Connell Brian: Credit Contracts and Consumer Finance Bill — In Committee 
Connell Brian: Credit Contracts and Consumer Finance Bill — In Committee 
[Volume:611;Page:8719] 
BRIAN CONNELL (NZ National—Rakaia) 
: 
 Thank you for choosing me Madam Chair. I appreciate it. It is a first that seniority is being— 
Lindsay Tisch 
: She didn’t see me standing. 
BRIAN CONNELL 
: I am sure that you did not overlook my colleague Mr Tisch Madam Chair. I want to take a relatively short call on this part as well because I also find myself agreeing with the Government on this part. I will not go so far as to say that I am giving out bouquets but I think it is sensible. However for the sake of the  
Hansard 
 record I want to deal with the issue of buy-back transactions and to make it very clear what I am talking about. 
A buy-back scheme is a transaction whereby the title to a home is transferred to a company or an individual and the original owner enters into an agreement to stay in the property usually by paying rent. The person who transfers the title also has the right to buy back the property at a later date if he or she can. That part is not included in the definition but it is of course the issue. I believe that the provision in the bill is dead right. It is really an issue of trust because the people who parade such schemes generally fit into the category of “loan shark”. They prey on people who generally are ignorant of finance. To those people finance is simply another world and they rely on others for their advice. To abuse that trust describes the worst kind of individual I can think of. That is simply preying on the weak who should be protected in law. Therefore I commend the Minister for the clause. 
The people who enter into those agreements should also be getting advice by going to people like my colleague Judith Collins—in her former life of course—to seek independent legal advice. The key is that it has to be independent legal advice and people need certainty that that is what they are obtaining. But of course on this issue the legal profession also has a responsibility. Like seeking finance going to a lawyer is also a unique and sometimes a frightening experience for those folk. The cost of obtaining legal advice is an issue that I will flag as part of the compliance cost concerns I have about this bill. With that said I believe that another part of the key information that should be disclosed is whether the advice that people receive is independent and of sufficient quality to walk people through this complex area with some certainty. 
Another clause I would like to talk about very briefly is clause 57(2) which deals with insurance. The test of whether something is reasonable has already been raised. But I can say without fear of contradiction that insurance will be paid for in some form somehow. That will occur either through an insurance policy that the lender insists on or by including insurance in the price of the finance. Those who understand financing and pricing will understand the concept of pricing for risk. All lenders have a risk profile and across that credit fits into categories ranging from “A” being a credit that has a low risk and therefore is marginally priced right through to “F” which is high risk and therefore carries a very high pricing structure. Somewhere in between of course is Utopia where shareholders’ funds are being protected because the risk profile is medium around the “B” and “C” areas and while those areas are less aggressively priced than in the case of the lower categories the price is enough to be profitable. That of course is how the finance companies build shareholder wealth and profitability. 
I reiterate that the clause relating to whether something is reasonable will give people false hope because somewhere in the contract there will be a cost for insurance.