Credit Contracts and Financial Services Law Reform Bill — In CommitteeText is incorporated into the Bound VolumeCredit Contracts and Financial Services Law Reform Bill — In Committee[Sitting date: 08 May 2014. Volume:698;Page:17712. Text is incorporated into the Bound Volume.]Credit Contracts and Financial Services Law Reform BillIn CommitteePart 1 Amendments to Credit Contracts and Consumer Finance Act 2003The CHAIRPERSON (Lindsay Tisch): Members we now move to consideration of the Credit Contracts and Financial Services Law Reform Bill. The question is that Part 1 stand part. This is debate on clauses 3 to 70 and schedules 1 to 3.Dr DAVID CLARK (Labour—Dunedin North): Labour supported this bill the Credit Contracts and Financial Services Law Reform Bill at its first reading but did want to see it given more teeth during its progression through the House. The bill 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 our most vulnerable families.In my own electorate I am aware of vans that have made their way around the suburb of Brockville at times chased away by angry neighbours concerned about the horrendous practices of these predatory lenders. The vans turn up on the day they know that money is most needed. They turn up again when the money comes in to take their cut. They are like some kind of vampire that sucks the life out of vulnerable consumers at the time when they are indeed most vulnerable in what they might see as an opportunity but what the rest of us see as a parasitic type of behaviour.The bill embodies the National Government’s attitude to protecting consumers particularly those most susceptible to being preyed on. Its long-delayed response I think is indicative of a Government that is distracted by other issues more concerned with scandals aroundOravida—The CHAIRPERSON (Lindsay Tisch): No. Order! Part 1.Dr DAVID CLARK: —and its support partners and to come back to the issue less focused on getting this important piece of legislation through the House. I mean 2011 was when Simon Power announced that “The Government is to target unscrupulous credit companies that prey on unwary consumers” and that “There are gaps in the system that allow the unscrupulous to take advantage of the unwary when it comes to access to consumer finance in these tough economic times.” And yet the bill took 2½ years—Hon Tau Henare: It’s a wonder it’s not 50 years.Dr DAVID CLARK: —to even get to the second reading. This Government may have the worst economic record in 50 years as Mr Henare wanted to bring in to the debate but that is very much a broader issue than what we are dealing with here which is the very specific issue of payday lenders and their parasitic behaviour upon those most vulnerable in society.Instead of carrying out its word in terms of the priority that Mr Power pointed out—those “unscrupulous credit companies that prey on unwary consumers”—the Government has passed Crown Minerals bills road-user charges legislation and so onand really has not focused on the issues of looking after our society and regulating it in a way that makes sure that our most vulnerable are looked after.The Government has had numerous opportunities to address loan sharks and predatory lending including the review process commenced by Labour and my excellent colleague Carol Beaumont’s member’s bill the Credit Reforms (Responsible Lending) Bill 2010 which was of course originally drafted by Charles Chauvel. I am sure she will mention that in her contribution and we will look forward to hearing about it. But the Government did not take up that opportunity then. It has sat on its hands focusing on other distractions which I will not mention right now.Serious questions remain though around whether the Commerce Commission is adequately resourced to monitor what is happening in the consumer credit area especially third-tier lenders and in terms of enforcing the provisions provided for in the bill. And we are yet to see whether there is sufficient support for consumers to know their rights and how they can have them enforced.The other thing to point out I guess is that Craig Foss the Minister in the chair has a habit of lodging major Supplementary Order Papers as a bill comes to be read. He has done it belatedly and we have Supplementary Order Papers here that have come before the Committee in that regard. I guess he will explain his behaviour and we will look to understand better why that is so.CAROL BEAUMONT (Labour): Well I have to say it is a pleasure to rise and speak in support of the Credit Contracts and Financial Services Law Reform Bill in the Committee stage and I am looking forward to working our way through the various parts. I was involved in the select committee process on this bill and each part has some very important matters in it. There is no question that this bill makes significant progress and Labour has supported this bill throughout. I will talk specifically about Part 1 but just by way of introductory comments—and this will be a theme that I will be returning to—it is deeply deeply troubling to the Labour side of this Committee that this bill has taken so long to get to this point. When we look at some of the provisions in here that will actually make a difference we need to ask ourselves why we have waited so long. Lots of the provisions in here are things that people have been calling for for years.As for Part 1 I want to start by saying that it is a very good provision to start this bill with a primary purpose that says the Credit Contracts and Consumer Finance Act is to promote “the interests of consumers in connection with credit contracts consumer leases and buy-back transactions of land;”. It is really important that there is a primary purpose around protecting consumers because many of us from right across this Committee will know that particularly in the consumer credit area there is a great deal of harm being done and a great deal of exploitation. Some of it goes right down to some of our most vulnerable citizens: people with mental health issues for example who are being ripped off by truck shops; people who do not have English as their first language; and people who are struggling to make ends meet who are desperate to get money and who are preyed upon by some pretty dodgy characters out there. So I am glad to see that the primary purpose is to protect the interests of consumers.We need to make sure that those are not just pretty words though and that that is actually matched up by the reality. As my colleague Dr Clark says one of the things is that we need to make sure—and we need some commitments from the Government about this—that there will be sufficient resources put into place to ensure that consumers know what their rights are; to ensure that the changes in this legislation are widely promulgated; and to make sure that Government agencies and particularly the Commerce Commission are monitoring what is going on and the impact of the changes in this bill. One thing is certainly clear. This is a very fast-moving part of the market ifyou like and when you look at the Credit Contracts and Consumer Finance Act it is not that old actually. But very quickly it became clear that there were things that were not being adequately dealt with by that legislation.Some of that may have been about what was in the legislation but some of it was because things were changing out there. Anyone who follows this area will tell you that the number of truck shops and the number of pay-day lenders has increased dramatically over even the last 2 or 3 years. There are constant efforts and constant changes and those fringe lenders are finding new ways to exploit and rip off people in our community. I am holding up a pile of papers here. This is some work that was given to me the other day—some internet research done by someone who was interested in pay-day lenders. There is page after page after page of research done on these pay-day lenders that are out there in the market. So we need to be aware that this primary purpose will need to be resourced but we will also need to monitor what is going on and be ready and able to make changes.As I said it is quite concerning that we have known for some time for some years of the need to make changes in this area to protect consumers to meet this primary purpose and we have failed to do so. When I say “we” I mean those members opposite because actually under the last Labour Government when it became clear that the Credit Contracts and Consumer Finance Act was not adequate a review was undertaken. A review was commenced and when the National Government came into office that review was already under way. There had been a summit people had raised their concerns we went through a process with a discussion document and submissions on all of that and there was plenty of information available to act upon. But in fact the Government deliberately deprioritised that work—absolutely deprioritised that work—in favour of the other piece of consumer legislation.In my mind we should have been able to do both. Certainly when we think of how many thousands of people and how many families have been harmed in the intervening years under this National Government by its failure to act it is quite disgraceful. In fact it is irresponsible when you know that there is a problem you know what needs to be done and you do not do that. So I have to say that this primary purpose now needs to mean something. It needs to mean that we monitor what is going on and that we are willing to update the legislation to stop some of the practices that will no doubt develop quite quickly. We also need to make sure that what we are putting in place here actually makes a difference. I think it is important we do that.As well as that primary purpose outlined in clause 4 there are a number of other purposes that are explained. I want to just comment on a purpose that is not there because there are some important provisions there around how the Act will look at responsible lending; look at disclosure of information; look at rules about interest charges credit fees default fees and payments; and look at what happens in hardship for example. They are all outlined as other “purposes” of this legislation but there is one that is missing. We will talk about that quite a lot as we go through this bill.What I find to be a real shame in what is basically decent legislation with some good provisions in it is that the bill is weakened by the fact that we do not have interest rate controls in it. We do not put in place that tool which if you added them all together would have given us a very strong and robust framework to try to really stamp out some of those really really shocking things that we hear about in our communities. When I spoke on the second reading of this bill and we talked about interest rate caps I asked the question: “How many members in this House think that interest rates of 80 percent 100 percent 200 percent or 700 percent are acceptable and is it right to extract that money from people who can ill afford to pay it?”. I ask that question again. That is what is missing here—some ability to stop those kinds of interest rate charges being made.Often people pay those interest rates. People actually pay the loan and the interest off; very low - income families take the loan and pay it off. Certainly some research around Pacific lending showed that. People do their best. Where is that money coming from when we know that families are struggling to make ends meet? Actually it is probably coming out of the food budget and actually it is probably harming children and families and I do not think it is right. I do not think that that rate of return and those sorts of interest rates can be justified under any circumstances. That is the gap in terms of the “purposes” of this legislation. As I have said we will be raising that as we talk about the various parts of this legislation.I was in Palmerston North last Friday with my good colleague our junior whip Iain Lees-Galloway. He usually sits right here next to where I am standing. He is a very fine member of Parliament. During the course of our visit to Palmerston North we talked to some budget services. They outlined some examples including an interest rate of 552 percent. Another example they gave was of somebody borrowing $15000 and paying back $18000. I do not think that was all the interest rate but none the less. They gave another example of a pay-day loan that when annualised had a 1080 percent interest rate.Those are just three examples from last Friday in Palmerston North and I can tell members opposite that you can get those examples anywhere in this country—just go and talk to your local budget service or your citizens advice bureau and they will tell you. Again I ask members to think about whether you can justify interest rates of that magnitude.Hon CRAIG FOSS (Minister of Consumer Affairs): First of all can I acknowledge the members of the Commerce Committee who have done a lot of very good work on the Credit Contracts and Financial Services Law Reform Bill. That can be evidenced by their commentary in their report which is quite detailed and virtually goes through parts of the parts and the various clusters of clauses. As the previous member has just alluded to a lot of good work has come out of that process from when the bill went to the committee to where it has landed now not too much later. I also acknowledge the work that officials did have done and continue to do not only in the committee but also as we have managed to get this bill and the legislation arising from the Consumer Law Reform Bill—which many of them also worked on earlier in the year—into shape.I note the member Carol Beaumont’s point about it having taken a while since this bill was first thought about or discussed or whatever as part of the review of the Credit Contracts and Consumer Finance Act of 2003. I note that when I got the portfolio of consumer affairs I made it a point to prioritise the two very important deep and wide pieces of consumer legislation that still needed quite a bit of work to have ownership by the sector and to have a relatively smooth passage through the House with draft consultations. And of course this bill was waiting for the Law Commission report on repossession.As the committee notes repossession agents will need to be licensed. There will be a lot of rules around them dealing with a lot of the issues that were in the member Carol Beaumont’s portfolio of letters and examples. We all share those issues. Most of the repossession agents are abhorrent; some of them are appalling. The predatory behaviour by some in our communities towards others in our communities—even within small communities—is quite disgraceful and disgusting and I think the 121 MPs in this House will be pleased that at least this bill will make life an awful lot harder for those repossession agents. I say that the electric fence around the place in which those people operate will have a whole lot more volts through it now and will be a lot tighter.A member asked about the Supplementary Order Papers and yes we put a Supplementary Order Paper on the Table yesterday or the day before. As I noted in my letter to members I acknowledge that the time between that arriving and now has been quite short. By and large they are technical amendments and tidy-ups. That is one of the reasons that this is good legislation. A lot of fine-tooth combs have gone through this bill and will continue to do so to make sure it is correct and fit for purpose and remains flexible.One of the speakers Carol Beaumont earlier raised concerns about whether the bill was able to be appropriate in this fast-changing environment and she pointed out some of the issues that had arisen with the Credit Contract and Consumer Finance Act in 2003. It absolutely is appropriate. That is why this bill brings in lender responsibility principles and the code and why what we call the life of a consumer credit contract is the focus of this bill—it is in order to deal with some of the exact issues the previous member raised.I believe that most of the Committee—I think all of the Committee—is supporting this bill. I think we will differ on only one item which the previous member started to talk about and that is the one about interest rate caps. I am sure members will want to have their say and I will talk a bit more about that one a bit later on. I acknowledge the good parliamentary public policy work by Parliament and MPs who were trying to get to the gist of this issue here whilst not damaging by and large the vast majority of consumer credit contracts that go out every day without any issues whatsoever.There are a couple of other things: there is my Supplementary Order Paper and a couple of other Supplementary Order Papers. Someone asked about the Commerce Commission. Their concerns were not so much about the bill—because it is such a good bill—but whether the Commerce Commission is resourced and ready to help implement and execute it on the ground; and about making sure it will do its job as the administrator of this particular bill when it lands. I can assure that member that yes I have asked exactly the same questions actually of the Commerce Commission not only for this bill but also for other legislation that have recently been passed. I think that those exact issues were also raised when the Commerce Commission was at the select committee recently—a very fair question actually. I have assurance from the Commerce Commission and I am quite confident that its new focus is particularly on an area it has not been too involved in: the retail at the hard and sharp end where so much of this damage is happening and areas of our country particularly areas of south Auckland unfortunately where so much evidence and so many of these terrible stories and circumstances have arisen. I do want to inform our members if they do not already know that the Commerce Commission has already hired a person who has a lot of knowledge in this space from one of the budgetary advisory services within south Auckland—fromMāngere I think; I cannot quite remember which of the services there—who has knowledge on the ground and who knows the community.That is probably one of the weaknesses the Commerce Commission has had in the past. It looks after the Commerce Act and all sorts of things like that but right down at the consumer affairs level—at the hard sharp end where people in the community know what is going on in that shop above the shop over there and where they know that someone is chasing someone down with a machete for repossession or repayment of some very very high burdensome loan—will be a new area of focus and resource for the Commerce Commission. Its monitoring of all these activities will be much much more heightened. I think just the process of this bill the questions the committee has asked and the direction where the bill has ended up actually mean that the Commerce Commission is now very aware of my expectations and the expectations of this Parliament—assuming that Parliament continues to support this bill—in terms of whatwe expect of it in this very unfortunate space where predatory behaviour has been happening whilst at the same time it will allow normal transactions to happen as they should.Just briefly for the record—because I realise we will be discussing interest rate caps and things—I want to talk about the life cycle of a consumer credit transaction. Long before the paper is signed and long before the commitment—in fact it will be 5 days after that contract is signed which is an extension of what we currently have—lenders will have to abide by lender responsibility principles. Let me just briefly list some of those. It will be different from now. Many listeners will probably think lenders do this anyway; by and large to be fair many of them do. Some do not and they are whom we are going after.They must exercise the care diligence and skill of a responsible lender in respect of credit advertising and before and after providing consumer credit. In relation to an agreement with the borrower they must make reasonable inquiries to be satisfied that the credit will meet the needs of the borrower and be repaid without the borrower suffering substantial hardship. Included in hardship is the burden of fees interest rates etc. for reference. They must assist the borrower to make an informed decision about whether they should in fact enter into the agreement. They should assist the borrower to make informed decisions in all subsequent dealings. They should treat borrowers and their property reasonably and in an ethical manner including during any repossession process. They should ensure that the terms of the agreement and the exercise of powers by the creditor are not oppressive. They must meet all their legal obligations to the borrower.The lender responsibility principles in so far as they are relevant are also applicable to guarantees and credit-related insurance products. Lender responsibility principles disclosure and changes in reinforcing and modernising repossession of consumer goods under a consumer credit contract are all dealt with mostly in this first part of the bill. We will talk about the second part in the next session I guess. But they are some of the reasons why—yes—it has taken a bit of time.I thank Parliament for joining pretty much together in our absolute focus on trying to alleviate and eliminate as much of this bad dodgy and predatory behaviour by sadly some in our community. It is not on. It is not the Kiwi way and I for one will be a very proud Minister once this bill hits and has passed its third reading for my role and my colleagues’ roles across the House in doing something to try to address this terrible indictment on some in our community.JULIE ANNE GENTER (Green): I rise on behalf of the Green Party to speak on Part 1 of the Credit Contracts and Financial Services Law Reform Bill. I have to start by acknowledging all the incredible work that has gone into this bill particularly from the officials who clearly put many years of work into this legislation and from the other members of the Commerce Committee notably Carol Beaumont who I think is incredibly passionate about protecting vulnerable consumers from predatory lending.The Green Party absolutely welcomes the development of the Responsible Lending Code and the introduction of principles of lender responsibility that will be protecting consumers particularly those who are most vulnerable to third-tier predatory lenders often known as loan sharks. I do not have a whole lot to contribute because we do agree with the vast majority of the bill but I do have to bring up once again—as I have in previous speeches on this legislation—the omission of interest rate caps as a pretty substantial omission. I think it is unfortunate that at least the possibility of testing them or introducing them is not present here in this legislation particularly as New Zealand is now one of the last jurisdictions I think in the world that are not looking at interest rate caps. Certainly they have already been introduced in Australia the United StatesCanada the UK many European countries and Japan. I have not seen any credible convincing evidence that they were going to cause any sorts of problems.One of the two reasons given for not looking at interest rate caps was that firstly it might become a target and therefore everybody would suddenly be choosing the interest rate cap as the standard interest rate. I do not think that is very likely. It certainly does not seem to have been a huge problem in comparable jurisdictions overseas. The other problem which perhaps is more likely is that there would be restricted access to short-term credit. But I have to say that the demand for short-term credit is a symptom of growing inequality. It is true that interest rate caps in and of themselves are not going to be enough to deal with the problems of growing inequality but I think we need to acknowledge that we are in a vicious cycle of inequality and third-tier predatory lenders are part of that vicious cycle.The demand for short-term credit in some of the research that I saw about this bill showed that people were using it to pay for food or rent. It is simply unacceptable that people should have to get short-term loans for basic necessities like food and rent. That problem is only going to get worse if we do not have public policy responses in other areas of this country that are going to address the problem of growing inequality. There is a widening gap between the rich and people who are quite well off and those who simply do not have enough who are struggling to make ends meet from week to week and who are therefore in need of short-term credit. They should not have to turn to predatory third-tier lenders in order to pay rent or to get food on the table and then end up in a spiral of debt.On the one hand the demand for short-term credit is a symptom of growing inequality but it also exacerbates it because the people who are the most vulnerable are at risk of getting themselves into a huge mountain of spiralling debt from which they cannot recover. And so there are other solutions needed not just interest rate caps but I certainly fail to see why that tool was not included in this legislation. We should have at least been able to put it out and try it to see whether it worked. If it did not work there could have been other options. It does not have to be mandated in the legislation itself.I believe there are several Supplementary Order Papers that have been put forward—one by Carol Beaumont and one by Te Ururoa Flavell. The Green Party will be supporting both of those Supplementary Order Papers because they are both different options for at least allowing this tool of interest rate caps to be explored here in New Zealand.I certainly think that given the amount of work that went into this legislation the number of submissions that we heard and the number of years that it has taken for it to get to its Committee stage it is hard to see why if we are still seeing the problem of usury and exorbitant interest rates a year or two down the track there is not going to be a tool to deal with them. I think that is incredibly unfortunate.Although the Green Party is supporting this legislation I just have to reiterate that we regret that there is a lost opportunity to include another tool in our tool kit. I have to say that unfortunately although I commend the National Government and the Minister of Consumer Affairs for bringing this legislation before Parliament and hopefully passing it before the next election—I am sure it will be passed—and it is great to see some movement in the area that is going to crack down on predatory lending which is fantastic ultimately the real underlying causes of inequality are being exacerbated by other policies of this Government.Tax cuts that benefited mainly those on high incomes have cost the country $4 billion already and it is going to be even more. The sale of productive State assets which were earning a good return for all New Zealanders have been sold primarily to overseas owners and to people who were the recipients of the tax cuts—those on higherincomes who had a lot of cash. That is a major transfer of wealth from the people of New Zealand to those who are already earning a lot.I am not sure whether members are aware of this but there is some very interesting economic research that has just been translated into English calledCapital in the Twenty-First Centuryby a French economist called ThomasPiketty—fascinating fascinating research. What it demonstrates is that when interest rates are higher than economic growth rates and the return on capital is higher than economic growth rates there will be a concentration of wealth and growing inequality. What we know fromThe Spirit Level and other really excellent public health research is that when the gap between the rich and the poor is wider everybody is worse off.Ultimately we are going to be facing a problem of sustainability here in New Zealand if we continue to pursue for ideological reasons an approach to deregulation that says we want to see wealth concentrated in the hands of those who already have a lot. The truth is that wealth does not trickle down. The evidence shows that that is not how it works. Although the people who are very well off and have a lot of advantages want to continue to lobby for policy changes that will build in their advantage that is not a recipe for success for the New Zealand economy as a whole. We will continue to see marginalised groups who are struggling to make ends meet who are on low incomes therefore going to short-term credit to predatory lenders in order to make ends meet in order to put food on the table and in order to pay rent. That is simply unacceptable. We can do better than that here in New Zealand. Thank you.ANDREW WILLIAMS (NZ First): I take a call on behalf of New Zealand First in the Credit Contracts and Financial Services Law Reform Bill. We discussed this at length at our caucus meeting on Tuesday and it got a full and robust discussion. The Minister of Consumer Affairs is not going to like this but I have to inform the Minister that New Zealand First is now not going to be supporting this bill. The reason is that we brought to Parliament’s attention a week or so ago how disappointed we were that caps were not going to be put in place on interest rates in this particular bill. During that speech that I gave previously I pointed out that interest rate caps were applicable in Australia the United Kingdom Canada the United States—in all sorts of other jurisdictions they do apply. Countries that we would consider our sister countries in many aspects see fit to have such caps on their interest rates yet this Government has determined it will not include them in this legislation. As a result of that New Zealand First feels that we cannot support the overall bill because we feel that that leaves such a huge gaping hole in the legislation that it will still allow unscrupulous racketeers loan sharks and such like to continue to peddle their wares in parts of New Zealand where our people are most vulnerable.We know where those places are. The Minister referred particularly to South Auckland and some other areas where low-income families are suffering. Porirua parts of Christchurch parts of Hawke’s Bay—we know all the places where this sort of activity is going on. Interest rates can go to triple digits—triple-digit interest rates compounding. In that situation it is just appalling that this Government has not seen fit to mirror the situation in Australia and the likes of Canada where they have put these caps in place. We just cannot understand the rationale as to why the Government would not include that measure.This bill had so much potential. New Zealand First has said so many times in this Chamber that we will support good legislation but we will point out where legislation is sadly wanting. In this case this legislation is sadly wanting because it leaves a gap where you could drive a whole truck bus or anything else like that through it.It is most disappointing that the Supplementary Order Paper that was put up a week or so ago by Carol Beaumont and the Labour Party was voted down and lost by onevote. It was lost by the vote of the Hon Peter Dunne. Had he voted for it it would have gone through and we would have had interest rate caps included in this bill. It was most disappointing. The Hon Peter Dunne and United Future supposedly stand for family values and all sorts of other principles that they say they espouse but he would not stand up for a situation where many of his own supporters we have been advised thought that it was only right that caps be put on interest rates. Yet when there was a member’s bill a few years ago called the Credit Reforms (Responsible Lending) Bill 2010 which was a member’s bill brought in by Carol Beaumont and was originally put together by Charles Chauvel the Hon Peter Dunne voted for that particular bill and in fact wrote a letter that I read out 2 weeks ago which said that he was in support of it. He said: “I hope that further progress will be made on this issue in the future.”So we have a Minister who in 2010 said that he hoped the bill would go through and that it would be supported and that progress would be made in the future. But 4 years later conveniently because he is obviously under instruction of the Government he determines that he will vote with the Government and allows the bill to be voted down. That is very disappointing and the people ofŌhāriu particularly those who are subject to unscrupulous money lenders should be aware quite rightly that their member of Parliament is voting against putting a lid and a cap on extortionate interest rates.It is with regret that New Zealand First has to advise the Minister and the Government that until such time as they review this and look at putting a limit on interest rates and controls on interest rates and at the levels of interest rates that can be charged in this country we just simply cannot support it. We think it leaves vulnerable people in a very very difficult situation again. Regardless of all the fine print regardless of how the contracts are written regardless of how as we heard from the Minister those people are supposedly given an explanation of how things will be it does not make a jot of difference if at the end of the day the interest rates have no cap on them can be set at all sorts of levels and can be compounding and the amount of repayments can start exploding beyond all belief. At the end of the day those lenders will get around it through the fine print and they will continue to act in this manner. We will have people who can badly do with protection from this Parliament and from this Government against being left paying huge amounts while that money should be going to the health and welfare of their children and their families. New Zealand First will be voting against this bill.TE URUROA FLAVELL (Co-Leader—Māori Party):Tēnā koe Mr Deputy Speaker.Tēnātātou katoa.Tātou e huineiitēneipō. I am standing on behalf of the Māori Party to talk to this bill the Credit Contracts and Financial Services Law Reform Bill introduced by the Hon Craig Foss. In particular I want to give some background to Supplementary Order Paper 445 which is in my name. I also advise that we will be supporting the Supplementary Order Paper from Carol Beaumont. Also of course I think that there is support for the Minister’s Supplementary Order Papers down the line.As electorate MPs we have many people coming to our offices—especially obviously those who are Māori—who suffer at the hands of loan sharks. The loan sharks are behind so many of the problems that constituents bring to us. On the surface the problem might be housing it could be access to health care it could even be shoes for the kids. But these problems have apparently come to a head due to a lack of money. A few questions often reveal that there is huge debt all due to the actions of the loan sharks.What is even more concerning is that a single phone call made from time to time to a loan shark might settle the issue it might settle the problem. Why? Well because loan sharks do not want their activities exposed or scrutinised. They prey on the poor and thevulnerable all under the cloak of secrecy and darkness. They feed on the misfortune of others and they would rather forgo that one single loan in order to keep their business under the radar.So under those circumstances no credit contract is freely entered into. The borrower is already under duress before they even approach a loan shark. They are desperate. They want some money to pay the bills to pay the debts. They have lost control of their financial affairs so they are not in a position really to take responsibility for their credit contracts.The Māori Party certainly supports the thrust of this bill in promoting fully informed decisions around credit contracts. We support the idea of responsible lending with interest rates that are commensurate with the risk of default. We support the idea of willing borrowers and willing lenders entering contracts to meet financial crisis situations. But we also recognise that in many cases these concepts simply do not apply. There remain circumstances where people need protection from these predators and that is why I have introduced a Supplementary Order Paper under my name to provide for a maximum interest rate on loans.The approach we have taken is that the Minister can set and alter from time to time the maximum interest rate. This enables the Minister to take into account for example prevailing interest rates at the time on credit cards. The maximum rate is likely to be a little higher than bank credit card rates. If a borrower does not qualify for a bank credit card because of poor credit history for example a slightly higher rate would reflect the greater risk of default while still making credit available to cover for urgent and temporary need. Even this is not the most perfect situation.Whānau still need to be financially literate to be able to budget and to have enough income to supportwhānau. These are all important issues from the Māori Party perspective and I am pleased to say thatWhānauŌra has had success in guiding families towards taking control of their situation including their financial affairs.But unscrupulous loan sharks remain a problem and it is my hope and my sincere view that the Supplementary Order Paper under my name would be part of the solution. I am pleased to hear that other members of this Committee also think so. I hope that they give serious consideration—and indeed the Minister of Consumer Affairs will give serious consideration—to this effort on our part to address the issue and I commend it for all of us to support.CLARE CURRAN (Labour—Dunedin South): Thank you Mr Chair; how gracious. I would like to begin the debate in the Committee stage of this bill the Credit Contracts and Financial Services Law Reform Bill by making a special mention of the woman who has campaigned consistently over the last 6 years for people who are preyed upon by loan sharks and that is Carol Beaumont my colleague. She has taken this issue and been like a terrier in the cause of trying to ensure that there is progress. Of course there have been other people involved and of course this is a Government bill that we are supporting tonight although we do have some issues that you are going to hear a lot about. Carol Beaumont has put a lot effort and commitment into this bill and I think it is really important that the Committee recognises that.I also want to make a special mention. I know that we often thank officials but I do actually want to say to the officials that this has been quite a complex piece of work and your work has been exemplary on this and really detailed and thoughtful. I know that it has not been the easiest bill. This bill has had a long gestation as I think the Minister of Consumer Affairs acknowledged. It has gone through several Ministers. I think that the Minister in the chair the Minister of Consumer Affairs might be the third Minister—Hon Member: Fourth.CLARE CURRAN: —the fourth—who has taken this bill through which is another issue that has to be put on the table because the time taken to get this sort of legislation through the processes it needs does need to come under scrutiny in the House. [Interruption] Five I am being told—five Ministers!Carol Beaumont: Seven or six.CLARE CURRAN: Oh my goodness. Well anybody listening out there would be scratching their head thinking: “Well why?”. We know that there are some complex issues but we have certainly seen far more complex legislation on other complex issues rushed through this House at breakneck speed. This particular piece of legislation is about addressing issues for the lowest paid some of the most vulnerable people in our communities who are being preyed upon by some of the most unscrupulous and rotten people in our communities and one would actually think that this would have been given a higher priority.What I also want to note—because I think we need to tease this out later on—is the actual resource that has been put in behind the scenes to do the important work on this. I have got some question marks around that and I do want to put the Minister on notice that work that needs to be done is still to be done on this bill. We need to be reassured not just in the Commerce Commission but in the ministry itself that there is the resource that is required to do the work and to get this thing through so that it is not just passed in the House but so that the regulations are written and it can come into effect as soon as possible.We debated earlier this week the Psychoactive Substances Amendment Bill which went through—whoosh; just like that—under urgency because there was a great deal of political pressure and community unrest and unease out there. All of a sudden the stops got pulled out and that bill got through. The point is that our most exploited and our most vulnerable people are usually the people who have the least voice and therefore they get ignored in the course of things. So I guess our champion of those people will not be letting up and neither will the Labour Party.Just on that cycle of debt and poverty that this measure is trying to address I will give a little example—and I note that others in this Committee no doubt will be giving examples. Just recently in my electorate office in Dunedin South I had a case of someone coming in who was in absolute desperate straits having got themselves into terrible debt and being a solo parent having no wage. For various reasons which obviously I am not going to go into they had found themselves with lots of debt. That person was begging to use me as a reference to a loan shark because they could not see any other way out of their predicament. I hasten to add needless to say that that is not the course of action that I have taken.The amount of work that you have to do with those constituents is quite high because of the situation that they find themselves. There is self-harm there is desperation and it appears that there is no way out for many of them. I look around the Chamber today and challenge any MP to say that they have not had those sorts of experiences with people who find themselves in these sorts of situations. People are in these situations for lots and lots of reasons but the commonality of those reasons includes the high cost of living; low wages; the rising cost of basics such as food electricity etc.; the lack of language; and the lack of financial literacy. I say to the Government today that the Government claims to have made raising financial literacy in our community a priority and that these are the people who have not got the financial literacy and find themselves in these sorts of situations. The Government has lots of levers that it can use to effect change.This is a pretty good piece of legislation and I am disappointed with New Zealand First’s decision about it. I understand why it is making that decision but I would alsolike to say that an awful lot of work has gone into the bill. A number of those levers are being exercised to effect change but one of the most critical levers has been left out and that is the cap on interest rates. We have heard that there is so much movement internationally on this issue that there is movement in many many jurisdictions on this issue and yet New Zealand has decided that we should not go there and the advice that we got at the select committee was that a cap on interest rates was seen as being a blunt instrument.Well I suppose I would like to say in response two things. One is to ask the Government to show us the concrete evidence that it will not work. Show us that and also think about the blunt instruments that are being used every day out there in our communities by loan sharks and repossession crooks who are turning up with literally blunt instruments and actually using them on citizens on people in our communities to try to see their debts paid—debts based on 100 percent sometimes 100-plus percent interest rates. Those are the sorts of blunt instruments that I would have thought and the community would expect that this Government would address and not take into account the alleged ideological blunt instrument of interest rate caps which is totally out of step with what is happening internationally in this space and is being used in this sort of legislation.We will not be letting up on this and I am hoping that the Minister can provide us with a bit more detail around why interest rate caps are seen as a blunt instrument. Just on that the Supplementary Order Papers that have been put forward by Labour by Carol Beaumont are simply trying to address this as is an accompanying complementary Supplementary Order Paper put forward by Te Ururoa Flavell from the Māori Party which we also support. We ask the Committee during the Committee stage to do the work that the Committee stage should do in the Chamber.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.Su'a WILLIAM SIO (Labour—Māngere): I would like to take just a short call on a few points. Firstly I am heartened by looking at Part 1 in terms of the purpose of the Credit Contracts and Financial Services Law Reform Bill to protect the interests of consumers in connection with credit contracts and consumer leases etc. I am also heartened by the fact that in Part 1A the bill now installs a Responsible Lending Code—the reason being that the previous Ministers of Consumer Affairs prior to this Minister all heard this from the community. In the range of community meetings up and down this country after National became Government following the 2011 election during that period there was the unanimous view throughout the communities that they wanted this protection. So I am heartened that finally after this long period of time this has happened. I also want to acknowledge the Minister because I am heartened by what he said earlier in recognition that there are certain sectors of our communities that are targeted by those in this industry whose predatory nature this bill is meant to harness. So I want to thank the Minister but I also want to acknowledge my colleague Carol Beaumont because she has been quite vigilant in the pursuit of ensuring that we do arrive at this stage although she has been very focused on capping interest.The other thing I do want to put on record is that I am quite angry that despite the evidence of our communities stating quite clearly the need for consumer protection in the credit contract industry it has taken this long. And the thing is that this is an ambulance at the bottom of the cliff approach. There is also an approach that we oughtto be taking because this industry really targets the very vulnerable in our communities and the very vulnerable in our communities are generally on low wages. I think that what we ought to be doing also if we are serious about providing long-term solutions is ensuring that our economy enables people to have good jobs and higher incomes to support themselves. If people on low incomes are unable to sustain their families on the incomes that they are earning this is what happens to them. In desperation they end up borrowing money and end up going to the pokie machines. That has now become a pattern for many on low incomes because of the way that our economy over the years seems to have been embracing a low-income economy. I just think that is wrong.The other factor that I hope that this bill addresses is the complicated way that some of these contracts are written up recognising that in this country of ours the thing to do if we are really serious about protecting consumers is to simplify the process so that people know exactly what they are borrowing and know exactly what they have to pay in terms of interest and any other penalties and I think we also need to curb the amount of penalty fees that some in this industry seem to just get away with. There have been too many families in our communities that end up out of desperation using these services and losing their homes losing whatever valuables they may have and ending up in family break-ups.The point I am making is that yes absolutely I welcome the change of attitude in terms of this bill. I do believe though as some have said in their intention to introduce Supplementary Order Papers that the Government needs to take seriously the question of if there is a sector of our community that is not protected and if we do not provide that protection what sort of a country we are building. I just commend the Minister for bringing this bill finally after his other colleagues seem to have pretended to listen but did not do anything about it. I commend that and listening to his remarks earlier today I am heartened by what he said.PAUL FOSTER-BELL (National): I moveThat the question be now put.A party vote was called for on the questionThat the question be now put.Ayes79New Zealand National 59; Green Party 14; Māori Party 3; ACT New Zealand 1; Mana 1; United Future 1.Noes40New Zealand Labour 32; New Zealand First 7; Independent: Horan.Motion agreed to.The result corrected after originally being announced as Ayes 79 Noes 42.The question was put that the amendments set out on Supplementary Order Paper 442 in the name of the Hon Craig Foss to Part 1 be agreed to.Amendments agreed to.The question was put that the amendment set out on Supplementary Order Paper 445 in the name of Te Ururoa Flavell to insert new clause 22B be agreed to.A party vote was called for on the questionThat the amendment be agreed to.Ayes58New Zealand Labour 32; Green Party 14; New Zealand First 7; Māori Party 3; Mana 1; Independent: Horan.Noes61New Zealand National 59; ACT New Zealand 1; United Future 1.Amendment not agreed to.The question was put that the amendments set out on Supplementary Order Paper 430 in the name of Carol Beaumont to clause 65 and to insert new clause 22B be agreed to.A party vote was called for on the questionThat the amendments be agreed to.Ayes58New Zealand Labour 32; Green Party 14; New Zealand First 7; Māori Party 3; Mana 1; Independent: Horan.Noes61New Zealand National 59; ACT New Zealand 1; United Future 1.Amendments not agreed to.The question was put that the amendment set out on Supplementary Order Paper 431 in the name of Carol Beaumont to clause 63 be agreed to.A party vote was called for on the questionThat the amendment be agreed to.Ayes58New Zealand Labour 32; Green Party 14; New Zealand First 7; Māori Party 3; Mana 1; Independent: Horan.Noes61New Zealand National 59; ACT New Zealand 1; United Future 1.Amendment not agreed to.Part 1 as amended agreed to.CAROL BEAUMONT (Labour): I seek leave to correct our voting record for the closure motion and correct that to 32 votes opposed.The CHAIRPERSON (Eric Roy): Leave is sought for that purpose. Is there anyone opposed to that course of action? It appears not. The record will be amended.Part 2 Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008Dr DAVID CLARK (Labour—Dunedin North): I stand to take this call to debate the aspects that are in Part 2. The purposes of the Act—The CHAIRPERSON (Eric Roy): I am sorry to interrupt the member. The time has come for me to report progress.Progress to be reported presently.House resumed.The Chairperson reported the Heritage New Zealand Pouhere Taonga Bill with amendment progress on the Credit Contracts and Financial Services Law Reform Bill and no progress on the Vulnerable Children Bill.Report adopted.