Beaumont Carol: Credit Contracts and Financial Services Law Reform Bill — In CommitteeText is incorporated into the Bound VolumeBeaumont Carol: Credit Contracts and Financial Services Law Reform Bill — In Committee[Sitting date: 08 May 2014. Volume:698;Page:17723. Text is incorporated into the Bound Volume.]CAROL BEAUMONT (Labour): Part 1 of the Credit Contracts and Financial Services Law Reform Bill is an opportunity to talk about the primary purpose and other purposes of the Credit Contracts and Consumer Finance Act. The primary purpose about protecting the interests of consumers is a good primary purpose. Part 1 then looks at some of the other purposes and some of the ways that we are going to achieve that which the rest of the bill then goes into more detail on. I want to note just some of the other purposes: confident and informed participation in the markets by consumers; fair efficient and transparent markets; protecting the interest of consumers under credit contract consumer leases and buy-back transactions of lands; and providing remedies for debtors which includes things like oppressive contracts and oppressive conduct. Then there is a range of ways that those purposes will be achieved which are outlined in more detail in the next part of the bill. But as others have commented one of the ways that that could have been done and the big gap in this bill is through interest rate caps.I also want to note some other things. In relation to protecting consumers the primary purpose of the bill I say that consumers are people of course. Consumers are people who operate in a context and that context at the moment is pretty tough for lots of people. So part of the reason that we have some of the problems we have with these predatory lenders—the loan sharks the truck shops the pay-day lenders—is because people cannot make ends meet. Families are struggling because there is high unemployment and there are low wages.I want to acknowledge budget services because we have not really talked about them in any detail. Budget services have been at the forefront of seeking change to the Credit Contracts and Consumer Finance Act because they have seen where it has not met the current needs. They have identified problems in the Act that this bill will fix—for example in the hardship provisions which we will talk about later. Budget servicesstaff are people who do an amazing job and I do want to put on record that I am sure all of us actually really appreciate the work that our budget services do. They are where the rubber hits the road if you like. People working for budget services go in and try to help those in debt. As one person said to me last Friday in Palmerston North 99 percent of the people they see are hooked into high-interest debt. That is the starting point. They also say that nowadays the levels of debt are higher that the arrangements are more complex and that they are seeing a greater percentage of people who are actually in the workforce so it is not just about beneficiaries.That is the context in which people are consuming and why the need for consumer credit exists. Even for people who maybe are just managing—just managing—if something then goes wrong and they have not got savings they are not confident to deal with the banks or they cannot get loans from first-tier lenders then what happens is that these predatory lenders are the ones who are advertising and really trying to hook them in with easy credit no questions asked and by telling them not to worry about bad debt. Some of that will be helped by provisions in this bill and I want to acknowledge that again. There are many good features in the bill.Can I just say while I am talking about that something about the officials who worked with the Commerce Committee. I think the select committee as a whole worked pretty hard on some pretty complex areas. It did some quite detailed work. We were well supported by Roger and the team of officials from the Ministry of Business Innovation and Employment. They did a really good job. We kept asking lots of questions: “Give us information about this. How will it apply to truck shops?” etc. Unfortunately probably the area that is weakest is the evidence around why interest rate caps will not work. I actually think—and we will talk about this more—that a lot of the reasons seem to be the same tired old reasons that have been said by previous Ministers of Consumer Affairs over the last 6 years. But I have to say that generally the work has been absolutely fantastic and the legislation has certainly been improved by the work of the select committee and by the work of the officials and indeed by the people who submitted on this bill.Consumers operate in a context. If we are trying to protect them we need to be noting that part of the problem for some people is that the numbers are never going to add up and therefore we need to make sure that people do not exploit that. Responsible lending provisions are one of the purposes outlined in Part 1. To achieve the purposes which I have already gone through there is going to be a requirement on responsible lenders both when they provide credit or finance and for the duration of those agreements as well. That will be right through the process of advertising people actually getting the loans and then people managing the loans. That is one of the ways that the purposes of this legislation as outlined in Part 1 will be met as is the disclosure regime around adequate information. We will in the next part be looking at the code but there has been some good work done on looking at how we can make sure that consumers have adequate information.Again in terms of the context I have talked about how tough it is to make ends meet. One of the other contextual issues is financial literacy. That is clearly not covered by this legislation but it is one of the areas that we would all agree needs to be dealt with. I would say that it is one of those things where we can all go: “Oh we need to improve financial literacy.” I have to say that what we need to do is work out exactly how we are going to do that and actually do it. It is not for want of good material which is out there. There is material developed for example by the Commission for Financial Literacy and Retirement Income and others. What we really need to look at is how we can lift financial literacy. It is possible that the responsible lending provisions will assist with that as people get given information in a more digestible and understandable form.Then there are provisions in this legislation to achieve the purposes around rules interest charges credit fees and default fees. That is again probably one of the other areas where we have a slight concern—around fees and clarification around unreasonable fees We felt that that was watered down a bit and we will talk about that more when we get to that part as well.The hardship provision is mentioned here and it is one of the ways to achieve the bill’s purposes. Just to explain for those listening at the moment the Credit Contracts and Consumer Finance Act has a provision that enables you to apply for hardship and to try to vary the loan that you might have. The problem is that you can do it only before you actually get into arrears. But that of course and as people know and certainly the budget advisory services see every single day is not when people identify they have a problem and try to do something about it. Generally speaking people are already in arrears. This bill will enable that to match the reality. So that is a good thing.The rules around security interests are also mentioned in Part 1 in terms of ways of achieving the bill’s purposes. Again this is something that the budget services have been identifying right from when the review was started. There are some terrible situations in this country where people are securing all of their household items right down to linen and kids’ toys and all sorts of other things. We have had some discussion on that. In the end children’s toys were not included in that list of things that you cannot secure your loan on but that list does mean that there will be some limits around securing loans on basic household items that people need just to be able to live day to day. So that is an important provision as well.In this Part 1 we have of course also got all our definitions. I do not intend to go through them all but I just note one of the definitions in here—and I am very pleased that this is something that is dealt with in the legislation—is the issue of guarantors. Responsible lending principles and a code will apply to guarantors. I have to say I think that is a very very good thing. Here I am particularly thinking of grandparents who feel under some considerable pressure many times whether it is self-inflicted pressure or pressure that is being put on them by their kids and grandkids who are struggling and want to get a loan and want somebody to be the guarantor for that loan. The problem is that we have probably all seen examples where people have guaranteed loans that in the end can in some cases cost them their house.