Beaumont Carol: Credit Contracts and Financial Services Law Reform Bill — First ReadingText is incorporated into the Bound VolumeBeaumont Carol: Credit Contracts and Financial Services Law Reform Bill — First Reading[Sitting date: 17 September 2013. Volume:693;Page:13406. Text is incorporated into the Bound Volume.]CAROL BEAUMONT (Labour): It is with mixed emotion that I rise to speak on the Credit Contracts and Financial Services Law Reform Bill. I campaigned hard over several years along with my colleagues to stop loan sharks and to improve regulation of consumer credit as part of what was needed. Although Labour is supporting this bill’s referral to the Commerce Committee because it does finally at least make some improvements in regulating consumer credit including third-tier lending or fringe-lending or predatory lending—depending on your point of view—where significant harm is being done every day to many vulnerable families we are appalled by the significant delay in action by the National Government. So anger is one of the emotions I feel and I know this is widely shared.Many people have asked the question as to why the Government has not prioritised this legislation. It has been clear for over 5 years that the Credit Contracts and Consumer Finance Act needed reviewing and strengthening. Labour in Government started a process in 2007 and here we are in late 2013 finally seeing a bill having its first reading. What can possibly justify this delay especially in the tough economic times we are experiencing like those faced by many low and middle income New Zealanders under this National Government? What can possibly justify this delay?In tough economic times the harm caused by predatory lenders loan sharks truck shops and pay-day lenders is huge and has grown significantly. Families struggle to make ends meet with low or static incomes and rising prices and unemployment remains high. This is fertile ground for unscrupulous lenders and we need to have someaction. I have visited budget services around New Zealand and the workers there have told me overwhelmingly that the people they see are hooked into some form of high-interest debt. They say that it has been getting worse over recent years. They tell me the level of debt is higher. They tell me that the complexity of the financial problems that they are trying to sort is greater and that the proportion of people they see who are in paid work has actually increased.Members of the community those in our community organisations our citizens advice bureaux our law centres and MPs—I am sure from both sides of the House—hear these stories and they see the truck shops rattling around the low-income areas in their communities. They see the targeting of our poorer communities by these lenders. They see too the advertisements online and in our community newspapers and they do not like what they see. They know it is wrong and yet National members have sat on their hands for 5 years. This is a Government that is out of touch. It is not as if there have not been opportunities to do something and I think it is about what the Government actually prioritises. That is why we have waited for so long for this legislation and during that time vulnerable families have been harmed by unscrupulous lenders.When this Government came into power there was already a review of the Credit Contracts and Consumer Finance Act under way. In 2009 my former colleague Charles Chauvel had a member’s bill drawn out of the ballot. I picked up that bill the Credit Reforms (Responsible Lending) Bill and launched the Stop Loan Sharks campaign which led to a huge outpouring of support for change. In July 2010 my member’s bill was voted down by National and Act MPs. I subsequently tried to get a joint referral to a select committee and said: “Let’s work on this collaboratively. Let’s do something about this problem.” But again that was turned down by members opposite and this is despite the fact that they know the extent of the problem.In a Cabinet paper from October 2011 it specifically says unlike what the Minister of Commerce has just said that the Credit Contracts and Consumer Finance Act was not working well. It states: “This law is not providing adequate consumer protections against unscrupulous third-tier lenders … whose irresponsible lending practices are resulting in severe financial hardship and spiralling debt.” That is pretty clear. The Government knew that there was a problem but despite that failed to prioritise this work. I think that that is negligent actually. It has caused serious harm to many many families.The harm caused by predatory and unscrupulous lenders obviously hurts the individuals concerned but it also hurts their families. The Ministry of Consumer Affairs’ regulatory impact statement also from 2011 talks about debt resulting in a huge toll emotionally and practically on families. It talks about difficulties in meeting other costs—food transportation and health needs—difficulty in engaging in activities that would normally be considered things that families would do negative impacts on mental well-being and negative impacts on relationships. These are all things that were stated as consequences of this sort of lending. A recent article “When rising debt becomes a black dog”—from yesterday in fact—identifies the cycle of debt says that it is one of the biggest root causes of violence and notes that negative impact on mental health.So I just want to acknowledge—and I know that members opposite would agree with this—that legislative change is not the only answer to this problem. From our side of the House it is also about addressing low incomes. It is also about things like housing affordability which of course this Government is completely out of touch with as many have already noted today. In fact the recent changes to loan-to-value ratios are probably going to push some people into the arms of loan sharks ironically. It is alsoabout financial literacy. It is also about access to fair credit and Labour has already announced that we would put in place a social lending scheme to provide access to credit for low-income people when they need it. But legislation is none the less a vital first step.There are a number of very positive provisions in this bill and I want to acknowledge that. Certainly the provision around the principle of the responsible lender is an important one and one in fact that was in my member’s bill. It will include things like advertising. It will require the making of reasonable inquiries as to the ability of a person to repay a loan. I am pleased to see that one provision is about assisting guarantors in making informed decisions. This code has to be developed though. The cooling-off period is extended. That is a good thing as well as is the fact that regarding unreasonable fees there will be more explicit tests for different kinds of fees and there are numerous fees that many of these lenders charge. I also want to particularly note the repossession provisions that the Minister has commented on. This is very timely. There absolutely is a need to do that work. I would also like to acknowledge the work of the Law Commission in dealing with reviewing the repossession situation which includes the licensing of repossession agents. One of the other things that is in the bill is around hardship provisions being accessible once a person has actually got into default. That is something for which budget services have been asking for a very long time and I am very pleased to see that there as well.So there are many good provisions in this bill but there are a number of concerns that we have as well. First of all and fundamentally there is a failure to address excessive interest rates. One prominent pay-day lender in New Zealand has annual rates of 500 percent meaning that a loan can very very quickly spiral out of control. In other jurisdictions controls are becoming more and more common: in France Germany Canada Mexico South Africa Japan Singapore much of the USA—in fact a bill has just been introduced that will extend interest rate caps across all states—Australia the United Kingdom and almost all of South America. Minister Craig Foss has encouraged members of the public to submit on this matter. I would certainly do the same and I sincerely hope that National members of the select committee will actually take account of what people are saying about this matter.There are other provisions we are concerned about such as whether the dodgy practices of the burgeoning number of truck shops and pay-day lenders will be sufficiently covered by this legislation. Another area I think we could profitably look at in the select committee is whether we need to include provisions around fair debt collection practices to prevent harassment and bullying. So we will be encouraging people to submit and the members of the select committee will be closely scrutinising this bill. As I said we are supporting its referral to the select committee where we will be doing that.I want to close where I started by saying: why did the National Government decide that the regulation of loan sharks truck shops pay-day lenders and the like who lend irresponsibly and charge excessive interest rates was not a priority?