Hudson BrettBRETT HUDSON (National): Thank you Madam Deputy Speaker. I rise to support this bill to first reading and I acknowledge the Minister responsible Kris Faafoi for his comments about the intentions behind this piece of legislation. While there is so much pragmatic practical solid and sound lending that occurs across our economy we can all acknowledge—and probably most if not all of us have seen instances in our offices in the communities we serve of situations where vulnerable New Zealanders are taken advantage of through the needs they have to access credit but are placed in situations which make it very difficult for them to escape a revolving or recurring—Darroch Ball: Spiral.BRETT HUDSON: —spiral—thank you very much—of debt and obligations which they struggle to lift themselves out of.Now as the Minister pointed out the previous Government did quite something in the amendment of this principal Act to address that in 2015 particularly around requirements on disclosure and on helping to educate potential borrowers as to what they might potentially get themselves into. There is much in this legislation that we support. For instance bringing in to the scope of the principal Act new forms of lay-by which include but are not limited to the instance of after-pay—very much different to forms of lay-by than I remember from my youth but certainly instances today where people have deferred payment arrangements that don't currently fall under the Credit Contracts and Consumer Finance Act. We support that explicit change.We also support—and while Parliament is rightfully concerned about regulation-making powers in primary legislation we support the instance of regulation-making power in this bill to permit the deeming of arrangements to be consumer credit contracts in the future where people may seek to vary sorts of lending to otherwise obviate the protections that are offered under this principal Act and as it may be amended through the process of this bill. We actually think that's a sound idea. It's a sound idea to make sure that people can't just change a little bit here and there and suddenly no longer fall under the obligations of the principal Act.We think the fit and proper person test for directors and executives is a good move but there are a couple of areas where we counsel some caution and this is principally the reason why we do want to support this to select committee; we believe that select committee is the right place to really flesh this out. They are the areas in the potential unintended consequences of having a total loan cap or repayment cap and also the element about removing the presumption that lenders can rely on information provided by borrowers. Now the first comment I'd make on interest rate caps or the effect thereof—which is what the total maximum payable regime puts in place—is that we need to be careful not to set a target where some borrowers today may not be subject to certain effective interest rates but a lender suddenly decides that across their loan book they've got risk where defaulters or bad payers might increase their loss as a lender somewhere so they lift the effective interest rates paid by other good-payer borrowers to help offset that risk. So I'd be very keen to talk with officials to understand their thinking and the way the legislation if not completely removing that risk will at least allow officials at Parliament in the future to both monitor and therefore potentially manage that. We see that as a very real risk. But I do note that in regard to the consultation documents that preceded this legislation some months ago my maths skills from my schooldays which are perhaps a little bit rusty suggested very strongly to me that officials looked at what the effective interest rates were for various categories of high lending today and they were broadly speaking in categories which have a typical repayment time within six weeks a typical repayment time in a few short months and a typical repayment time in say 12 months. They looked at what they felt was a generally prevalent market rate and they used the formula if you will to use the effect of that general market rate to equal what the maximum payable would be under this legislation. So without wanting to scare consumers too much in using that consultation document exercise or example they used an equivalent interest rate it appears of 800 percent per annum for an incredibly short-term loan because in six weeks at an 800 percent per annum effective interest rate it equals the amount of the principal so you've reached that 100 percent level. Now at one level that could sound troublesome for potential borrowers or current borrowers but on the other flip side of that it also lessens the risk I would argue. One it reflects what is common practice in the market today for both good lenders and others. It reflects the common market practice but it helps to remove that risk that if they effectively look to shift the interest rates down we would create targets that every lender would absolutely make sure they use. Secondly the other issue that we have that we want to deal with is the availability of credit because if lenders feel that they can't cover their risk adequately under this regime the other consequence will be that they will simply remove those products from the market which will constrain lending to people that need the money. If there's one thing that I think became clear when both talking to various lobby groups but also by reading a document from officials it was there is an acknowledgment that most people if not all people that seek this borrowing need it. There is an absolute need for the money that they borrow. So we don't actually want to put in a regime that will have the unintended consequence of driving them away from regulated lending options because the alternative there is a completely unregulated and quite possibly criminal-led lending to those people which could worsen outcomes and not improve them. On the second area—the area about removing the presumption that lenders can rely on the information provided by borrowers—we don't inherently have an issue with the idea that lenders should have confidence in what they're given. What we're concerned about is understanding how in very pragmatic terms that will be able to be proven and tested outside of courts because the most obvious thing is that one can test the make reasonable inquiries" requirement in court which isn't really a good option in general circumstances for either the lender or the borrower. But we would like to tease out with officials just how in the real world that test could be practically given effect to so as to not increase compliance and so as not to increase risk on borrowers or lenders. Again the potential unintended consequence is if the cost of compliance is increased or the risk is introduced because the lender might be found to have not made those reasonable inquiries then the lender's obviously going to seek to obviate that risk through their charges—through their interest rates. If they can't do that to good effect and if they can't feel confident that their risk is covered they simply won't lend and again we could have that very unwanted unintended consequence of people in need of borrowing not being able to get that through legitimate channels and ending up in very unregulated and potentially criminal markets. But overall we've acknowledged that the intentions behind the bill are very good. There is a great deal in it that is very good. There are these two areas which we look forward to exploring in select committee—after all it's what select committee is for—and at the moment we'll reserve our future position until we've gone through that work but we look forward to doing just that. We commend this bill to the House."