Tisch Lindsay: Consumer Credit Bill — First Reading 
Tisch Lindsay: Consumer Credit Bill — First Reading 
[Volume:606;Page:3524] 
LINDSAY TISCH (NZ National—Piako) 
: 
 I wish to take a short call to cover the points that came up earlier in the debate and were mentioned by Dail Jones and by my colleague Pansy Wong. The explanatory note in this bill brings to my attention some major concerns as to why we should want to repeal the Credit Contracts Act and the Hire Purchase Act. There are two points I want to bring to the House’s attention which I am sure will be canvassed in detail in the select committee. The first point is on page 2 of the explanatory note. It states: “The Bill clarifies that the debtor has a right to pay out the contract at any time ( 
full prepayment 
) while allowing the creditor to recover a charge that does not exceed a reasonable estimate of the loss suffered by the creditor on full prepayment.” What is the incentive for somebody to repay a loan if there is a penalty for doing so? 
I bring the attention of the House the heading “What you may have to pay if you cancel” in schedule 1. One of the most important things for individuals and even for businesses to do is to reduce debt loading. Eighty-five percent of small businesses in New Zealand employ fewer than 5 people. One of the major factors in the work I have done over the last 15 years as a management consultant is refinancing and restructuring. We have looked at debt reduction how we can grow a business and make things a lot easier. One of the incentives is to reduce and actually clear that debt. Here we have a provision that states that if people are going to do that and cancel their contracts then they will be penalised for it. What incentive is there for an individual to clean the slate and get rid of his or her short-term debt if he or she is to be penalised for doing so?  
The second major point I want to bring to members’ attention is in the explanatory note. It describes the provisions in clauses 24 to 28 which are about the debtor’s right to cancel a consumer credit contract as the “cooling-off” provisions. It states: “These ‘cooling-off’ provisions are substantially similar to the equivalent provisions in the 1981 Act. However while the equivalent provisions in the 1981 Act applied to modification disclosure these provisions do not apply to variation disclosure.” A lot of the work done over the years in restructuring has been to look at variations that extend the term. One can often get people into a viable business situation by looking at variations. It might be the variation of a mortgage on a property. For example the term of a mortgage can be extended its terms and conditions can be exchanged and different interest-free loans can be considered. If someone other than the mortgagee wants to lend the money then priority might have to be conceded to allow that person to come in. That is part of what happens in the real world. Variations of the terms and conditions of mortgages and credit contracts are very important yet this bill will stymie that. When the bill gets to the select committee those are questions that people will ask. Although we are supporting the bill to the select committee we have major concerns about the compliance costs that will be associated with it.  
The third area I want to bring to members’ attention is the operation of leases. The bill actually talks about consumer leases. I have been a strong advocate of leasing. In fact over the years I have never owned a car; I have always leased one. In that respect I have been able to go into a dealer—in my case a Ford dealer—and drive out with a nice car. I have been able to operate that vehicle for a period of say 2 or 3 years or until 60000 kilometres have been clocked up. I have been able to enter into two types of leases—a full operating lease in which the Ford dealer or the Ford credit company whoever is providing the finance— 
Hon Dover Samuels 
: I hope it’s got a warrant of fitness. 
LINDSAY TISCH 
: Of course the car has a warrant of fitness! I always drive with a warrant of fitness as the member would know.  
With a full-operating lease the costs of registration warrant of fitness insurance and repairs and maintenance on a new vehicle would be covered. Or I could opt for a lease whereby I meet those commitments or outgoings and after a period of a couple of years maybe change the vehicle. From a taxation point of view there are major advantages for a business in leasing because there is no capital outlay. Instead of buying a vehicle for one’s business and maybe paying $30000 to $40000 one can free up that capital by leasing. In the work I have done over a number of years in my previous occupation I found that leasing was an option. If capital is an area of concern a limiting factor in the way one operates then that capital can be freed up. We have looked at that area not only in respect of business but also in respect of individuals. Leasing can be done with computers fax machines and cellphones. In fact the first cellphone I ever operated back in 1993 was one of those big bricks. Do members remember those? To buy one of those at that time cost nearly $1000. 
Darren Hughes 
: You haven’t still got it? 
LINDSAY TISCH 
: I do not have it now.  
In less than 12 months the cost of cellphones fell to below $300. Now there are companies that give them away. The point I am making is that by having flexibility in financing an operation people were able to get a short-term lease on a phone and pay in this case $85 per month. They are not committed to it and after a short period of time they are able to replace it. As technology expands rapidly there is huge move to lease the sorts of things I have mentioned—Eftpos machines in businesses for example. Why pay $3000 when one can be leased for about $65 a month? My point is that leasing is a very important part of an operation whether for business or for individuals.  
The fourth major point I want to bring to the attention of the House follows up on the point about the finance rate made by Dail Jones just before the dinner break. He made a comparison saying that if he borrowed $1000 but at the same time had to pay the interest rate the establishment fee a booking fee and insurance then those things could add a major cost to the loan. If I am going to borrow money or if any person I am dealing with in a restructuring situation is going to borrow money then we really want to know what the true cost of borrowing is. It is no good just talking about the interest rate. Dail Jones mentioned an interest rate of 10 percent. In fact the true interest rate—or the true finance cost of borrowing the money—could be in excess of 30 to 40 percent. That is the area that this bill does not address and it is one of the reasons we are supporting it to the select committee. We have major issues with the compliance costs and how the measure will work in the long term. We believe that many questions will be asked in the select committee about how it will work.  
Pansy Wong asked earlier why we would want to bring in this legislation. What was wrong with the Acts we had that were mentioned earlier—the Credit Contracts Act of 1981 and the Hire Purchase Act of 1971? We are looking at a comparison here. I do not believe that there is a change significant enough to repeal those pieces of legislation and replace them with this legislation. This is being done at the Government’s whim and hard questions have to be asked about how this bill will work and what the benefit will be to the borrower. At the end of the day the borrowers are the most important people. They are the customers and we have to look after them. I am really concerned about the compliance cost and the finance rate. They are not mentioned and they are issues that I am sure will come to light.