Credit Contracts and Financial Services Law Reform Bill — First ReadingText is incorporated into the Bound VolumeCredit 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.]Credit Contracts and Financial Services Law Reform BillFirst ReadingHon 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.CAROL BEAUMONT (Labour): It is with mixed emotion that I rise to speak on the Credit Contracts and Financial Services Law Reform Bill. I campaigned hard over several years along with my colleagues to stop loan sharks and to improve regulation of consumer credit as part of what was needed. Although Labour is supporting this bill’s referral to the Commerce Committee because it does finally at least make some improvements in regulating consumer credit including third-tier lending or fringe-lending or predatory lending—depending on your point of view—where significant harm is being done every day to many vulnerable families we are appalled by the significant delay in action by the National Government. So anger is one of the emotions I feel and I know this is widely shared.Many people have asked the question as to why the Government has not prioritised this legislation. It has been clear for over 5 years that the Credit Contracts and Consumer Finance Act needed reviewing and strengthening. Labour in Government started a process in 2007 and here we are in late 2013 finally seeing a bill having its first reading. What can possibly justify this delay especially in the tough economic times we are experiencing like those faced by many low and middle income New Zealanders under this National Government? What can possibly justify this delay?In tough economic times the harm caused by predatory lenders loan sharks truck shops and pay-day lenders is huge and has grown significantly. Families struggle to make ends meet with low or static incomes and rising prices and unemployment remains high. This is fertile ground for unscrupulous lenders and we need to have someaction. I have visited budget services around New Zealand and the workers there have told me overwhelmingly that the people they see are hooked into some form of high-interest debt. They say that it has been getting worse over recent years. They tell me the level of debt is higher. They tell me that the complexity of the financial problems that they are trying to sort is greater and that the proportion of people they see who are in paid work has actually increased.Members of the community those in our community organisations our citizens advice bureaux our law centres and MPs—I am sure from both sides of the House—hear these stories and they see the truck shops rattling around the low-income areas in their communities. They see the targeting of our poorer communities by these lenders. They see too the advertisements online and in our community newspapers and they do not like what they see. They know it is wrong and yet National members have sat on their hands for 5 years. This is a Government that is out of touch. It is not as if there have not been opportunities to do something and I think it is about what the Government actually prioritises. That is why we have waited for so long for this legislation and during that time vulnerable families have been harmed by unscrupulous lenders.When this Government came into power there was already a review of the Credit Contracts and Consumer Finance Act under way. In 2009 my former colleague Charles Chauvel had a member’s bill drawn out of the ballot. I picked up that bill the Credit Reforms (Responsible Lending) Bill and launched the Stop Loan Sharks campaign which led to a huge outpouring of support for change. In July 2010 my member’s bill was voted down by National and Act MPs. I subsequently tried to get a joint referral to a select committee and said: “Let’s work on this collaboratively. Let’s do something about this problem.” But again that was turned down by members opposite and this is despite the fact that they know the extent of the problem.In a Cabinet paper from October 2011 it specifically says unlike what the Minister of Commerce has just said that the Credit Contracts and Consumer Finance Act was not working well. It states: “This law is not providing adequate consumer protections against unscrupulous third-tier lenders … whose irresponsible lending practices are resulting in severe financial hardship and spiralling debt.” That is pretty clear. The Government knew that there was a problem but despite that failed to prioritise this work. I think that that is negligent actually. It has caused serious harm to many many families.The harm caused by predatory and unscrupulous lenders obviously hurts the individuals concerned but it also hurts their families. The Ministry of Consumer Affairs’ regulatory impact statement also from 2011 talks about debt resulting in a huge toll emotionally and practically on families. It talks about difficulties in meeting other costs—food transportation and health needs—difficulty in engaging in activities that would normally be considered things that families would do negative impacts on mental well-being and negative impacts on relationships. These are all things that were stated as consequences of this sort of lending. A recent article “When rising debt becomes a black dog”—from yesterday in fact—identifies the cycle of debt says that it is one of the biggest root causes of violence and notes that negative impact on mental health.So I just want to acknowledge—and I know that members opposite would agree with this—that legislative change is not the only answer to this problem. From our side of the House it is also about addressing low incomes. It is also about things like housing affordability which of course this Government is completely out of touch with as many have already noted today. In fact the recent changes to loan-to-value ratios are probably going to push some people into the arms of loan sharks ironically. It is alsoabout financial literacy. It is also about access to fair credit and Labour has already announced that we would put in place a social lending scheme to provide access to credit for low-income people when they need it. But legislation is none the less a vital first step.There are a number of very positive provisions in this bill and I want to acknowledge that. Certainly the provision around the principle of the responsible lender is an important one and one in fact that was in my member’s bill. It will include things like advertising. It will require the making of reasonable inquiries as to the ability of a person to repay a loan. I am pleased to see that one provision is about assisting guarantors in making informed decisions. This code has to be developed though. The cooling-off period is extended. That is a good thing as well as is the fact that regarding unreasonable fees there will be more explicit tests for different kinds of fees and there are numerous fees that many of these lenders charge. I also want to particularly note the repossession provisions that the Minister has commented on. This is very timely. There absolutely is a need to do that work. I would also like to acknowledge the work of the Law Commission in dealing with reviewing the repossession situation which includes the licensing of repossession agents. One of the other things that is in the bill is around hardship provisions being accessible once a person has actually got into default. That is something for which budget services have been asking for a very long time and I am very pleased to see that there as well.So there are many good provisions in this bill but there are a number of concerns that we have as well. First of all and fundamentally there is a failure to address excessive interest rates. One prominent pay-day lender in New Zealand has annual rates of 500 percent meaning that a loan can very very quickly spiral out of control. In other jurisdictions controls are becoming more and more common: in France Germany Canada Mexico South Africa Japan Singapore much of the USA—in fact a bill has just been introduced that will extend interest rate caps across all states—Australia the United Kingdom and almost all of South America. Minister Craig Foss has encouraged members of the public to submit on this matter. I would certainly do the same and I sincerely hope that National members of the select committee will actually take account of what people are saying about this matter.There are other provisions we are concerned about such as whether the dodgy practices of the burgeoning number of truck shops and pay-day lenders will be sufficiently covered by this legislation. Another area I think we could profitably look at in the select committee is whether we need to include provisions around fair debt collection practices to prevent harassment and bullying. So we will be encouraging people to submit and the members of the select committee will be closely scrutinising this bill. As I said we are supporting its referral to the select committee where we will be doing that.I want to close where I started by saying: why did the National Government decide that the regulation of loan sharks truck shops pay-day lenders and the like who lend irresponsibly and charge excessive interest rates was not a priority?JONATHAN YOUNG (National—New Plymouth): I am pleased to stand in support of the Credit Contracts and Financial Services Law Reform Bill in its first reading. It is sponsored by the Minister of Commerce Craig Foss. The package of reforms that we are looking at in this bill was shaped by the Financial Summit which was hosted on 11 August 2011 in Auckland and chaired by Sir John Anderson. That summit brought together 250 people from community groups budgeting services NGOs banks financial regulators and credit providers. They looked at ways of tackling particularly irresponsible lending that was particularly offensive and was affecting people in our economy and in our communities. The financial summitparticipants called for legislation to require responsible lending and for greater penalties for lenders that are not registered on the Financial Service Providers Register which is under the Companies Office. Then in April 2013 Minister Foss introduced this bill to the House and here we are at today’s reading of it the first reading.The consumer credit and financial services law reform dovetails into the Consumer Law Reform Bill which the Commerce Committee spent considerable time working on and adds to that suite of reforms and changes. Indeed the Commerce Committee looked not just at the Consumer Law Reform Bill but right across the scope of financial bills and security bills. This bill contributes to that overall package and the changes introduced in this bill represent a comprehensive crackdown on particularly unscrupulous lenders that prey on desperate people and leave them and their families trapped in that spiral of debt that the previous speaker Carol Beaumont was talking about.National wants to have more informed borrowers and more responsible lenders. It is important that we approach this problem from both sides. Responsible lending is absolutely essential if people are going to have the confidence to use credit and the vast majority of people do use credit. They need to have that confidence that there is responsible lending taking place. I read some time ago that Professor David Mayes who is a professor of banking and financial institutions at the Auckland University business school said that New Zealanders are average. He called us average when it comes to financial literacy and said that this is not a problem unique to our country but it is a problem that we need to address. Financial literacy is an ongoing need for New Zealand because when people are financially literate then they can then have good judgment about borrowing and whom to or whom not to borrow from.Financial literacy is defined as the ability to make informed judgments and make effective decisions regarding the use and management of money. But we always know that there are people who are not financially literate and that is where some people can take advantage of them through unscrupulous lending. So we cannot just put it out there that the country needs financial literacy; it needs responsible lending as well. That is the other side of the equation. Some lenders have irresponsible lending practices and some consumers make poor decisions. So it is important that this bill contributes to the addressing of this issue of vulnerability and the taking advantage of that vulnerability which some people have done in the past.Under this bill lenders must act responsibly. Consumers must have the information they need to make informed decisions and there are serious consequences for those who breach the law. So this legislation is a major overhaul of consumer law and I am pleased that the opposite party the Labour Party will be supporting its referral to the select committee. I am sure that we will go through this very very well with a fine-tooth comb in that committee to ensure that the consumer of course benefits from this legislation. The proposals in the bill complement reforms being progressed under the Financial Markets Conduct Act which recently passed through this House. It was also a bill that was undertaken and reviewed by the committee.This bill is also part of the Government’s Business Growth Agenda and will contribute to aligning business law between New Zealand and Australia. Many of the changes are based on equivalent provisions in the Australian National Credit Code. It is fair to say that this bill has already received wide consultation in the sector and no doubt during the select committee stage we will continue to receive that consultation. There is much to be said about this bill and I believe that as we go through this process in the select committee and back into the House we will see a very strong and robust law being put into place that will be as I said before of benefit to consumers in New Zealand as a whole. Thank you.Hon CLAYTON COSGROVE (Labour): One of the responsibilities that a Government has—and I think the Minister of Commerce used the term—is to protect the citizenry with decent consumer affairs law. The Minister talked about informed borrowers and responsible lenders and the last speaker Mr Young talked about financial literacy. It is a critical factor and Mr Young is right. Many New Zealanders through lack of education educational opportunity or whatever are not as financially literate as those of us who have either been in business or been exposed to certainlearnings and who can understand many complicated things in terms of our own personal financial affairs. But I see not a lot if anything in this bill the Credit Contracts and Financial Services Law Reform Bill that deals with that key point.It is good that there is extra disclosure—that terms and conditions will have to be put on websites and that they will have to be disclosed up front which I believe is one of the provisions in this bill. But that does not link and solve the problem of the person who has to wade through a whole lot of legalese and fine print and maybe even does not understand for whatever reason—I mean no disrespect—the implications and the terms and conditions. It does not matter how much disclosure you have if they do not get that and they cannot understand that then they are liable to make amisjudgment or a bad judgment.The other thing I would say to this Government is that I would wager that there is a link. You do not have to be a rocket scientist to work out that there is probably a link between those on low incomes and what I would call desperation borrowing. Those on low incomes may take great risks a bank will not look at them and they need the money—not necessarily to go to the boozer or to play the pokies or whatever; not necessarily to use the money for irresponsible purposes. But they have a need to use the money to perhaps say look after the family or feed the kids or get the school shoes or whatever. I say to this crowd over here—and I do not hear anything in their speeches about this—that I would wager and I would say most people would agree with me that there is a link between low incomes vulnerability and desperation borrowing. These sharks go around and prey on the most vulnerable.I have got to say that it is interesting. My colleague Carol Beaumont talked about the delays. She also noted that in 2010 I think a bill was put up by herself and other colleagues to deal with some of these issues and it was voted down by the Government. There is a pattern here. There was another bill that dealt with consumer protection that I was a steward of as an Associate Minister of Justice when we were in Government. At that point it was not loan sharks; it was land sharks—similar issues. There were vulnerable people who were dealing with some—and I say “some”—in the real estate industry who preyed on them like vipers. I draw that note because in that case these folks now in Government voted against that and that was huge—as big as this issue—consumer affairs and protection legislation where vulnerable folks again were being put in invidious and awful situations and were being preyed upon and fraud was committed upon them. They are the same principles whether it be loan sharks or land sharks.But National voted against that bill and it voted against Carol Beaumont’s bill in 2010. For 5 long years—5 long years—nothing happened and for 5 long years the most vulnerable whether they be financially literate or not have been exposed to this and to bad judgments and to these sharks. And this was such a priority that it was left to languish. I have got to say that you have got to walk the talk. These folks this National Party in Opposition voted against consumer affairs legislation. They voted against it in Government through Ms Beaumont’s bill and now they come into the House and to be fair to them it is not a bad hit but it is 5 years too late.What I say to Mr Young because he is right—again I come back—is that he makes a good point about financial literacy. You can pass all the legislation you like. You canwrap everybody up in legalese transparency accountability whatever you want to do. That is fine. But if people are not equipped with the skills and they are not provided with the advice and by the way if they are scratching out an existence with their bare hands and they desperately need the dough then simply passing a piece of legislation of itself will not solve the problem. It will not solve the problem. You can wrap these sharks up in all sorts of legal requirements but if people do not know what they are getting into and people are desperate people will do desperate things. The market for this sort of skulduggery the market where these folks—the most vulnerable—are preyed upon will still exist and will be perpetuated as my colleague said.Although I say we are supporting this bill and although I say that we support consumer protection legislation I just say to the National Government that you have missed a few bits and pieces out of the jigsaw. No one over there talks about the vulnerability of folks. If folks have got decent incomes and decent livelihoods and decent job opportunities then they are liable to go to places called banks—and by the way I do not mean John Banks—and those banks are likely to look at them as a responsible borrower on a decent living income who can pay back a conventional loan at a conventional interest rate with all the protections that are enveloped around the banking system.The Minister mentioned Sir John Anderson. Sir John Anderson is a great man. Sir John Anderson started as I think a board member of the National Bank and he was a promoter of the independent Banking Ombudsman which has its problems today but I have got to say it was groundbreaking at the time it was put in place to deal with disputes around conventional banking. I can understand why Sir John Anderson in—when was it—2011 at this great summit that was called by the Government called for legislation along with others. I can understand that because Sir John Anderson understands these issues extremely well and has had a track record and a history of dealing with issues in the conventional banking world and dealing with them I say pretty well. But then we move on 24 months and nothing happens and we get to this.I say to the National Government that there are some good reforms in the bill. There are some good safeguards in the bill. What I would question—and it will be interesting at the select committee to ask submitters—is will this in practical terms work? Will this in practical terms deter the sharks? Will this in practical terms do anything to assist people to be extremely wary of those who would prey upon them showering them with money and capturing them and exposing them to horrendous interest rates? I note for instance that members talked about Australia and bringing this in line with Australia. Australia enacted similar legislation in 2009. So we are bringing it in line with Australia but we are well over a day late and well over a dollar short. We are 3 or 4 years behind Australia. The interesting thing that is missing from this bill which I understand the Minister is inviting people to comment on is the issue surrounding interest rate caps to stop people exploiting those who are most vulnerable.I say to the National Government that this is a good attempt. It is not a bad piece of legislation. There is some good stuff in here. But I think even Maurice Williamson who in his time has dealt with the odd consumer affairs issue I think would agree with me that simply passing a set of rules in and of itself does not solve the problem. Maurice Williamson and I are members of a unique alumni called the ex—or in his case current—“Ministers of Building Issues”. Both of us over our time—the place is littered with ex-Ministers—have had to deal with some of the issues around consumer affairs protection in that portfolio. We know that simply passing a set of rules in and of itself does not solve the problem.I say to this Government that if it is not prepared to lift people’s incomes and get the most desperate on to wages that are liveable so that they can feed their families thenthere will always be the problem of desperate people seeking desperate remedies and putting themselves in hock up to their eyeballs in order to get the basics for their families. It is not a truism to say that only those who act irresponsibly and spend their money at the local boozer or the pokies are the ones who are exposed to this. So I look forward to the select committee process. I look forward to hearing from the Minister and Government members about how this in practical terms will deal with the problem of the most vulnerable.JULIE ANNE GENTER (Green):Tēnā koe Mr Assistant Speaker. I rise to speak in support at least at this first reading of the Credit Contracts and Financial Services Law Reform Bill on behalf of the Green Party. The Green Party has been very enthusiastic about this bill coming before the House. I am glad that we have finally got to the first reading. It was first introduced in April and one would have hoped that given what appears to be broad cross-party support across the House and given the dire need for this legislation the Government could prioritise it a little bit better. I have to congratulate the officials from the Ministry of Consumer Affairs who have been working on this for many many years. It appears that the work in this area first commenced in 2007. This regulatory impact statement is dated October 2011 which is nearly 2 years ago. The bill will hopefully provide some protection for the most vulnerable in our society and provide better regulation of what are known as third-tier lending operators.The lending practices of such credit providers can result in some people getting into severe financial hardship and spiralling debt. That is a major social problem. It is a major economic problem. It has serious costs and implications not only for the affected individual but for their families for communities and for wider society. I just have to say that the excellent aims of this bill which are essentially to ensure that there is a responsible lending framework and protection for vulnerable consumers really need to be considered within the wider policy context of this Government which is relentlessly pursuing an agenda of increasing inequality by protecting the privilege of its mates by looking after big corporate rent seekers oligopolies and monopolies and undermining the rights and protections of workers with the Employment Relations Amendment Bill.We have to understand that one of the factors that is driving the need for some people to look for this short-term credit is low income. I note that the Families Commission released a report in 2012 calledPacific Families and Problem Debt and it conclusively found that low income was one of the factors contributing to financial strain in Pacific families. The reasons given for borrowing from fringe lenders were for eminently understandable needs. Forty-four percent of Pacific families who had gone to fringe lenders needed the money to pay for essential items and 36 percent needed it to pay for other loans and debts. The vast majority of families who had to go to these dodgy lenders were doing so because they could not meet their basic needs. Going for something like a short-term loan of just $800 in one case spiralled out of control to a debt of $70000. That is completely ridiculous and unacceptable. It is unacceptable that some families who are struggling to get by because of policies in the global context that have seen low wage growth over the past few decades are going to these short-term lenders out of desperation. They are being targeted by unscrupulous lenders who in many cases have a deliberate business plan which is to take advantage of people who do not have much who desperately need money and who do not understand the implications of 2 percent daily interest rates. It is completely unacceptable that families who are struggling who are working hard and who are simply trying to pay for essential items should find themselves in a situation of spiralling out-of-control debt. It is not good for them. It is not good for wider society.I think it is important that although the steps being taken by the Government are welcome they have taken quite a long time. In the meantime since this regulatory impact statement was written in October 2011 we have had an election and we have had the introduction of legislation for the mixed-ownership model which was a flagship policy of this Government and which was essentially to sell off or partially privatise publicly owned assets selling them to people who already have quite a good deal of wealth. They have money sitting aside that they can afford to invest in these companies. They are going to be earning returns potentially that otherwise would have come to the Government and to taxpayers.What we see here is that the Government instead of prioritising a legislation framework to deal with a serious problem that is affecting our most vulnerable families has found the time and resources to prioritise a policy that actually exacerbates the problem of wealth inequality in this country. These things are related. It is increasing inequality because of these types of policies that are aimed at protecting the wealth and privilege of the few and that lead to situations where families who are struggling to pay for essentials would potentially go and seek out some short-term relief going to some of these unscrupulous lenders who are deliberately targeting them and aggressively advertising to them and then those families are finding themselves in a situation of spiralling out-of-control debt from which they cannot recover. It is basically impossible when you get into a situation of being $70000 in debt if one already cannot meet one’s needs. It is extremely difficult to get out of that situation.It is interesting to see just what the Government actually prioritises. The Green Party stands for a clean green economy that works for all New Zealanders. The economy is just that. It is a tool that exists to serve humans. We do not exist to serve the economy. Our economic policy is based on a simple obvious recognition of the fact that the economy is but a small subset of human society and human society is a small subset of the natural environment. If we do not have a natural environment if we do not look after it and if we do not ensure that we have clean water and air a stable climate and safe food there is no economy. We are not achieving the goal of human well-being and we are not flourishing. Equally there is no economy if we do not have a functioning and fair society. So we cannot in the aim of supposedly increasing economic growth continue to trade off people and to trade off the rights of the most vulnerable people to be able to earn a decent living.Although we are finally seeing a very very important step being taken which is the introduction of a regulatory regime that is going to ensure that there is responsible lending and we welcome this it is within the overall policy context that is actually continuing to exacerbate the problem of inequality and that is not financially economically or socially sustainable. I look forward to examining the detail of this bill during the select committee process. I am very very interested in finding out exactly what those affected individuals in the community think. There has been significant consultation by the Government I believe of stakeholders thanks to the good work of the Ministry of Consumer Affairs up until now but it will be wonderful to be able to sit down and hear from the experts and hear from those affected most and to really delve into the detail and see whether there are any opportunities to improve the bill as it has been introduced.I can say that the Green Party welcomes this step. We are sorry that it took the Government so long to make it a priority. Ultimately within the context of an economic policy that is simply looking to erode the rights of workers and fails to put in a sensible capital gains tax we are going to continue to see increasing inequality. We are not going to see a rebalancing of the economy that would ensure that those who are themost vulnerable and who have the least are actually in a position where they are not going to be targeted by these predatory lenders. Thank you.KANWALJIT SINGH BAKSHI (National): Thank you for the opportunity to speak in the first reading of the Credit Contracts and Financial Services Law Reform Bill. Can I just say that the bill being introduced once again shows that this National Government is very concerned about the citizens of New Zealand. By introducing this legislation we are seeking to strengthen the regulation under which credit providers and financial service providers operate. By strengthening this legislation we in the National Government are seeking to protect borrowers from any dodgy finance companies and dealers. We want our citizens to be better informed.This is a fantastic piece of legislation for any new migrant coming to New Zealand. It takes some time before one settles in a new land. This requires a vast amount of effort and a good sum or amount of money. It is unlikely that new migrants will have sufficient knowledge or money at their disposal straight away. Therefore they are likely to use either banks or other financial institutions. This legislation will protect all consumers by providing them with the information so that they can make informed decisions. The legislation will also be a deterrent to lenders. They must act responsibly and there are very serious consequences for those who breach the law.There is little doubt that the fear that the global financial crisis created in the minds of the ordinary citizens of New Zealand still remains. The global financial crisis meant that most people had to work very hard to keep their jobs and provide for their families. Some had to borrow money at times to survive. However in times of need if a loan shark wishes to take advantage of your situation this is not acceptable. The bill seeks empathy and understanding on behalf of the borrowers who seek finance from these loan sharks. There can be a personal situation such as sickness or bereavement or any other kind of situation that may lead to the borrower not being able to keep up their repayments. Credit providers remain largely unregulated and have no code of conduct. Clarity is sought on any fee or extra payment that consumers are being implicitly asked to pay without the lender properly informing them of the total cost of buying a good or a service.I take this opportunity to congratulate my colleague the Minister of Consumer Affairs the Hon Craig Foss on sponsoring this legislation. It is the most extensive review of consumer law in the past decade. I commend this bill to the House.ANDREW WILLIAMS (NZ First): I take a call on behalf of New Zealand First. We will be supporting the referral of the Credit Contracts and Financial Services Law Reform Bill to a select committee. This bill provides an increased level of consumer protection and we certainly believe that it is in the interests of all New Zealanders to have that higher level of consumer protection. It will particularly assist and serve to protect vulnerable consumers. It requires a higher level of responsible lending and a duty of care on the part of those who are lending finance to the citizens of New Zealand.The bill also puts in place greater controls on unscrupulous loan sharks and other such people who could perhaps be described as questionable operators to ensure that some of the practices that have been in place in New Zealand over many years now are brought to bay. We have seen exorbitant extortionate interest rates up in the range of 20 30 and 40 percent and more being made out in the retail market. For those vulnerable consumers many of whom are in very desperate and difficult circumstances this really is a very very grave situation.This legislation addresses matters of repossession which have at times seen basic civil rights not being observed. It must be very very taxing on some families and some communities when repossession takes place and when again perhaps unscrupulousoperators are involved in the repossession of those goods because of the very high finance charges that are being paid.The legislation also requires that lenders and consumer groups will be consulted to get a sensible and fair outcome from this legislation. Again as a result of this bill going through to a select committee and having submissions on it we believe there is the potential for and an expectation of a good outcome for New Zealand consumers.The bill also provides greater channels for dispute resolution. Again often by having sensible dispute resolution a difficult situation might not be compounded and might be resolved where in the past perhaps it would have been allowed to escalate and the finance charges would have just increased by a disproportionate amount. It also provides greater powers for the Financial Markets Authority to have controls in this area. Again New Zealand First believes there is merit in this. It is long overdue for this to take place.We are somewhat concerned however that this legislation has taken some 6 years to get to the House. We believe that this legislation should not have taken the amount of time it has—from 2007 through to 2013—to get to this point. It has been a time when New Zealanders have been facing great uncertainty in the workplace when the economy has been described as being in recession and when the most vulnerable in society often are the ones who are having to turn to all sorts of means in order to cover their weekly family budget. In that respect there is a requirement on this House to act in the interests of our citizens to ensure that legislation is there in place to help protect vulnerable consumers and citizens who may otherwise be finding it a great strain when trying to meet their weekly and monthly needs.So in this respect New Zealand First will be supporting this legislation going through to a select committee. We anticipate that it will receive quite significant submissions in terms of what is currently in the bill and we think that with consultation with the wider community there can be only a good outcome as a result of this. Thank you.CLARE CURRAN (Labour—Dunedin South): This is one of those opportunities when every single party represented in this Parliament is speaking with one voice about the problem that we are addressing here and the need to address it. There may be differences in degree but it seems to me that this is one of those opportunities for a select committee to take a framework piece of legislation that sets out some of the measures that are required to address this terrible problem that exists in our country and to actually turn it into a better law and make it a piece of legislation that every single party in this House can be proud of where we know that there will be serious measures that will stop this terrible practice of irresponsible lending and stop the terrible circle of debt that so many people in our country are finding themselves in and that will put in place measures that will actually put some accountability back where it is required.The regulatory impact statement on this bill the Credit Contracts and Financial Services Law Reform Bill estimated—and this was back in 2011 so it is 2 years old—that there were almost 131000 New Zealanders who had accessed credit from third-tier lenders in the past 24 months and 218 companies that had been identified as third-tier lenders. But what the regulatory impact statement also acknowledged was that it was very difficult to map the extent of this problem. It is our belief that this does not represent the full extent and that this is really the tip of the iceberg for the high number of people who are finding themselves in terrible circumstances.I want to acknowledge the work that has been done on this issue since 2010 and possibly even before that by my colleague Carol Beaumont who brought forward a member’s bill that was voted down who has campaigned relentlessly around this issue and who has I think contributed to the fact that this legislation has actually finally appeared before the House today. I think as we have heard from almost every speakerthat it has taken a long time to get here. It is not right yet. I describe it as framework legislation. Some of the pieces are in place to address this issue but certainly not all of them. There is certainly a lot more to be done.I note some of my colleagues across the House today have talked about the kinds of people whom we are talking about. These are people predominantly on low incomes but make no mistake that these are not just people on fixed incomes people whom we describe as being on welfare or people who are on superannuation; these are people who are working people as well. They are being described as the working poor. Thousands and thousands—possibly hundreds of thousands—of people are finding themselves unable to pay their weekly bills their monthly bills their electricity bills their food bills their petrol bills their doctor’s bills and their bills for their children. They are finding themselves having to go and get loans where they may not otherwise be able to get loans and then finding themselves in that spiralling circling debt black hole which is also described as the black dog that so many people are getting themselves into. You do not just have to ask the budget advisers. You can ask Catholic Social Services the Anglican Family Care the Methodist Mission Presbyterian Support the Salvation Army and any social agencies in any town or city in this country and you will hear terrible stories about some of the situations that people are finding themselves in.So will this bill make a difference? Well it will make a difference if through the select committee process there is a large number of submissions from organisations and from people who know and who are at the coalface of these situations and it will make a difference if they are listened to—if they are listened to. When you think about what is going to deter the sharks you have got to be thinking about a wider range of measures than are included in this bill. In Labour’s policy going into the last election we had a comprehensive policy that started to really address what was needed. We talked about exorbitant interest rates which is not mentioned in this bill—yes there are the responsible lending provisions the advertising and promotion the disclosure by lenders of the component costs the prohibiting of use of certain items as security and repossession issues. It has to be a comprehensive piece of legislation to make a real difference.Anyone who sits on the Commerce Committee would know that there has been a series of pieces of legislation to try to deal with responsible lending right across the board and with practices that are in place whether it is people who are being caught at the investment end of the market the mum and dad investors who are being caught with the financial collapses and the terrible practices that have been going on at that end—well this is the end of real hardship and real need. Therefore a comprehensive piece of legislation is required here as well. I would argue and I am sure that there will be many many submitters who argue this too that it has to also look at the alternatives in place for people from these kinds of lending practices.One of the other things that was done by my colleague Carol Beaumont in collaboration with my other colleague Jacinda Ardern was to announce a social lending policy which really is the other side of this. It is what is absolutely required in order for us to get to the point where people are able to get themselves out of these situations in a way that is responsible where they can pay the money back in incremental ways but perhaps where they are on very low interest or zero interest rates. That is one of the core measures that is required. There is a policy that is in place.I note that in the Budget this year the Minister for Social Development Paula Bennett said that officials would work with the private sector and the non-governmental organisations to identify options around these sorts of measures but to be honest so far there has been silence. I was actually hoping that today we might hearthat accompanying this legislation there might be another piece of legislation whether it is legislation or hard policy that was going to address how people who are in these situations—which my Green colleague Julie Anne Genter described as the person who borrowed $800 and ended up with a $70000 debt—would actually be able to repay their debt. That is the work of the select committee. I sit on that select committee. I hope that in good faith we can all work together across the committee and come back with a much more comprehensive piece of law.Dr JIAN YANG (National): I rise to take a call on the first reading of the Credit Contracts and Financial Services Law Reform Bill. This bill is sponsored by Minister of Commerce Craig Foss and its purpose is to strengthen the regulatory regime that applies to credit providers and financial service providers.Some lenders are giving loans that borrowers will clearly struggle to pay back misleading consumers who do not understand the real cost of a loan not disclosing essential information and taking disproportionate security. These are just a few examples of the behaviour this bill is targeting. I had a meeting with a Chinese lady earlier this year. She borrowed $15000 from a loan shark and was unable to pay it back. She said she had been constantly threatened by the loan shark and even made an attempt to commit suicide. Under this bill lenders must act responsibly so that consumers will be able to make informed decisions. There will be serious consequences for those who breach the law.This is a good bill because it will promote confidence in the credit market and the broader financial markets. It is also part of the much-needed reforms that National is making to ensure that irresponsible lending practices are stamped out. Too often we are seeing cases of vulnerable consumers making poor financial decisions that can lead to spiralling debt and financial hardship for them and their families. This bill will extend some protection to these vulnerable consumers particularly against loan sharks who feed off such people.This bill will result in a new easy-to-understand law that incorporates two pieces of existing legislation namely the Credit Contracts and Consumer Finance Act and the Credit (Repossession) Act. Combining both pieces of legislation into the new bill will ensure a high degree of consumer protection particularly for vulnerable consumers; require responsible lending practices by credit providers; and promote good business practices in the consumer credit industry.This bill is the biggest overhaul of consumer law in a decade and it is part of National’s Business Growth Agenda. I commend this bill to the House. Thank you.Dr DAVID CLARK (Labour—Dunedin North): It is my pleasure to speak on this bill—The ASSISTANT SPEAKER (Lindsay Tisch): Is this a 5-minute call?Dr DAVID CLARK: I understand that it is a 5-minute call.The ASSISTANT SPEAKER (Lindsay Tisch): A 5-minute call.Dr DAVID CLARK: Obviously Labour supports this bill the Credit Contracts and Financial Services Law Reform Bill in its first reading. There are some more things that we would like to see in here. We would like to see the bill being given a bit more teeth. It is a little bit of a gummy bill in that respect—The ASSISTANT SPEAKER (Lindsay Tisch): I am sorry to interrupt the honourable member—Dr DAVID CLARK: Oh I was just hitting my stride.The ASSISTANT SPEAKER (Lindsay Tisch): Yes I see that but the time has come for me to leave the Chair for the dinner break.Sitting suspended from 6 p.m. to 7.30 p.m.Dr DAVID CLARK: Before I was rudely interrupted I was discussing the gummy nature of the Credit Contracts and Financial Services Law Reform Bill—the fact that it is a little bit toothless. It lacks the bite that we would hope a bill of this nature would have. In fact it kind of signals at the moment that this Government is soft on financial crime.We would like to see this bill strengthened. We would like to see it structured in a way that actually allows for things like interest rate limits. That seems a sensible step to take. It is something that many other countries—including France Germany Canada Mexico South Africa Japan Singapore two-thirds of the United States Australia the United Kingdom and almost all of South America—are doing already. It seems a sensible step.It was just over a week ago that the Commerce Committee met in Auckland to hear about theSkycity bill the deal funded out of gambling debt. There we heard stories of people who had to pay 25 percent interest on day one on debts owed to loan sharks who visit the casino. People were facing 25 percent interest on day one. Mr Lotu-Iiga of Maungakiekie was there hearing these same concerns. No doubt he is concerned about the gambling bill because a number of people have identified him as someone with a community that will be affected unduly by that bill.What the select committee heard was that not only is there a 25 percent charge straight off for these loans but that that charge builds over time. These loan sharks are unscrupulous. They destroy lives. They prey on people who are vulnerable and do not have enough money to feed their families from week to week. They prey on people who are suffering under a Government that does not seem to care about dropping employment about the way in which median wages are dropping about the rising cost of living and about the average New Zealander who is working hard wanting their family to get ahead but facing increasing financial hardship.This bill here is designed to address something of this issue. It is designed we know as a response to the issue of loan sharks. It attempts to get in the way of the truck shops and the pay-day lending but we in the Labour Party think that it does not go far enough. We are going to support the bill going to the Commerce Committee so that we can have the discussion about whether or not an interest rate limit would be allowed. We are hopeful that the Government will allow the scope of the discussion to cover off that debate. It would certainly seem fairly short-sighted if the Government cut that debate out. That would give a strong signal that it was indeed keen to be soft on financial crime on those kinds of moral crimes where people prey on the most vulnerable in our society on those kinds of crimes that people in other countries and most OECD countries have clamped down on.The Government has allowed this bill to founder on the Order Paper—that is the other thing that needs to be said—for 5 months on top of years of inaction to the detriment of our nation’s most vulnerable. In 2011 the Minister of Consumer Affairs Simon Power announced that “The Government is to target unscrupulous credit companies that prey on unwary consumers”. He also said that “There are gaps in the system that allow the unscrupulous to take advantage of the unwary when it comes to access to consumer finance in these tough economic times.” Those are quotes. But it does not seem to have been much of a priority for this Government—as I say 2 years have passed and we are only now seeing the first reading of the bill.We would like to see a Government that focuses on the most vulnerable people and on job creation. We would like to see a Government that recognises rising unemployment the struggles of those in the regions and the two-speed economy that is emerging which seems to be a response to a Government with no plan. We would like to see a Government that really takes seriously this kind of loan sharking looks tocreate a law that holds those accountable and restricts their ability to prey on the most vulnerable—a Government that cares for the people. It seems that it will be up to the Labour members of the select committee to put these proposals forward but we look forward to having that debate in the select committee. This is a bill that needs to be strengthened.JAN LOGIE (Green): I rise to take a short call on behalf of the Green Party to add my voice to that of my colleague Julie Anne Genter in support of the Credit Contracts and Financial Services Law Reform Bill and also in support of the points made by my Labour colleague speaking just previous to me David Clark. This bill does do a whole host of things to set up protections for vulnerable consumers from dodgy lenders and to help create an environment for responsible lending. It does put in place some tighter regulation around creditors. We know that is really important. It makes consumer protection the primary purpose of the legislation which you would have thought would be there and sets out responsibilities that the lender has. It mandates the development of a responsible lending code compliance with which will be evidence for responsible lending. It clarifies the processes and rules around repossession.We have heard in this House and in the media and from those connected to any group working with the vulnerable in New Zealand untold stories of the harm of loan sharks and dodgy lenders in our society. We have heard already tonight the stories of people going into casinos seeking out people who are triply vulnerable in that environment and setting up loan arrangements with 25 percent interest from day one. The fact that that is legal in our current environment kind of boggles the mind really. We have heard stories of people taking out an $800 loan for an emergency in their family and ending up with a $70000 debt. Again it beggars belief that that has been able to go on for so long in this country. We have heard that it is really not uncommon for some pay-day lender rates to be 10 percent a week and that loans often compound into four figures really quickly for quite small amounts of money.In the area I live in Porirua 95 percent of the people whom budget services are working with have got into trouble paying back high-interest loans. This is a very widespread problem. I think that that is also important in the context of this and that is why we support this legislation as a first step and would also certainly support the discussion and the possibility of increasing or having a threshold on interest rates because clearly that is out of control at the moment and the most vulnerable are paying.Being Greens we look at everything in context. We look at systems. I do just want to touch briefly on some of the context that this bill sits within and the reasons that people are getting into debt. It is because we have low wages. It is because our benefit levels were consciously set below the poverty level back in the 1990s. People are driven to desperation. There are not many choices for many people in New Zealand who are in those economic circumstances. I would like to read you an abridged version of an extract fromInequality: A New Zealand Crisisby the Tongan-Palagi poetKarlo Mila. She notes that “Inequality means watching people close to you—extended family community networks neighbours and friends—who are persistently struggling in challenging circumstances to try to maintain their dignity to keep their households afloat to do their best for their children and to make good decisions by weighing up the constrained range of choices on offer to them … It is what happens when real banks won’t lend you money and the loan sharks are wooing you cheap bait for bad debt.” That is the context that this bill sits within. We see so often in this House bills that are driving people to these places. It is not enough to just put the protections in place; we need the social structures to prevent the need for them. Kia ora.Peseta SAM LOTU-IIGA (National—Maungakiekie): Tonight we have brought to this House two bills that help vulnerable families—our families. We have brought in two bills to protect children against abusive adults and I thank the Minister for Social Department Paula Bennett for bringing in that bill the Vulnerable Children Bill. We brought in another bill to protect borrowers from predatory lenders and I thank the Minister of Commerce Craig Foss for bringing this particular bill the Credit Contracts and Financial Services Law Reform Bill to the House. These two bills demonstrate again that this Government cares for the poor the downtrodden and the vulnerable. In tough economic times when people have to work extra hard to pay their bills put food on the table and—as the last speaker Jan Logie has just stated—provide for their families it is unacceptable that they be taken advantage of by loan sharks.A family borrows a thousand dollars but cannot pay it back and the lender knows that they can take anything in that house to repay the loan—toys beds cultural items such as fine mats and even things that do not belong to them. When a young auntie is the guarantor of a car loan but no one explains to her that she may have to pay back this loan if her nephew does not meet those payments she can pay up to double the price of the car loan. When a man buys a TV on credit the contract includes lots of fees and insurance but he does not know what all these costs are about. These are the types of examples that I have witnessed in my electorate office in Maungakiekie in Onehunga. These are some of the common problems as has been identified in the Ministry of Consumer Affairs campaign launch last year that looked at vulnerable communities. We have addressed some of the issues around families who need to work within their means and their budgets. Minister Paula Bennett increased the budget for budgeting services up to just under $11 million and it was a paltry $4 million under the Labour Government.When this National Government came into power we set about to promote investor confidence in the financial sector which had been rocked by finance company failures and we moved quickly to arrest some of those issues that arose within the securities industry that we all know about. The Financial Markets Conduct Bill was passed 2 months ago. The financial service providers legislation and financial advisers legislation went through this House and did get support across this House and that was initiated by this National Government. It also follows on from my Moneylenders (Licensing and Regulation) Bill which I introduced in 2011. That bill addressed the licensing regime around some of these lenders repossession agents and forms of security. It looked at the behaviour of lenders as well as penalties for their behaviour. I am happy and I am proud that this bill takes some of the measures that I worked hard to deal with in my member’s bill.But that bill was also in response to a number of people whom I had talked to—budgeting agencies NGOs that worked with vulnerable borrowers—and the work that they had done. We also had the Financial Summit in 2011 where we brought together over 250 people from community groups—and some of those were budgeting agencies—but also banks financial regulators and credit companies. That was the genesis of this bill coming into the House. Last year the Hon Simon Bridges went through a draft bill that we consulted on across our communities across New Zealand. This bill took on board some of the recommendations of the Law Commission around repossession—58 recommendations that were made in total.This is a multi-pronged approach towards promoting responsible lending by increasing consumer protections and requiring that lenders give borrowers more information and that they also look at their total circumstances. It is not just about the income that that borrower is able to generate; it is about their total circumstances andtheir ability to repay those loans. It is right and proper that this bill addresses a borrower’s financial circumstances and requires that lenders look at them and at whether they can be reasonably expected to repay without causing significant hardship. It is about responsible lending and it means lenders have a duty to look out for their customers.Many lenders are responsible. In our discussions across this country talking to banks second-tier and third-tier lenders they are responsible and this bill does not target those lenders. It really is about targeting those we call loan sharks those who prey on the vulnerable those who prey on the poor and those who prey on those who are unable to repay their loans. We have incorporated both pieces of legislation around consumer credit contracts but also the Credit (Repossession) Act and this is what this bill incorporates as part of its mandate.The principles in this bill will be complemented by what many have already described tonight as a Responsible Lending Code. The code will go out and seek industry best practice and consultation. Lenders and interested consumer groups will be consulted in the development of that code. I think in bringing that together I believe we will have a workable and certainly a functional piece of legislation of which we can be proud. The policy objective really is around ensuring that creditors lend to consumers who can manage their consumer credit contracts responsibly. It provides protection for vulnerable consumers including protection from those unscrupulous lenders we have all talked about tonight. This bill is to be commended. It is a bill that we can certainly welcome and we seek not just the support of New Zealanders which we know we have but also the support of parties across this Chamber. Thank you.MARK MITCHELL (National—Rodney): It is a pleasure to take a call on the Credit Contracts and Financial Services Law Reform Bill. I would just like to acknowledge the other parties in the House that are supporting this bill at its first reading and supporting its referral to the Commerce Committee. This bill is a good bill. It seeks to strengthen the regulatory regime that applies to credit providers and financial services providers. The key messages are that under this bill lenders must act responsibly consumers must have the information they need to make informed decisions and there are serious consequences for those who breach the law.The legislation is the biggest overhaul of consumer law in a decade and encompasses wide-ranging changes to consumer credit and repossession laws. The proposals in the bill complement reforms that were progressed in the Financial Markets Conduct Bill and that seek to promote confident and informed participation by businesses and investors in financial markets. The sector has been widely consulted on this bill.The Credit Contracts and Financial Services Law Reform Bill aims to promote confidence in credit and broader financial markets through strengthening protection for vulnerable consumers in credit markets—we have heard many of my colleagues in the House tonight talking about the protection that needs to be wrapped round people who are vulnerable and open to unscrupulous loan sharks—promote the confident and informed participation in markets for credit by consumers and protect the integrity of the financial service providers registration regime. It is a very good bill. I am looking forward to receiving this bill at the Commerce Committee and I commend it to the House. Thank you.Bill read a first time.Billreferred to the Commerce Committee.