Beaumont Carol: Credit Contracts and Consumer Finance Amendment Bill Financial Service Providers (Registration and Dispute Resolution) Amendment Bill — Third ReadingsText is incorporated into the Bound VolumeBeaumont Carol: Credit Contracts and Consumer Finance Amendment Bill Financial Service Providers (Registration and Dispute Resolution) Amendment Bill — Third Readings[Sitting date: 27 May 2014. Volume:699;Page:18355. Text is incorporated into the Bound Volume.]CAROL BEAUMONT (Labour): Talofa lava Mr Assistant Speaker. Today people will be taking out loans at interest rates of 50 percent. Today some people will be taking out loans at interest rates of over 1000 percent. These interest rates are unacceptable and are not going to be dealt with by the passage of this legislation the Credit Contracts and Consumer Finance Amendment Bill and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill. I think that people should think hard about that because I know that nobody in this House would try to justify those kinds of interest rates. And yet here we are. I could go through a list of examples including one of particularly high interest rates from when I went to Palmerston North most recently with my colleague Iain Lees-Galloway. I know that people in this House know that those interest rates exist out there and I think it is wrong that we are passing legislation without dealing with that issue.I stand to speak in favour of this legislation. Labour has supported the passage of these bills throughout as the Minister of Consumer Affairs has noted because we want to see change in the area of consumer credit. Why is it that people take out loans one might ask? Why is it that loans with interest rates like the sort that I have talked about are being taken out? Well the fact of the matter is that lots and lots of New Zealanders are struggling to make ends meet. It is interesting that in Samoan Language Week we are talking about this legislation. In fact today is the day thatThis is Home: An Update on the State of Pasifika People in New Zealand was officially launched by the Salvation Army. I just want to note that in that report it talks about Pacific people continuing to receive the lowest median weekly income of any ethnic group and this has remained unchanged for the past 5 years or so. The Pasifika community has an unemployment rate of 13 percent compared with 6.2 percent of the overall unemployment rate.You might be asking why I am talking about this when we are talking about the Credit Contracts and Consumer Finance Amendment Bill and the Financial Service Providers (Registration and Dispute Resolution) Amendment Bill. Well part of the reason that people take out loans is that they cannot make ends meet. Something happens and they need some money. The car breaks down or whatever and they go for a loan. There are too many unscrupulous operators—fringe lenders loan sharks third-tier lenders whatever way you want to describe them—who are there to provide credit. They have in fact thrived in tough economic times. They have thrived where there is high unemployment and low wages as is the case in this country. So that is partly why. But of course they can get away with it because there is no limit on what they can charge and there will not be after the passing of this legislation. Clearly there are other reasons why people are taking out loans at that interest rate. Some of the other credit providers I am sure need to step up to the plate a little better. Our credit unions for example are an alternative to loan sharks as are social lending provisions which Labour has promoted for some considerable time now and the Government recently announced some work in there. There are some other options around credit. And there is a need for financial literacy—no question about that.But what are the consequences of interest rates like the sort that I have talked about? The consequences are that usually people pay them. The research shows that people work very very hard to pay off the loans they take out including the interest rates that are on them. What does that mean? Well it means that actually they are taking money away from the needs in their own family. It is a struggle often to pay these loans back. For those who do not make it there is a cycle of debt and despair that has developed. There is no question about it. Just ask our budgeting services; they will tell you. Everybudgeting service no matter where in New Zealand can illustrate the consequences of this. So I just ask whether any member in this House would consider the sorts of interest rates I have talked about as acceptable or ethical. I am certain that the answer would be no they do not. But here we are 4 months from a general election passing legislation that will no doubt make improvements to the consumer credit market but it will not deal with extortionate interest rates that are out there in our communities. It will not deal with them despite the obvious need to do so despite community abhorrence of those types of interest rates and despite what other countries have accepted as a reality—that there is a need to take a very direct response to excessive interest rates.We have heard over the course of considering this legislation of a lengthy list of countries around the world. Just for the record they include: Australia the United States most European jurisdictions the United Kingdom Japan Singapore most countries in Africa Canada Mexico and most of South America. Right throughout the world Governments have realised that to actually deal with this issue requires very specific action to control interest rates. Why are we so different here? What is different in New Zealand? Well it is really unclear because the opportunity we had was not taken to really look into the issue of interest rate controls as part of the work on this legislation. We just had the same old tired clichés put out there about it having unintended consequences driving loan sharks underground and becoming the target rather than a cap. Well OK how do we know that? And why has that not been the case elsewhere? Why if that is the case has Canada not repealed its legislation that it has had in place for 8 years? Why are we so different here? That is still the question that people ask me. Why are we not doing it? To be honest I cannot answer that question.Can I say that the behaviour of fringe predatory lenders loan sharks is unacceptable and is hurting our most vulnerable families and that the extortionate interest rates that they charge are a significant element of that. But it is not the only thing; I absolutely accept that. They have thrived over recent years. In 2007 Labour commenced a review. Labour started with financial summits in South Auckland. As the Minister has outlined the Credit Contracts and Consumer Finance Act was seen to not be adequate to deal with some of what we were seeing in this consumer credit area.Unfortunately one of my other concerns about this legislation is that it has taken far too long to get here. The work was deprioritised by the incoming National Government. A member’s bill in my name was voted down. It had responsible lending and interest rate controls in it. Cynically it seemed to me the then Minister Simon Power announced immediately prior to the 2011 election that National was going to get tough on loan sharks. Well that was prior to the 2011 election and here we are now about to complete the third reading of this legislation. So it has taken 6 years to get to the point we are at now. I ask the question: how many thousands of families have suffered as a result of this Government’s inaction?There are many good features in this legislation and I have articulated them at the various stages of it. I think that the responsible lending principles the code which of course is yet to be developed and the fact that we have finally sorted out the hardship provisions are positives. I think that the fact that financial service providers will not be able to charge interest if they are not registered is very positive. Guarantors are being covered by the Responsible Lending Code. There are a number of very positive provisions in this legislation. They are good features and I look forward to them being implemented.There are as I say some negatives. The negative around not controlling interest rate caps is the outstanding one. The watering down during the Commerce Committee of the provision around the clarification of fees was another thing that I think is not a positive outcome. And I do ask the question—and I asked the Minister throughout the debate onthis legislation—about adequate resourcing. We need adequate resourcing to ensure that we put real effort into making sure that people understand what their rights are under this legislation but also adequate resourcing for enforcing this legislation. We do have better penalties which is a good provision of this legislation as well but how are we going to make sure that it is enforced? We would all know if we were honest that the sorts of people who are taking loans from some of our third-tier lenders are not necessarily going to be the best place to enforce this legislation. One new person as I understand it has been taken on by the Commerce Commission—not sufficient.I want to end up by acknowledging some people: budget services and citizens advice bureaus for the work that they do the submitters on this legislation and the officials who worked so hard. I also want to acknowledge a man called AndrewShann who has really been passionate about this issue over many years. We will bring interest rate caps in when we are in Government. Thank you.