Brash Don: Credit Contracts and Consumer Finance Bill — In Committee 
Brash Don: Credit Contracts and Consumer Finance Bill — In Committee 
[Volume:611;Page:8698] 
Dr DON BRASH (NZ National) 
: 
 I am delighted to speak on the bill. My learned colleague the Hon Tony Ryall has drawn the attention of the Committee to what we believe is a significant loophole in the bill. If his legal advice is correct—and we have no reason to believe that it is not—the loophole almost totally negates the purpose of the bill. 
There is not much doubt that our consumer credit law in New Zealand needs updating. For that reason the National Party is basically willing to support some updating of the legislation but it is crucially important that in doing that we achieve what we want to achieve. Clearly that is not being done at the moment in the way the bill has been drafted. My learned colleague has suggested amendments to the bill that we believe would more accurately reflect the desire of this Parliament. I also support the notion that the best way of dealing with consumer credit is to mandate a high level of disclosure and not to mandate a lot of silly rules and regulations. 
I express my regret that notwithstanding the support of that principle a huge increase in compliance costs is involved in putting this bill into place. People such as the members of the Financial Services Federation have expressed their considerable concern about the compliance costs involved in the legislation. In some respects we should not be too surprised at the compliance cost increase because this Government has a sad record of increasing compliance costs in almost every bill it brings down. 
Just a few weeks back—in fact about 10 days ago—KPMG and Business New Zealand released a major piece of work dealing with the compliance costs faced by 760 businesses in New Zealand. They discovered that 98.2 percent of those 760 businesses believed that over the previous 12-month period compliance costs had increased. Only four of the 760 businesses believed that compliance costs had gone down. It seems to me that this bill will continue in the pattern of significantly increasing the compliance costs that businesses—in this case financial institutions—will face and I am bound to say that that is a matter of considerable regret. The faster we force financial institutions to put the bill into practice the greater those compliance costs are likely to be. I certainly support my learned colleague in recommending a transitional period of 18 months to 2 years for bringing in key parts of the legislation. 
I point out one other important part of this bill which worries me a great deal and that refers to the hardship provisions. I was not able to catch your eye Mr Chairman when speaking on the title but I think it is important I make the point that although the addition of these hardship provisions sounds as if they are something useful and constructive for borrowers in New Zealand in fact the result will almost certainly be the reverse. By giving borrowers the right to renegotiate their loans rather than leaving that to the discretion of the lender we are significantly increasing the risk that financial institutions face when they make loans. What will they do in response? There is only one thing they can do which is to turn down loans they judge to be risky. They will also increase the costs of loans they make because the bill as drafted will be increasing the risk they face. I think that that is a seriously retrograde step. 
It is very similar to what the Government is also proposing to do with redundancy payments. It is proposing to give greater security for a larger lump of redundancy payments. What effect will that have? It will put secured creditors at greater risk. So what will they do? They will pull the plug more quickly because they will recognise there are more charges ranking ahead of them. I think that increasing the risk that lenders face is a serious issue. Although it may seem like a sensible helpful thing to do for New Zealand borrowers the reverse is almost certainly the effect.