Reti ShaneCONSUMER GUARANTEES (REMOVAL OF UNRELATED PARTY LENDER RESPONSIBILITY) AMENDMENT BILLFirst ReadingDr SHANE RETI (National—Whangarei): I move That the Consumer Guarantees (Removal of Unrelated Party Lender Responsibility) Amendment Bill be now read a first time. I nominate the Commerce Committee to consider the bill. At the appropriate time I intend to move that the bill be reported to the House by 31 January 2017. This bill looks to improve consumer protections and reduce consumer costs. The Consumer Guarantees Act 1993 is a cornerstone piece of legislation protecting consumers. While the Fair Trading Act provides pre-sale protection for example against misleading advertising the Consumer Guarantees Act herein referred to as the CGA provides post-sale protection by requiring suppliers to remedy any defect in goods or services provided. Over the years the Act has been updated to take into account changing consumer needs and to make important clarifications. This bill looks to make a clarification that is small but that stakeholders tell us is important. Specifically this bill seeks to clarify when lenders should be liable under the Consumer Guarantees Act and when they should not. As will be shown the existing legislation is ambiguous and the solution that this bill proposes is the concept of related-party connectedness. If the trader and the lender are not connected then the lender should not be liable under the Consumer Guarantees Act. The reverse should also hold. If the trader and lender are connected then the lender should be liable under the Consumer Guarantees Act. The trader of course is always liable. In the first scenario lenders who have no connectedness to traders are at a distance from the relevant transaction and should not reasonably be expected to be liable under the Consumer Guarantees Act. As we will show international precedents in Australia and the United Kingdom strongly support this concept in their consumer protection legislation. In the second scenario we are very concerned about traders and lenders who do have connectedness and believe that the lender should definitely be liable for Consumer Guarantees Act remedies. This will be referred to as one and the same trader-lenders. It is simply not good enough for a trader who has both sold a faulty domestic item and been the loan financer to pass off their responsibilities for remedy to their reneging lending arm when they are both effectively one and the same. This bill will bind that lender to the Consumer Guarantees Act. The legislative ambiguity arises from the definition of suppliers" in the Consumer Guarantees Act 1993 and the attempt to connect traders and lenders with the word "arranged". The full legislation reads under the definition of "supplier" in section 2(1)(b)(ii) that a supplier is "a creditor within the meaning of the Credit Contracts and Consumer Finance Act 2003 who has lent money on the security of goods supplied to a consumer if the whole or part of the price of the goods is to be paid out of the proceeds of the loan and if the loan was arranged by a person who in trade supplied the goods:"—arranged by a person who in trade supplied the goods. In simple terms if a trader arranges a loan with a lender then they are both suppliers and both liable under the Consumer Guarantees Act. It is ambiguity in the wording "arranged" that is leading to uncertainty and differing practices in the New Zealand market place not all of which benefit the consumer; some of these practices do. Contest that connectedness between a trader and a lender by saying the trader did not arrange the loan but merely made an introduction and the lender walks away. In Sudfeldt v UDC Finance Ltd and others the court interpreted their interactions as an "introduction" and the lender was therefore potentially not liable to Consumer Guarantees Act remedies. Another common practice is to utilise the available option in legislation for the lender to seek indemnification from the trader for any Consumer Guarantees Act recourse. This is routinely done as back-to-back indemnities with an administrative cost that is borne by the consumer and again the lender walks away. The problem here is that the word "arranged" is a functional activity that offers no comment on structural relationships where the trader and lender may be related as joint ventures cross-shareholdings or otherwise connected. International legislation especially in Australia is very prescriptive on how structural relationships connect traders and lenders and should be taken into account. Various terms and detailed descriptions are used to describe the trader-lender relationship including "tied" "linked" and "connected". For the purposes of this reading I am describing the trader-lender relationship as connectedness. Connectedness then is clearly important and a deeper dive into international definitions is informative. The influential UK Crowther report talked in terms of "connected loans" and "connected lenders" and made the following statement around joint liability: "There are compelling reasons for distinguishing connected from unconnected loans. The connected lender and the seller where not the same person are in effect engaged in a joint venture to their mutual advantage and their respective roles cannot be treated in isolation." The committee of the Law Council of Australia similarly recorded that a lender with a tied loan organised by a trader has connectedness and should have liability to a consumer as follows: a financier who has made a tied loan to a consumer would to a limited extent be obliged to underwrite the liabilities of a supplier to the consumer in respect of the consumer credit sale. These examples describe international legislation where traders and lenders should be connected and lenders made liable. There are also clear international precedents for when traders and lenders should not be connected and should not be liable and the report from the Law Council of Australia and the UK Crowther report talk to both of these. The specific reference in these two examples is to a loan as the credit instrument. This lends itself here to a comment on the deliberately narrow scope of this bill which I will state here as applying only to goods and not services. The Consumer Guarantees Act covers goods: for example personal and domestic goods goods where the goods are acquired on credit and where there is a secured creditor and goods purchased with personal loans as the credit instrument. Other credit tools especially those most frequently used—namely hire purchase agreements—have a different complexity of connectedness associated with who owns the goods. They are covered by several different Acts and are not in scope for this bill. This bill also has little impact on traders who go out of business as this bill is addressing a different issue. I have made the case that connectedness between traders and lenders is an important concept that is ambiguous in our legislation. In the UK in respect of trader-lender connectedness the Crowther report used the term "connected lender" and defined this as "one who pursuant to a regular business relationship with one or more sellers makes a loan which is used to buy goods or services from one such seller". The Law Council of Australia report was much more specific on connectedness and stated: "Where a supplier has the required commercial link with a financer he is termed a 'linked supplier'. This includes the supplier having a trade agreement with the financer referring customers to the financer and having blank finance application forms on the premises." Clearly then the Australian definition is much more prescriptive. For our purpose this bill looks to define connectedness using existing New Zealand tools such as the New Zealand Equivalent to International Accounting Standard 24 which defines "related parties". Finally we turn to consumer and industry implications for progressing this bill. Firstly consumer protections are increased by adding clarity and robustness to legislation that makes lenders liable to the Consumer Guarantees Act. Secondly consumer customer service is improved by providing clarity around lenders who are not bound to Consumer Guarantees Act remedies. This benefit occurs by requiring traders to provide better customer service if they know they cannot by default refer to the deep-pocket safety net of lenders. Thirdly unconnected lenders freed of the risk of liability under the CGA will be more willing to lend to consumers making consumer credit more widely available. Finally customer costs are reduced because lenders who are unconnected and no longer liable to Consumer Guarantees Act remedies will no longer need to adopt back-to-back indemnification against the trader as a default practice and the administrative costs will not be created and passed on to the consumer. In conclusion this bill looks to strengthen consumer protections and standardise industry practice by removing legislative ambiguity in the word "arranged" which currently connects traders and lenders. A framework is proposed that is more consistent with international best practice. I very much welcome the wisdom and dialogue of others from across the House and without presumption guidance from the select committee. It is with pleasure then that I introduce the first reading of this bill to the House."