Goudie Sandra: Consumer Credit Bill — Second Reading 
Goudie Sandra: Consumer Credit Bill — Second Reading 
[Volume:610;Page:8010] 
SANDRA GOUDIE (NZ National—Coromandel) 
: 
 There have been no major changes to our consumer credit laws since 1981 when the Credit Contracts Act came into force. Piecemeal development of the law over a lengthy period has meant that consumer protection is found in many laws such as the Hire Purchase Act the Credit (Repossession) Act the Door to Door Sales Act the Credit Contracts Amendment Act and the Personal Properties Securities Act which replaced the former Chattels Transfer Act and the Motor Vehicle Securities Act. I would point out that it was National that instigated a review of the credit contracts law in March 1999. 
While I was not a member of the Commerce Committee which was responsible for considering this bill I did have the opportunity to participate during some of the hearings of submissions. There has been fairly extensive consultation on the legislation with no fewer than six discussion documents. Some concern has been expressed about the necessity for a new bill as opposed to amending the existing legislation. However the need for greater disclosure and enforcement provisions has been recognised by many people and not least by creditors themselves. This bill does provide for greater disclosure. It puts in place enforcement provisions also has new provisions for hardship and of course the buy-back provisions have been added to the bill. 
However the immediate concern upon addressing this bill in its second reading is the absence of any clarity around the commencement date for the bill to become an Act. On page 7 of the commentary on the bill the select committee has recognised the need for a lead-in time for creditors given the varying compliance costs involved. Those costs are substantial and I will refer to them later. But the Minister may like to clarify the reason for adopting an Order in Council approach for determining the enactment time of the bill—the lead-in time required within the context of the bill. Eighteen months to 2 years was the lead-in time frame preferred by submitters but in the bill the provision is now for an Order in Council. So perhaps the Minister would like to clarify why a more specific time frame has not been set. [ 
Interruption 
] As my learned colleague says that could be addressed during the Committee stage. Maybe some more clarity will be given around that matter because it is of some concern. There are indeed a lot of compliance costs associated with the whole process so creditors do need a period of time in which to address them. For one submitter they were in the order of hundreds of thousands of dollars which is quite substantial. 
One of the worst aspects of the present law is the way in which interest payments are calculated when a consumer repays a loan early. The outdated and unfair rule 78 which has been banned in most other countries still applies. It means that even if people repay their loans very early they will still be liable for almost all the interest costs. Consumers are therefore effectively trapped in loan agreements because even if they find a better deal they cannot afford to change finance companies. So the decision to abolish rule 78 is a positive step. In future there will be limits on how lenders can charge interest and on the types of fees that can be imposed. 
The disclosure requirements seem to be at the very heart of many of the problems with the current credit contracts regime. Stricter disclosure requirements would result in the consumer and the lender being better informed. Disclosure requirements should therefore be improved so that consumers do understand their obligations. Loan documents will in future provide more information so that consumers can understand them better. For example lenders will be required to state clearly whether there are penalties for early repayment and model forms are to be provided in the legislation in order to assist lenders. That is a crucial issue. For most people it is too late once they have signed the documents; they will be stuck with the contract. They therefore need to be very clear about the full implications of a contract before they put pen to paper. 
As one submitter said the starkest way to bring home to consumers the meaning of a credit contract would be to have nothing on the first page of the contract other than the total sum payable in large black letters. I cannot think of a more sensible approach with regard to many of the people who enter into such contracts. However failing that simple language should be used. The provision of independent legal advice to borrowers and guarantors would be incredibly helpful but many of them could not afford that. 
The select committee considered requiring the identification of the full costs of any contract that is entered into and the discussions around that have been reflected by adding a definition of “full costs” to clause 5. However that wording does not appear to have been acted upon in the rest of the bill in terms of the disclosure provisions. A requirement to disclose the full costs of a deal that is being entered into has not been provided for in the disclosure provisions of the bill. Perhaps the Minister would care to take a call and give us an explanation of that or perhaps it could be addressed and any changes made in the Committee stage. We will certainly look forward to the Minister doing that. 
It is to be acknowledged that currently lenders and borrowers already negotiate and vary contracts in certain circumstances. However a hardship clause that is similar to section 66(1) of the Australian consumer credit code has been considered and to some degree included in the bill’s provisions. It does allow consumers to apply to the lender to vary the terms of their contract if they cannot meet their obligations in some very legitimate and reasonable circumstances. Two of the most common ones are illness or unemployment. This is an opportunity to ensure that where there are constraints on a person being able to fulfil his or her obligations but the person still wishes to remedy that and to make some arrangements they now have the opportunity to do that through this bill. 
A consumer credit contract is defined in clause 9 as being one where a debtor enters into a credit contract primarily for personal domestic or household purposes. I did note in the first reading of the bill that the words “domestic and household” were both included in that definition yet have practically the same meaning in the dictionary. I am interested to see that that still applies in the second version of the bill. I do not understand why that is the case and I ask why one of those words was not dropped out. I do not think any of the submissions addressed that matter. 
Clause 13 outlines those contracts that do not fall within the consumer contracts provision and Subpart 2 deals with the disclosure requirements. There are also one or two new additions to the bill. Those are the measure concerning buy-back schemes and the hardship provision which I have already mentioned. 
Finally there was an assertion in the preface to the original version of the bill that compliance costs would be no greater and maybe even less than was expected. However that is an extraordinary assumption. The compliance costs of this bill are incredibly substantial. I cannot understand why the compliance cost report was not carried over into the bill so that more consideration could be given to the length of and the need for certainty around the lead-in time of this bill. To suggest that compliance costs may reduce when a creditor or lessor essentially has to take a number of actions—have a compliance programme whereby employees and agents have to follow procedures implement automated procedures ensure there are methods in place to systematically identify any deficiencies in the effectiveness of the programme and promptly remedy any deficiency discovered—defies belief. After stating all that to then make an assumption that the compliance costs will not be very great or will be significantly reduced is absolutely ludicrous in the extreme. Once one has been made aware of the provisions of the bill one has to be aware of the increased compliance cost for the creditors who will be affected by this legislation. 
The matter raised by the Accident Compensation Corporation with regard to privacy has not been addressed but may be at the Committee stage.