Hague Kevin: Insolvency Amendment Bill — First Reading 
Hague Kevin: Insolvency Amendment Bill — First Reading 
[Volume:653;Page:2016] 
KEVIN HAGUE (Green) 
: 
 I rise to give support to the first reading of this bill but indicate none the less that the Green Party has significant concerns about some of its aspects which I will go into in a moment. Earlier speakers have outlined the merits of the bill and I do not intend to go over them. Certainly the discharge of fraudulent debts the extension of the no-asset procedure and the voiding of insolvent gifts are all measures that are needed and they are supported by the Green Party. However the extension of insolvency registers is not something that we support and we certainly hope that the select committee will take particular care in seeking and examining submissions on that point. Although the other provisions of the bill relate to loopholes that were found to exist in the 2006 Act these provisions do not. In particular the 5-year register for no-asset procedure puts vulnerable people at risk and undermines the intent of the legislation. It violates the clean slate principle upon which the procedure was established and violates the spirit that redemption is indeed possible. This particular procedure was set up for those in unfortunate circumstances such as broken relationships or the suffering of financial issues due to ill health; both are factors that are recognised contributors to debt. 
These people are not big business fraudsters and financial illiteracy will also be a contributing factor in many cases. Putting such people on the 5-year register will reduce their ability to access clean credit from genuine lenders and combined with financial illiteracy will put them at very high risk from loan sharks and further financial distress. Five years is a very long time for some of the people who will pass through this process. Someone who makes bad financial decisions at the age of 22 for example will be likely to be unable to take up a rent contract open a utilities account or take up a mortgage on a first home until he or she is at least 27 and likely to be in a very different place both financially and personally. If that person then experiences a second insolvency event no matter what its size that event will be treated as a bankruptcy and under this bill that person will be on a register indefinitely. Treating the no-asset procedure as one insolvency event therefore threatens the independence of that process from the bankruptcy process. The two-strike register applies retrospectively so the more than 3100 people who have already passed through the no-asset procedure under legislation that guaranteed them a fresh start will now have a permanent register hanging over their heads should they get into financial trouble again. 
The current process is working well. The filtering of applicants has resulted in 35 percent of them being rejected on the latest figures. As the  
National Business Review  
quoted last week the numbers have not in fact been going through the roof as was initially projected by the credit industry. If the no-asset procedure process becomes more punitive through the 5-year register and potential inclusion on an indefinite register it will put people off dealing with their debt until that debt becomes more than $40000. According to an Insolvency and Trustee Service manager Cristian Pardo some debtors see no-asset procedure as a proactive measure to halt borrowing before it hits that level. This protects both them and further potential lenders. 
The Green Party does not want to protect criminals but believes that these people are not the real criminals; unscrupulous lenders and negligent politicians are. The Green Party understands the need for protection from genuine fraudsters especially when savings and financial literacy are so low. This is why we support the first three provisions of the bill and the creation of a register for those with multiple bankruptcies. But the no-asset procedure currently protects vulnerable people from further distress so they should not be included in that register. The real problems are the credit industry that allows debtors to get into unmanageable situations and this House’s failure to take effective action to regulate that industry. For example we are all aware that major banks in the last year have given 95 percent to 100 percent mortgages to first-home buyers with no assets; now we have a predictable raft of mortgagee sales. A  
Sunday Star-Times  
article from 2006 quoted a very typical example of a 20-year-old youth with an annual income below $20000 who was able to rack up debts with three different lenders totalling $19247—of which almost $13000 was for a car. The vehicle was later repossessed and two loans defaulted. 
The latest figures from the office of the official assignee show that 42 percent of those taken into the no-asset procedure describe themselves as beneficiaries. Before the no-asset procedure was in place a Retirement Commission study found that 72 percent of its sample of people who filed for bankruptcies were beneficiaries. A situation where these extremely low-income people can get themselves into significant debt shows how out of control our credit industry has become. These people already have a difficult time obtaining healthy credit and pushing them further towards the loan sharks for 5 years will almost guarantee a further financial crisis. At the same time the mean indebtedness of those in the Retirement Commission study was only $10600. Do we really want to punish and publicly shame people for life for $10000 they are unable to repay? 
The previous Government did not exactly cover itself in glory in this situation. For example credit companies like Veda Advantage can already publicly list those who have been discharged through the no-asset procedure thus corrupting the intent of the law but the Government has not moved against those companies. The Minister of Commerce in 2007 refused to put a cap on the interest rates charged by loan sharks despite advice from community law centres and budget agencies. In September 2008 after a media outcry over Super Loans Hutt Ltd charging debtors 8 percent interest per week the Minister finally admitted that the current situation was appalling and said she was looking at current credit advertising law with an eye to making changes. But it was way too late and the Government was voted out before it could make good its negligent record. 
Financial illiteracy in New Zealand is shocking and problems will continue until it is addressed. In 2007 the Reserve Bank undertook a study that indicated: “New Zealanders are aware of some of the financial issues that they face but they are ill-equipped to make financial decisions. They do not effectively understand the basic financial terms or instruments or more worryingly the concept of risk and return. Furthermore they do not use existing financial disclosures or credit ratings in a manner that would enhance their understanding of financial exposures.” The results of that study show that 53 percent of New Zealanders did not understand compound interest only 8 percent of respondents said they had financial goals and 80 percent were either not aware of mandatory disclosures or did not use them for financial decision-making. In 2007 the Government finally moved to address the complete lack of financial education in our schools. The Retirement Commission has been making some positive gains in this area. However there is currently still no compulsory requirement to teach financial literacy in the school curriculum and there is no provision for it at all in the primary school curriculum. 
The Green Party is glad the Government is moving to close the major loopholes in this law but in an environment where predatory finance companies are free to take advantage of New Zealanders who are not given the basic financial tools to look after themselves these objectionable provisions are a bear trap at the bottom of the cliff. We support the bill going to the Commerce Committee but strongly recommend to the select committee members that they take a detailed look at the full implications of these objectionable provisions.