Tizard Judith: Consumer Credit Bill — First Reading 
Tizard Judith: Consumer Credit Bill — First Reading 
[Volume:606;Page:3510] 
Hon JUDITH TIZARD (Minister of Consumer Affairs) 
: 
 I move  
That the Consumer Credit Bill be now read a first time. 
 At the appropriate time at the end of this debate I intend to move that the bill be referred to the Commerce Committee. This bill represents a long overdue and thorough reform of the legal framework for regulating consumer credit transactions. The bill replaces the Hire Purchase Act and the Credit Contracts Act. It is beyond doubt that those Acts have become outmoded and fail to meet the needs of consumers or the finance industry today. The Hire Purchase Act is now over 30 years old while the Credit Contracts Act was based on a report by the Contracts and Commercial Law Reform Committee which was prepared in the mid-1970s. The consumer credit market has undergone fundamental changes since that time primarily because of financial deregulation and computerisation in the 1980s. Many of the key concepts under the Acts are more relevant to the 1960s and 1970s. For instance the report of the Contracts and Commercial Law Reform Committee did not even mention credit cards but credit cards are now the main form of personal lending to consumers. It referred to fixed rates of interest as predominant and did not foresee the array of credit products now available to consumers. The Consumer Credit Bill takes account of the fundamental changes that have occurred over the last three decades.  
I would now like to outline and explain the key features of this bill. The purposes of the bill are to protect the interests of consumers in respect of credit and consumer-lease contracts to enable consumers to become informed at the time of entering a contract and throughout its duration and to provide transparent rules for charging interest and fees and calculating balances. The bill also aims to prevent oppressive conduct by creditors and lessors. It retains the reopening provision in the Credit Contracts Act for that purpose. As a safeguard for businesses the reopening provisions will continue to apply to borrowing for business purposes. In all other respects the bill is consumer-specific thus avoiding the awkwardness of mixing consumer and business borrowing in the same legislation. In this way neither protection measures for consumers nor flexibility for business borrowers will be compromised. Businesses can get access to appropriate advice before entering into credit deals but they will avoid having lenders’ compliance costs passed on to them for protections they do not need.  
The bill maintains the requirement on creditors to disclose information about the credit contract to consumer borrowers. The items required to be disclosed have been updated. Notably lenders are no longer required to calculate and disclose the finance rate. The finance rate provision was not as successful in practice as was initially hoped and made the Credit Contracts Act unnecessarily complex while adding a layer of compliance costs. The bill also allows disclosure to be made electronically including via the Internet but puts in place safeguards for consumers. For instance consumers must consent to receiving electronic notices.  
The bill adopts Australian provisions that prevent creditors from using various unfair methods of charging interest and calculating balances. For instance interest cannot be charged in advance. Creditors will also have to cease using unfair methods to calculate early settlements. The bill also ensures that creditors cannot charge fees that are in the nature of interest as a means of avoiding the restrictions on interest charging.  
The bill simplifies the law concerning early repayment of a credit contract by a debtor. The borrower has the right to make early repayment but the creditor may also impose a reasonable charge if he or she will suffer a loss as a result of the early payment. This aspect of the bill is intended to align it with principles of contractual damages and the doctrine of penalties which provides that if one party breaches a contract the other party is not entitled to unreasonable excess damages. The definition of credit contract does not include leases although certain forms of lease that are functionally equivalent to credit sales are deemed to be credit contracts. Therefore the bill establishes a separate regime for long-term leases. There are several reasons for that. Firstly providing for the distinctive characteristic of leases increases consumer choice. Secondly it ensures that leases are not preferred as a means of evading regulation. Thirdly long-term leases often involve considerable financial commitment for consumers and are highly complex transactions justifying protection for consumers.  
An important aspect of the bill is that it is to be enforced by the Commerce Commission. At present credit law is under-enforced as demonstrated by the extent of breaches and unethical practices reported at the lower end of the market. Low-income high-risk borrowers—in many cases Pacific people—have been particularly harmed. Enforcement action by the Commerce Commission will give further protection against unethical behaviour by giving extra impetus to the reforms. Many creditors and lenders will welcome tough action against the minority of lenders who let the side down.  
Consumers are not simply beneficiaries of a thriving and sustainable economy. They play a vital role in it but we need to ensure that they have the information they need to make informed choices so that they are able to confidently play an active role in the growth and development of the economy. The Government’s most important task in the next 3 years is to improve the conditions for growth. We want to pursue our economic and social goals in a way that is consistent with the values of fairness security and opportunity. This bill is overdue and benefits both consumers and the finance industry. I commend this bill to the House.