Goudie Sandra: Credit Contracts and Consumer Finance Bill — In Committee 
Goudie Sandra: Credit Contracts and Consumer Finance Bill — In Committee 
[Volume:611;Page:8849] 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 I would like to take up a few of the comments from the previous speaker. Schedule 1 puts out quite a substantial amount of disclosure. One of the main problems identified with the current regulation of the consumer credit industry is the imbalance of strength between lenders and borrowers. When one considers the information that Stephen Franks has just referred to with regard to schedule 1(s) one has to wonder whether the emphasis is now in favour of the borrower; whether all the difficulty in fully understanding what is happening with regard to goods and the return of goods is now in favour of the lender. There will be substantial costs as a result of that to the lenders. We have already talked about exorbitant compliance costs. 
One thing the bill does address is the exorbitant interest rates which have previously gone unchecked. Now there is some control around that and around the high cost of a multiplicity of fees which were unregulated. One of the problems of the current industry is laws that allow lenders wide latitude and require security for loans and double-jeopardy clauses interest insurance and a call on chattels often in excess of the loan. However concerns have been expressed around that and there may still be some problems in that area even within the current proposals. 
The difficulty in understanding the arcane and sometimes contradictory language of the current law is certainly an issue and is really to some degree one of the major premises of the bill in terms of the disclosure requirements to consumers. Schedule 1 certainly identifies the requirements with regard to disclosure to consumers. 
But one has to wonder whether even with full disclosure of all those things people really understand what they are getting themselves into. Many people do find themselves in some considerable difficulty. If people have literacy difficulties how will they understand what they are doing? How will they understand what sorts of contracts they are entering into? A number of cases have been given. In one case study a person borrowed $10000 from a lender at 26 percent interest with no fees payable over 3 years and with a monthly payment of $402.91 and a friend borrowed the same amount also at 26 percent interest and also for 1 year from another lender. He owes another 12 payments; he owes $7478.60 and the other person owes $7600. It is a case of “Do you understand all of that? Would you please sign on the dotted line.” If people have a limited understanding— 
Simon Power 
: We have trouble understanding it here. 
SANDRA GOUDIE 
: Exactly; that is my point. If people have limited literacy skills and a limited understanding of the language under the current disclosure provisions being promoted in the bill will they be any better off? At the end of the day how far can we go to protect people from themselves? We heard Paul Adams give an interesting address on indebtedness and on how people make assumptions about their credit cards which they really do not understand. People get themselves into all sorts of difficulties. Paul Adams referred to it taking 37 years before a person paying the minimum payment 
pays off a balance of $3000 on his or her 
overdraft. That is the type of impression that people are getting and the sort of indebtedness that people get themselves into. There is a range of areas where this happens. 
Another couple on a very modest combined income bought a $7000 car on hire purchase for a total cost finance included of $13000. They then borrowed $6000 from a building society to meet general living expenses. In the same year the husband travelled home to Samoa by taking out a personal loan from a loan company that was secured over the household furniture. He fell ill and his wife had to travel to Samoa to be with him. For her travel she borrowed from another loan company using the same furniture as security and when they returned home their furniture had been repossessed by the second loan company. There were three different instances of borrowing by this particular family. They entered into each of those transactions so they must have had a limited understanding of what they were doing but with the whole lot put together they clearly could not manage their situation. They certainly needed assistance. How far do we go in trying to protect these people from themselves through legislation?