Beaumont Carol: Credit Reforms (Responsible Lending) Bill — First Reading 
Text is incorporated into the Bound Volume 
Beaumont Carol: Credit Reforms (Responsible Lending) Bill — First Reading 
[Sitting date: 21 July 2010. Volume:665;Page:12578. Text is incorporated into the Bound Volume.] 
CAROL BEAUMONT (Labour) 
: 
 I move  
That the Credit Reforms (Responsible Lending) Bill be now read a first time. 
 I seek the support of my parliamentary colleagues for people who are struggling who are vulnerable and whose families are being hurt by the actions of predatory and irresponsible lenders. These lenders commonly referred to as loan sharks are prospering in these hard economic times. I feel a great weight of responsibility raising an issue that has such serious implications throughout New Zealand but particularly for low-income Pacific and Maori families. I have spoken to hundreds of people about this issue. There is widespread support for my bill and for the broader Stop Loan Sharks campaign. The community wants action and it wants for this Parliament to act cooperatively to stop loan sharks. 
I need to acknowledge many people. I start with Charles Chauvel who has campaigned passionately on this issue. Charles was the original sponsor of the bill and—along with Mr Andrew Shann who is in the gallery—has worked tirelessly on the need for regulation of loan sharks. Many members will have received detailed correspondence from Mr Shann who is an expert in the area. I thank Andrew. I acknowledge the people who work so hard in the community to deal with the consequences of loan shark behaviour: the budget advisers. These people are true heroes. They have my utmost respect for the help they provide to people in extremely difficult circumstances. Despite being under-resourced they often manage to do the seemingly impossible. The many budget advisers I spoke to told me that the majority of the people they see are hooked into high-interest loans. In some areas it is 100 percent of the people they see. Community law centres citizens advice bureaux churches unions women’s organisations Maori organisations and Pacific organisations also assist those who suffer at the hands of unscrupulous loan sharks. I thank them all for their efforts on behalf of some of our most vulnerable people. 
The purpose of the bill is to amend provisions in the Credit Contracts and Consumer Finance Act 2003 and the Credit (Repossession) Act 1997 to require lenders to act responsibly when lending and to curb excessive rates of interest. At the appropriate time I intend to move that this bill be referred to the Commerce Committee. Part 1 of the bill amends section 39 of the Credit Contracts and Consumer Finance Act to allow for a maximum rate of interest to be set by regulation. Such delegated legislation avoids the need to make amendments every time there is a change in the rate of interest. An amendment to section 118 extends the definition of “oppressive” conduct to include a responsible lending obligation. It would effectively impose an express duty on the creditor to have done at least some analysis of the debtor’s income expenditure and commitments in order to form a reasonable belief that the debtor can afford the lending. Part 2 amends the Credit Repossession Act 1997 by limiting the amount that the creditor can recover from a debtor. This is particularly so when it should have been obvious at the outset that the debtor would not have the capacity to meet the payments. Part 3 amends the Secondhand Dealers and Pawnbrokers Act 2004. 
There is no limit in New Zealand on what interest rates companies can charge. They could charge 55 percent 1000 percent or 2000 percent. In contrast interest rate restrictions now apply in Japan many countries in Africa and Europe and almost all of South America. Four Australian states have implemented pay-day lender caps at 48 percent and nine of Canada’s 10 provinces have implemented or are in the process of implementing such restrictions. President Obama has undertaken to cap rates at 36 percent right across the US. In the UK the incoming Conservative - Liberal Democrat coalition Government has already undertaken to implement interest restrictions on store cards and Britain is one of the last countries in the European Union to take such measures. Responsible lending provisions are also used in other countries—for example the UK Australia and South Africa. It has been successfully argued that a responsible lending obligation already exists by virtue of sections 28 and 29 of the Consumers Guarantees Act which guarantees consumers of lending services that a creditor will use requisite skill and care and that their services are fit for purpose. However for those in the community who have English as a second language or who have communication difficulties having to argue the above in legal proceedings is not very accessible. 
In speaking to people about this bill and the broader loan shark campaign I have been deeply moved by what I have heard. Stories abound of people hurt by irresponsible lending and excessive interest rates. I am sure that many other members have heard of this harm. I will mention two such stories because this bill is about people like the Tongan family that needed $3200 to repair their car. The family have five children under the age of 13. The husband works as a storeman and the wife is a stay-at-home mother. His total take-home pay is $598 per week. They also receive Working for Families. They took out a loan with a company in Otahuhu and as security put up their car as well as two cultural mats that had been in their family for over 80 years. The loan was for $3500. The interest charge was 55 percent over 24 months. The family had to repay $1925 in interest or $5425 in total. They defaulted in the third month then default charges started. Nine months later this family have had their car repossessed and they have had to pay for vehicle towage and storage. The family wants their mats back but the company refuses to return them until such time as the debt is paid off in full. They have no car and still owe more than $10000. 
What about the young woman called Honey? At the age of 21 she is in huge debt due to loans for her family members. She was extremely scared when she approached the budgeting service. She felt her only option was suicide. I quote: “I’ve done nothing but a good deed to help out when needed but I get stepped on the back for this. I seriously want to die as a way out of this mess. I’ve had enough. I’m 21 years of age and I’ve never been in this situation before and I’m as scared as hell.” 
There are many organisations that hear these stories and that support this bill. The Salvation Army says that it deals with people who are victims of loan shark activity daily. The activities of loan sharks in offering loans at exorbitant rates of interest cause immense suffering and lock people into poverty. The finance sector union says that the Government is developing a negative record of siding with banks and financial institutions rather than customers. FinSec members see firsthand the negative impact of debt on borrowers and their families. The Problem Gambling Foundation says that the campaign is long overdue and that problem gamblers are easy targets for loan sharks. The Pasifika community in urging the Prime Minister to support this bill explains that finance companies exploit people during their vulnerable times and legislation is required to ensure families do not end up on the breadline because they have borrowed from an unscrupulous lender. Child Poverty Action Group says that the charging of outrageous interest rates is one of the cruellest aspects of unregulated lending and talks about the obscene practices impacting negatively on the poorest children. The Jubilee Christian Centre points out that there are 23 references to the term “usury” in the Bible and none speak favourably of it. They believe this should be a parliamentary-wide bill with support from all members who have a conscience. 
Last year both the Prime Minister and the Deputy Prime Minister publicly condemned banks for taking advantage of credit card users by charging high interest rates of 22 percent. Although I agree with them 22 percent does not even compare with loan sharks hitting our most desperate and poor community members sometimes with interest rates in three or four figures. I can tell the House that the community expects us to show leadership on this issue and to send a strong message that we are willing to work together to protect those who have been targeted. I have been very disappointed by the comments of the Minister of Consumer Affairs and of ACT and National colleagues. There have been lots of sympathetic words attached to excuses about why they will vote against this bill such as that the bill does not go far enough. Well it is a starting point and provides focus tools to deal with the problem. The damage is a much wider creation from low incomes poor access to reasonable credit and poor financial literacy. There is also the comment that the bill will not work. I believe we should test this robustly through the select committee process. Many countries have interest rate caps and they do not seem to be having too many problems. 
National MPs say they are already working on the issue. I was shocked to find out recently that the review of the Credit Contracts and Consumer Finance Act which contains some good suggestions but does not deal with excessive interests rates has been deprioritised by the Minister. That is right; any outcomes have been delayed by a whole year. How can that be right? I look forward to hearing of the Government’s work on this matter. I now urge members across the House to do the right thing to listen to the community and to show leadership in helping some of the most vulnerable who are being exploited.