected by all New Zealanders. Lenders must act responsibly and there needs to be appropriate protection in place for consumers especially for consumers who are vulnerable to lenders that are predatory or unscrupulous. Vulnerable consumers often have limited financial literacy and lack knowledge of their rights. We know that unfortunately all sorts of people can be vulnerable because they lack financial literacy. We also know that people who are facing tough financial times and need credit for essential items have fewer options and are more vulnerable than other consumers. Borrowers with a limited understanding of the English language are particularly vulnerable.Regarding disclosure one of the explanations for poor consumer decisions on credit is that the current disclosure requirements and rules are not providing sufficient protection especially for the more vulnerable consumers at the lower end of the consumer credit market. There is evidence that consumers tend to be overly optimistic about their ability to repay a loan or that lending decisions are made based on poor use of the information that consumers do possess. The true cost of credit including costs such as bank fees default fees and default interest tends not to factor in the decision-making processes for many consumers. Another issue is that these fees are not disclosed in a way that enables ready comparisons between different loan products by consumers before they enter into the credit contract. To address this the bill improves disclosure requirements and increases the value of information available so that consumers can better compare credit contracts and make more fully informed decisions.This bill is about protecting vulnerable consumers. Improvements to disclosure are not on their own or of themselves enough to change lending practices and provide protection for vulnerable consumers within our society. The bill introduces responsible lending. Lenders providing credit to consumers will have a duty to exercise reasonable care skill and diligence just like anyone else providing a service to consumers. Responsible lending means assisting borrowers to make informed decisions and to be aware of the implications of the obligations that they are entering into. The principles in the bill are intended to be complemented by a responsible lending code reflecting industry best practice. The code will provide guidance on the application of the lender responsibility principles and lenders and interested consumer groups will be consulted on the development of the responsible lending code so the code should have a high degree of community and industry buy in.Regarding credit repossession credit repossession is currently regulated by the Credit (Repossession) Act 1997. This Act provides minimal consumer protection. Repossession involves the right to enter somebody’s property and take their goods whether or not they are at home. Borrowers whose home can be legally broken into so that their goods can be taken are particularly vulnerable and they are seldom in a position to enforce their rights. Improvements to the regime for credit repossession include providing the Commerce Commission with a monitoring and enforcement rolerestricting goods subject to repossession and providing for the licensing of repossession agents.Finally the bill makes some changes to the Financial Service Providers (Registration and Dispute Resolution) Act. It removes the requirement for a reserve dispute resolution scheme. The purpose of the reserve scheme was to ensure that dispute resolution schemes were available to all financial service providers including lenders. With the approval of a number of other schemes a reserve scheme receiving funding from the Government is now no longer necessary. The bill also addresses misuse of the Financial Service Providers Registrar by providing additional powers for the Registrar of Financial Service Providers and Financial Advisers and the Financial Markets Authority and disqualifying persons with certain overseas criminal convictions from registration. This will deal with the risk of overseas-based financial service providers registering in New Zealand for purely reputational reasons.To conclude I would like to take this opportunity to thank the many many stakeholders involved in formulating this bill and getting this legislation to where it is today. Thank you also to the Law Commission for its work on the Credit (Repossession) Act. The commission undertook a very thorough review of the Credit (Repossession) Act and virtually all of its 58 recommendations have been adopted in this bill. Lastly I would like to thank the stakeholders who have contributed to the development of the reforms through the various consultation processes including the exposure draft late last year. I am looking forward to future stakeholder engagement through their submissions to the select committee.It is important to ensure that consumer laws are relevant and work as intended. The reforms in this bill need to be workable for all parties involved. We need to ensure that New Zealand is a country of informed borrowers and responsible lenders. The reforms contained in the Credit Contracts and Financial Services Law Reform Bill will deliver a welcome improvement to the current consumer credit legislation in New Zealand reinforcing consumer protections under Credit Contracts and Consumer Finance Act and providing greater consistency across the financial sector. I commend this bill to the House.