Foss Craig: Credit Contracts and Financial Services Law Reform Bill — Second ReadingText is incorporated into the Bound VolumeFoss Craig: Credit Contracts and Financial Services Law Reform Bill — Second Reading[Sitting date: 10 April 2014. Volume:697;Page:17169. Text is incorporated into the Bound Volume.]Hon CRAIG FOSS (Minister of Consumer Affairs):I move That the Credit Contracts and Financial Services Law Reform Bill be now read a second time. I would like to compliment the Commerce Committee for its consideration of this technically challenging piece of legislation. The committee has considered approximately 70 submissions covering a wide range of views and tested the underlying policy intent of the bill. The policy intent remains sound. The Commerce Committee’s report reflects the large amount of work that has gone into getting the bill to this point. The bill comprehensively amends the consumer credit legislation which is an important part of the Business Growth Agenda promoting confidence in our financial markets. The bill reflects a sensible approach to compliance costs through amendments recommended by the Commerce Committee including changes to the standing disclosure requirements and repossession provisions. It is not the intent of this legislation to reduce access to credit by imposing heavy compliance costs that will ultimately be passed on to consumers.Many changes have been made to improve our consumer protections under this bill. At the select committee many submitters raised concerns about the protections available particularly to vulnerable consumers. The bill as introduced already elevated consumer protection to the primary purpose of the Act and introduced the new concept of responsible lending. It introduced sensible reforms including that initial disclosure must be provided before the contract is entered into. Standing disclosure must be available on request and free of charge. Overpayments must be refunded to the borrower. Hardship applications can be made by borrowers who are already in default. The Commerce Committee has helpfully refined many of these changes and it is pleasing to see the proposals in the bill confirmed and strengthened. The amendments made by this bill ensure that the interests of consumers are protected lenders compete effectively and consumers can participate confidently in the market.The current law the Credit Contracts and Consumer Finance Act is a principle-based approach to consumer credit legislation. The lender responsibility principles will help consumers and lenders to identify the practices you would expect from a responsible lender. The responsible lending code is intended to provide guidance and elaboration on the principles. Submissions to the committee asked that the status of the code should be clearer. Submitters were also impatient for the code to come into force as soon as possible. I share that impatience. We are keen to progress this legislation and the code. As a result the committee has recommended that the bill specifies the code is non-binding but also allows for work to begin on the code before the Act comes into force. This will ensure that the principles and the code come into force at the same time: no later than 12 months after the Act has passed or hopefully sooner.The fees provisions particularly the provisions relating to unreasonable credit and default fees have been a controversial area of the bill. Submissions to the Commerce Committee stated that the provisions needed work. The committee has recommended that the bill make it clear that fees are constrained by a reasonableness test and that the test is anchored in the principle that fees are a means for creditors to recover costs. This is consistent with the policy intention of the legislation as it currently stands. The committee has recommended two further amendments to the fees provisions: firstly making it clear that prepayment fees should be limited to losses from changes in interest rates for fixed rate contracts and secondly that third-party fees will also be subject to the unreasonable fees test. They are in addition to the increased limitation period for unreasonable fees that was included in the bill as introduced.A significant improvement to the consumer credit landscape is the incorporation of the Credit (Repossession) Act provisions into this bill. The 2012 Law Commission report on credit repossession recommended measures to provide a balance between consumer protection and access to credit. The primary recommendation was to incorporate repossession law into the Credit Contracts and Consumer Finance Act. Repossession is part of the life cycle of a loan and the idea is that the law should deal with the consumer credit as a whole. The bill adopts virtually all of the Law Commission recommendations and makes it clearer and easier for lenders and borrowers alike to know where they stand in a repossession process. Goods available to be repossessed must be specifically identified by the lender and some items including beds bedding medical equipment and heaters will be prohibited from the repossession altogether. Borrowers who have received a repossession warning notice will also have the right to voluntarily return the specified goods rather than being forced to participate in an often stressful repossession process. Previously the Credit (Repossession) Act was self-regulated.One of the most significant amendments in relation to credit repossession is the introduction of the Commerce Commission as the regulator. Enforcement was a key area identified in submissions to the committee where consumers and their advocates called for action. The committee has taken a positive step in boosting enforcement powers and penalties for breach. The committee has recommended the alignment of penalties with the Fair Trading Act increasing these from $30000 to $200000 for an individual and from $30000 to $600000 for a company increasing the amount of statutory damages available from $3000 to $6000 and introducing an infringement regime that will allow the Commerce Commission to issue infringement notices in respect of minor misconduct or straightforward issue of fact. In addition where a lender breaches the lender responsibility principles more than once the court will be able to order certain persons not to act as creditors. This will provide a mechanism for recidivist and irresponsible lenders to be banned from the market.I know that the select committee gave full consideration to the issue around interest rate caps. I note that in its report it states that although restricting interest rates may offer consumers protection from one form of high-cost credit it considered that it may also have unintended consequences. Those include restricting access to credit for consumers and also having the interest rate that is at the upper limit coming to be viewed as a target or reasonable. The committee considered that the provisions included in the bill especially as they relate to disclosure unreasonable fees and responsible lending would reduce the risk of lenders offering unaffordable credit. I do agree with the committee on those findings.Also of note in the bill is the increased access for consumers to the oppression and hardship remedies. Access to justice is paramount when it comes to consumer protection. Submitters noted that many consumers do not know where to go when they are in trouble. The bill will allow applications for hardship relief to be made once the debtor is already in default and elaborates on the grounds for a court to reopen a credit contract on the grounds of oppression. The committee has recommended that specific references in the financial dispute resolution schemes are included within the Act increasing their presence.To conclude I commend the committee for its consideration and examination of this bill. I believe this bill will be welcomed by lenders borrowers consumer groups budget advisers regulators and the like. We want the consumer credit market to work as effectively as possible. Reshaping the consumer lending environment is an important part of the Government’s Business Growth Agenda. These changes will boost confidence in the role that consumer credit plays in our financial markets while providing increased protection for New Zealand’s most vulnerable consumers. I commend this bill to the House.