Lotu-Iiga Sam: Credit Reforms (Responsible Lending) Bill — First Reading 
Text is incorporated into the Bound Volume 
Lotu-Iiga Sam: Credit Reforms (Responsible Lending) Bill — First Reading 
[Sitting date: 21 July 2010. Volume:665;Page:12584. Text is incorporated into the Bound Volume.] 
PESETA SAM LOTU-IIGA (National—Maungakiekie) 
: 
 I rise to speak in opposition to the Credit Reforms (Responsible Lending) Bill. Although I admire the intention of the bill to address issues relating to loan sharks I believe that the bill is flawed in many ways. The amendment to section 118 of the Credit Contracts and Consumer Finance Act amends the definition in that Act of “oppressive”. I would first of all question whether a legislative change of this sort is needed. As the Minister of Consumer Affairs has alluded to the section already contains the word “unconscionable”. Surely if any debtor could prove that the lender knew that he or she could not repay then a court would accept the conduct as being unconscionable. The onus would be satisfied if the lender had asked for proof of income but that is the easy part. Any lender can ask for bank statements pay records or any other proof of income but in the real world the ability to repay a loan has much more to do with one’s expenses as with one’s income. This is the point. At the end of the day a lender can judge the ability of a debtor to repay based only on what the debtor chooses to disclose of his or her expenses. Borrowers are likely to say whatever it takes to obtain a loan and this clause does not remedy that. 
The bill also seeks to regulate interest rates and it requires the Governor of the Reserve Bank to provide them. In Canada section 347 of the Federal Crimes Act criminalised interest rates charged in excess of 60 percent. Since then the Federal Government has had to change that law to exclude pay-day lenders. A 48 percent interest rate on a pay-day loan for $1000 over 2 weeks is $18.40. No one will do business on those types of terms at that rate. 
The member’s answer might be that lenders can charge fees. Well that is the next problem with this clause. Caps on interest rates alone do not cap the cost of borrowing funds. That is why fees are regulated along with interest rates in Singapore and why fees are completely prohibited in Hong Kong. The member’s bill has no prohibition on fees. Therefore her interest cap is completely ineffective. This bill does not propose a realistic or workable solution. This is an important issue that needs to be looked at in the forthcoming review. 
The third change is to repeal section 57(2) of the Secondhand Dealers and Pawnbrokers Act. In the explanatory note of this bill the claim is made that if fees can be charged then there will be no need to charge high interest rates. That goes against the member’s concerns about the total cost of borrowing. I ask why allowing more fees to be charged would lower the total cost of borrowing. It would simply spread the total cost of borrowing between interest and fees. You see it is very clear from legislation elsewhere that if we want to effectively cap the cost of borrowing we cap interest and ban fees we regulate fees and interest or we cap the total cost of borrowing not just the interest. In one clause in this bill Ms Beaumont proposes that we cap interest and let lenders charge whatever fees they wish to charge and in another clause she wants to allow fees where they are currently prohibited. This is clearly an ad hoc and confused approach to legislation. 
In my electorate office in Maungakiekie we have seen the effects of these loans on our constituents. In fact in my meetings with many budgeting agencies like the Salvation Army and other budgeting services I have discovered that the problems are more far-reaching than this bill would address. It is what this bill does not contain that is disturbing. I have a problem with dragnet clauses that allow a moneylender to grab everything in a borrower’s home and to come back for more and more. There are real problems with moneylenders being able to send in repo men to take away children’s beds bedding clothing and toys. I have issues with the fact that a car dealer needs a certificate to sell cars but needs nothing to finance the sale. There are problems with the fact that a pawnbroker can loan money against the property that he or she holds and needs a licence to do that but a lender who loans money against security not held needs nothing. 
Most countries that legislate in this area for good reason have a licensing regime. This matter needs to be looked at seriously in the upcoming review. The problems that I have alluded to have no political party slant. It is not about the left and the right; it is about what is right and what is wrong. For this we need better law than we have here today and we need to have a much better bill to go to a select committee.