Adams Paul: Consumer Credit Bill — First Reading 
Adams Paul: Consumer Credit Bill — First Reading 
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PAUL ADAMS (United Future) 
: 
 United Future is pleased to support this bill going to the select committee. It has often been said that if the incoming is not greater than the outgoing the shortfall will be the downfall. How true that is for many people. In New Zealand now consumer borrowing is just part of life. I have worked for many years in an industry that has been involved in this. The most confusing aspect for people who borrow has been the finance rate. I am very pleased to see that removed from this legislation because in principle it made sense but in reality it was very confusing for people to understand. There were institutions such as banks that did not have to declare the finance rate so it was very confusing for people who were borrowing money. The disclosures will be very beneficial because often when people come under financial pressure—I believe that one of the most difficult pressures families can come under is when their backs are to the wall and the creditors are knocking on their doors and they realise that the only way they can release themselves from the pressure is to borrow some money—they will often go to desperate means and they will look at the amount they are paying per week or per month without fully understanding the cost of that money.  
Let me give an example. A person may be able to borrow money from a finance company over a 3-year period. The monthly repayments for that in round figures might be $300 per month. But they may then go to a bank and borrow the same amount of money but they will extend their home loan to do that. The repayments on a monthly basis would possibly be one-third of the amount from the finance company yet the cost of that borrowing may be $3000—these figures are not accurate I am just giving an example in round figures—but in reality if they borrowed that money over their home for a 20-year or 25-year period they might be paying $30000 or $35000 in the interest repayments. Of course that money has to be repaid at some point. So the freeing up and the disclosures on all of the finance contracts need to be commended. I think it is very very good. I have discovered that money is very easy to borrow but it is incredibly difficult to repay. I do not know whether other members agree with me on that but it just seems to be a fact of life.  
The bill also aims to provide greater transparency and protection for creditors in targeting the marginal lenders that unfortunately are in our midsts. I think it is very good that there will be provisions for couples such as those just mentioned who have language difficulties or other difficulties and do not fully understand the contract that they have entered into. If it is explained to them and if any unethical processes have been followed they will have the ability to have that contract rescinded. That is very good.  
I think it is great that all the information will be provided to the borrowers at the beginning of the contract and it will be clearly laid out. On the other side of that coin is that we need to accept that New Zealanders should learn to pick up responsibility for contracts that they are entering into provided all the information is there. This bill does endeavour to make sure that when they are looking at this contract compared with that contract they have all the relevant information available to them. Unfortunately this does not happen under our present legislation which as we have heard is over 30 years old. I think this will be very good.  
There are concerns about the compliance costs both to the creditor and to the Government. Providers of domestic credit will face higher short-term costs because of alterations to software and such things. As they work together and bring in a standardisation of it hopefully the compliance costs will not be so great. The mainstream finance organisations will be able to handle that very easily but of course the smaller finance companies may have more difficulties.  
It is interesting to note that credit card debt alone is now a major form of borrowing for New Zealanders. In the figures I have here the debt is at $3.6 billion in November before Christmas. More significantly $7 of every $10 run up on cards is incurring interest because the debt is rolled over month by month. To me that is a scary figure. People are looking solely at what they can afford to pay weekly monthly or whatever the case may be and they are failing to see the true costs of that debt. Hopefully this legislation will bring greater transparency in these transactions.  
Consumers are now much more comfortable with debt. But if they are to be comfortable with debt—and I hope they become uncomfortable with debt for the betterment of our nation—they must have the complete information and know what they are involved with.  
In terms of the costs to the Government enforcement is estimated to cost the Government an additional $0.6 million per annum. Presumably there will be an education campaign and creditors and debtors will need to be funded. I believe that the select committee should look into this and I believe that the select committee process will be excellent. No doubt many issues will come up before the select committee. United Future supports this going to the select committee.