Smith Murray: Credit Contracts and Consumer Finance Bill — Third Reading 
Smith Murray: Credit Contracts and Consumer Finance Bill — Third Reading 
[Volume:612;Page:8888] 
MURRAY SMITH (United Future) 
: 
 United Future supports the third reading of this bill. It is part of a reform process of the Credit Contracts Act and the Hire Purchase Act and will replace those Acts. It follows the line of other Acts that have been implemented by Parliaments over the years—in particular the Consumer Guarantees Act the Contractual Remedies Act and to bring up living memory even the Door to Door Sales Act. Those pieces of legislation were all designed to address the imbalance of bargaining power between commercial enterprises and consumers. 
This bill and bills like it fly in the face of pure market ideology. ACT at least and National—well I think National; I am never quite sure what National thinks these days—support the pure market ideology. In essence that ideology says that everyone is in an equal bargaining position and that market forces will ensure that no one gets ripped off—or at least that if people do get ripped off then it is their right and choice to have that happen. That ideology says it is their fault if they have not been properly informed and they will learn from that so at the very least the Government should not interfere. 
However we are very well educated by programmes such as  
Fair Go 
 and  
Target 
 in particular to recognise the reality that even well-informed consumers can be trapped by unscrupulous commercial operators and that there is a need to protect consumers against commercial operators who know information that consumers cannot possibly know. Even if consumers buy the simplest of goods the people who manufacture and market those goods will inevitably understand the nature and quality of their goods and the purposes for which they can be used far far better than consumers who are trying to address all sorts of different goods during their lifetimes. 
The difficulty we have in our society is that we will always find people who use enterprising ways to get around whatever laws are put in. This bill is an endeavour to keep pace with some of the entrepreneurial ideas that such people come up with in order to avoid their legal obligations and to ensure they can market products in a way that unwitting consumers will get sucked into and that they the entrepreneurs can profit by. I note that this bill in particular has gone through a long gestation period. The law was reviewed over a 2-year period from July 1999 to July 2001. The bill has had extensive input since the 2-year period when the review was done. It has of course been through the select committee process where it was further examined in depth. The difficulty is that our commercial world has lost a lot of its moral sanction yet it can operate only where there is a degree of morality in existence and in particular a degree of trust. Even commercial businesses such as car dealerships—which over the years have perhaps borne more than their share of the brunt of criticism for unscrupulous dealing—have people listening to their salesmen when buying cars. Although people may take precautions such as arranging independent checks they still need to rely on the information provided to them in order to buy anything like that. 
The difficulty we face when dealing with fraudsters who will use any legal device to rip off consumers is to know how far Parliament should go in order to protect people from themselves. The balance that has thus far been struck—which this bill follows and which I believe is the right balance—is the knowledge that we cannot stop consumers from going into those sorts of transactions or using their money in the way that they wish to use it. All we can do is to ensure that they have as much information as possible in a format that is easily read and brought to their attention so that they make their decisions as intelligently as possible. Thereafter if consumers want to throw their money at something that is in fact not worth the paper it is written on then that is a choice they must be free to make. In some cases it is appropriate that people are required to obtain independent legal advice before entering into transactions and we find that happening already in the law. But at the end of the day even a lawyer giving independent legal advice—as I know from my own experience—must always say: “Well that’s my advice but you need to make the decision.” People unfortunately sometimes do make decisions contrary to good advice and find themselves entrapped. 
There are two aspects of this bill that particularly please me. One is the requirement for disclosure to guarantors. I have faced that problem in my legal practice over a number of years in situations where somebody signs a guarantee and thereafter the terms of the guarantee—in particular the weight of the obligations placed upon the guarantor—are increased without the guarantor even knowing that let alone consenting to it. That happens in husband-and-wife situations where the husband may be running a business and the wife signs a guarantee that covers and is secured by the family home. The husband can increase the debt of the business and get the business into difficulties without the wife being aware of it. Then the home is suddenly lost because the amount of debt at stake is a lot more than the wife even contemplated. It happens in parent-and-child situations and the mother-and-son situation is perhaps the most typical of those. A young son trying to set out in business may persuade his mother to allow her home to be used as security for an advance. Then the mother finds all of a sudden that the home is stripped out from under her because the son either through bad dealings or simply through misfortune has got himself into financial difficulties. It also happens in small companies where the directors and shareholders are called upon to provide guarantees of the company and then do not have the information the company is generating in order to see how it is going and to understand that the risk they have placed themselves under has increased. 
In my practice particularly with guarantors I got to a point at which whenever a bank required a guarantee I would endeavour to limit it to a fixed amount to a specific loan to a specific period or even to a combination of all those. Effectively the extent of the guarantee could not then be increased without the guarantor’s specific consent to do so. I know that more than once I provided a provision and a bank guarantee stating that the guarantee would cover only a loan numbered 12345 or whatever the number was. In the situation where the bank subsequently over the years refinanced that loan into other loans it then found that the guarantee was not effective because it was restricted. That problem often occurred in situations where the guarantor was unaware of what was going on. So I welcome the fact that guarantors will now know a lot more about the information that has been provided. 
The second area that I am particularly pleased to see provision made for is the buy-back schemes generated over the last 5 to 10 years which have become a bit of a plight. That area falls under the comments I made before about people finding enterprising ways of getting around the law which in this case is the provisions of the Credit Contracts Act. I remember 5 to 10 years ago having a client come to me with some papers about a buy-back / lend scheme. I found that very quickly I was smelling a rat. The papers and the scheme were complex and seemed to be trying to get around the legislative restraints. When I realised that a private company was putting great efforts into marketing a get-money-quick scheme the alarm bills started ringing. When I realised that the company was targeting older people and other vulnerable groups in society with its project the orange lights started flashing. It was not hard at all for me to find that the scheme was untenable. The clients concerned were looking to sell their home for less than its value with an option to buy it back within a certain period of time if they could afford to but otherwise they were selling it at a great loss. Usually I found that clients looking at those schemes were unable to obtain finance from more legitimate sources such as first-lender banks. They had got themselves into debt with credit cards or moneylenders and realistically the likelihood of their being able to repurchase their homes was not particularly high. I strongly advised against the buy-back transaction and it did not go ahead. 
I am very pleased to see that the provisions concerning buy-back schemes are there in the bill. I am also pleased that my colleague Paul Adams was able to increase the penalties which started at $30000 for such schemes. The Commerce Committee put that penalty at 3 months’ imprisonment and a sum of $200000. My colleague’s Supplementary Order Paper increased that to 3 years’ imprisonment and a sum of $200000 and I think that such sanctions are important. 
United Future will support this bill.