Young Jonathan: Credit Contracts and Financial Services Law Reform Bill — Second ReadingText is incorporated into the Bound VolumeYoung Jonathan: Credit Contracts and Financial Services Law Reform Bill — Second Reading[Sitting date: 10 April 2014. Volume:697;Page:17169. Text is incorporated into the Bound Volume.]JONATHAN YOUNG (National—New Plymouth):I am very pleased to stand and speak in the second reading of the Credit Contracts and Financial Services Law Reform Bill. I want to say thank you very much to the officials who worked alongside the Commerce Committee. This was a particularly interesting but also a very complex and large bill. In fact the commentary that the committee signed off as a record of our work was about 25 pages long—one of the largest commentaries I think in a bill this year. It showed the complexity and the scope of the work that we did.The availability of credit both for businesses and for consumers is fundamental to the sound operation of a modern economy. Many goods and services are purchased through consumer transactions that are partly or completely financed by credit. Without credit such purchases would not occur and consumers and businesses would be worse off. Accessible consumer credit can make a significant contribution to the welfare of consumers and to the prosperity of business.The credit industry can be categorised in a number of ways. The Reserve Bank household financial liabilities report from a year ago shows that there was approximately at that point in time $180 billion of housing loans $9 billion of bank consumer loans and $3.9 billion of non-bank consumer loans.Colmar Brunton produced a report in 2011 for the Ministry of Consumer Affairs entitled Using a third tier lender: experiences of New Zealand borrowers. This report defined the three segments in the consumer credit market—that is first-tier lenders second-tier lenders and third-tier lenders. First-tier lenders include registered banks. Second-tier lenders include building societies credit unions the Public Service Investment Society and other deposit-taking financial institutions. The third-tier lenders are providers of personal non-mortgage credit which are not banks credit unions building societies deposit-taking institutions or credit card providers. Third-tier lenders include finance companies pay-day lenders and moneylenders.Some third-tier lenders are quite large organisations with multiple outlets. However most are single-outlet small operations. Third-tier lenders have tended to focus their business in lower-income areas. A number of lenders operate solely via the telephone internet and/or brokers and third-tier lenders are seeing opportunities and increasing demands for more accessible loans that are not being met by the banks and other credit providers. Third-tier lenders operate in a market where it is easier to engage in practices that potentially take advantage of vulnerable consumers because many of the borrowers have lower levels of financial literacy and/or have low incomes and do not have access to affordable credit.One of the things that we found quite challenging in the committee was the marked differentiation between those different tiers. That was quite a challenge as we looked at wanting to certainly address the real problem that happens particularly in those low-income families and communities where financial literacy is low. I think we worked quite extensively in the committee to try to find those demarcations.One of the areas that we worked on was lender responsibility principles. The bill introduces the concept of responsible lending to New Zealand credit legislation requiring lenders to help borrowers to be reasonably aware. It does not take away the responsibility of the borrower to gain financial literacy but it puts the onus upon the people lending the money to do everything they can to help the borrower to become reasonably aware of the full implications of entering into a credit contract.We recommend requiring lenders to express in plain language the terms of agreements and subsequent variations to agreements to help borrowers and guarantors to reach informed decisions. This is a very important part of the bill. Its sounds simple but when we have a population—particularly in the northern part of the country—that is increasingly made up of immigrants who have come from overseas and whose English language may not be as strong as it is in the rest of country it is important that plain language is used and that borrowers become reasonably aware of those implications.There is much to cover on this but I have probably said enough at this point in time. I am very happy to commend this excellent bill to the House and thank all the Commerce Committee members for their hard work in getting it this far.