Consumer Credit Bill

I move, That the Consumer Credit Bill be now read a second time. I would like to thank the Commerce Committee—in particular, the chair, Mark Peck—for its thorough and timely consideration of this bill. I would like to thank the submitters for their efforts in preparing very thorough submissions that have led to numerous technical enhancements of the bill, and as well the officials who worked so hard to get this bill back to the committee, and back to the House, in time.

This bill overhauls the credit law framework by replacing outdated statutes—the Credit Contracts Act of 1981 and the Hire Purchase Act of 1971—with innovative, state-of-the-art legislation designed to protect consumers in a modern finance market. The benefit of this new legislation will be tough enforcement against creditors who flout the law and exploit consumers. In particular, the legislation empowers the Commerce Commission to take action in response to breaches. The bill provides better-quality and more relevant information for consumers about the terms and costs of credit, and provides flexible but fair rules relating to fees and interest charges on credit contracts. It reduces compliance costs for providers of commercial credit, and simplifies the law so as to meet the needs of both creditors and consumers.

The Commerce Committee considered this bill and the submissions on it, and reported back to the House, recommending that the bill be passed with some amendments. I would also like to acknowledge the strong support the bill received from both creditor and consumer interests.

I particularly want to draw attention to two aspects of the bill as reported back. The first is the amendment concerning property buy-back schemes. I wish to draw the attention of the House to that as it was one of the key issues considered by the select committee, and has resulted in a significant amendment to the bill. The Government recently placed eight companies participating in buy-back schemes into statutory management. A large number of consumers are affected by those schemes and have lost, or may lose, their homes. Without the new measures now in the bill there was the potential for further detriment, and that is a matter that every member of Parliament, every homeowner, and everybody in New Zealand should be aware of.

A property buy-back scheme involves a consumer selling his or her home to a company or an individual in return for the right to occupy the home for a fixed term, with the option of repurchasing the home at the end of that term. The sale proceeds are often used to repay existing debts owed by the consumer. However, the transactions are often structured so that the consumer cannot usually afford to repurchase the home. They often involve exorbitant establishment fees. I am aware of schemes in which consumers have paid between $20,000 and $55,000 in establishment fees. Many of the consumers involved in those schemes do not realise that they have sold their homes until they are notified of the commencement of mortgagee sale proceedings. In most cases, the transactions do not meet the definition of a credit contract under the Credit Contracts Act and, until now, would not have met that definition under this bill. That is because the consumer does not necessarily incur a debt under the transaction. Buy-back schemes have only become prevalent as a form of consumer financing since the late 1990s, which is one reason that they have slipped around the Credit Contracts Act and the bill as it was originally drafted.

The select committee recommended amendments to the bill that will protect consumers against future losses from buy-backs, as well as provide remedies for consumers already involved in buy-back schemes. The bill will require disclosure of information about buy-backs, and it will also require the provision of independent legal advice to consumers entering into buy-backs and certification by solicitors that that advice has been given. The bill will prevent the transfer of property without the court’s permission when initial disclosure has not been made, or when independent legal advice has not been provided. It will also ensure that the remedies against oppressive conduct in Part 5 of the bill apply to buy-back schemes. I am confident that those measures will reduce the attractiveness of buy-back schemes to financiers, while enhancing the ability of consumers to understand the nature and risks of those transactions. I predict that that combination is likely to see that form of finance scheme leave the market.

Another significant amendment made by the select committee is the inclusion of a hardship provision. Submitters from voluntary welfare and consumer groups sought the inclusion of a hardship provision in the bill equivalent to that contained in Australian legislation. The committee wrote to all submitters, seeking their views on that. The Australian provision enables debtors to seek changes to credit contracts on specified grounds of unforeseen hardship, such as the loss of employment or the end of a relationship, that are considered to be good causes to allow debtors to apply for relief under a credit contract. If the creditor does not agree to the changes sought, the debtor can apply for a court order. Most creditor submitters argued that the provision was unnecessary, because responsible creditors, following an approach from a consumer in unforeseen hardship, would make the changes contemplated by the bill, anyway. While I accept that, I believe that the practice of responsible creditors should be made the standard for the whole of the credit market.

Less reputable creditors are too quick to promote unnecessary and expensive refinancings, rather than a simple variation to the original contract. The hardship provision is aimed at that sector of the market. The committee has ensured that the hardship provision has been carefully drafted to avoid abuse by debtors seeking to frustrate legitimate enforcement proceedings. For example, debtors already in default on their payments cannot invoke the provisions in order to buy time. I am pleased that the committee has effectively balanced the concerns of consumers and creditors in its recommendations.

Once again, I thank all members of the select committee for the work they have put into this bill. It is a very timely bill that represents a worthy step towards improving the effectiveness of New Zealand’s core consumer legislation, which is at the heart of an effective market economy. I commend this bill to the House.

There have been no major changes to our consumer credit laws since 1981, when the Credit Contracts Act came into force. Piecemeal development of the law over a lengthy period has meant that consumer protection is found in many laws, such as the Hire Purchase Act, the Credit (Repossession) Act, the Door to Door Sales Act, the Credit Contracts Amendment Act, and the Personal Properties Securities Act, which replaced the former Chattels Transfer Act and the Motor Vehicle Securities Act. I would point out that it was National that instigated a review of the credit contracts law in March 1999.

While I was not a member of the Commerce Committee, which was responsible for considering this bill, I did have the opportunity to participate during some of the hearings of submissions. There has been fairly extensive consultation on the legislation, with no fewer than six discussion documents. Some concern has been expressed about the necessity for a new bill, as opposed to amending the existing legislation. However, the need for greater disclosure and enforcement provisions has been recognised by many people, and not least by creditors themselves. This bill does provide for greater disclosure. It puts in place enforcement provisions, also has new provisions for hardship and, of course, the buy-back provisions have been added to the bill.

However, the immediate concern upon addressing this bill in its second reading is the absence of any clarity around the commencement date for the bill to become an Act. On page 7 of the commentary on the bill the select committee has recognised the need for a lead-in time for creditors, given the varying compliance costs involved. Those costs are substantial, and I will refer to them later. But the Minister may like to clarify the reason for adopting an Order in Council approach for determining the enactment time of the bill—the lead-in time required within the context of the bill. Eighteen months to 2 years was the lead-in time frame preferred by submitters, but in the bill the provision is now for an Order in Council. So perhaps the Minister would like to clarify why a more specific time frame has not been set. [Interruption] As my learned colleague says, that could be addressed during the Committee stage. Maybe some more clarity will be given around that matter, because it is of some concern. There are, indeed, a lot of compliance costs associated with the whole process, so creditors do need a period of time in which to address them. For one submitter, they were in the order of hundreds of thousands of dollars, which is quite substantial.

One of the worst aspects of the present law is the way in which interest payments are calculated when a consumer repays a loan early. The outdated and unfair rule 78, which has been banned in most other countries, still applies. It means that even if people repay their loans very early, they will still be liable for almost all the interest costs. Consumers are therefore effectively trapped in loan agreements, because even if they find a better deal they cannot afford to change finance companies. So the decision to abolish rule 78 is a positive step. In future, there will be limits on how lenders can charge interest, and on the types of fees that can be imposed.

The disclosure requirements seem to be at the very heart of many of the problems with the current credit contracts regime. Stricter disclosure requirements would result in the consumer and the lender being better informed. Disclosure requirements should therefore be improved, so that consumers do understand their obligations. Loan documents will, in future, provide more information, so that consumers can understand them better. For example, lenders will be required to state clearly whether there are penalties for early repayment, and model forms are to be provided in the legislation in order to assist lenders. That is a crucial issue. For most people, it is too late once they have signed the documents; they will be stuck with the contract. They therefore need to be very clear about the full implications of a contract before they put pen to paper.

As one submitter said, the starkest way to bring home to consumers the meaning of a credit contract would be to have nothing on the first page of the contract other than the total sum payable, in large black letters. I cannot think of a more sensible approach, with regard to many of the people who enter into such contracts. However, failing that, simple language should be used. The provision of independent legal advice to borrowers and guarantors would be incredibly helpful, but many of them could not afford that.

The select committee considered requiring the identification of the full costs of any contract that is entered into, and the discussions around that have been reflected by adding a definition of “full costs” to clause 5. However, that wording does not appear to have been acted upon in the rest of the bill, in terms of the disclosure provisions. A requirement to disclose the full costs of a deal that is being entered into has not been provided for in the disclosure provisions of the bill. Perhaps the Minister would care to take a call and give us an explanation of that, or perhaps it could be addressed, and any changes made, in the Committee stage. We will certainly look forward to the Minister doing that.

It is to be acknowledged that currently lenders and borrowers already negotiate and vary contracts in certain circumstances. However, a hardship clause that is similar to section 66(1) of the Australian consumer credit code has been considered and, to some degree, included in the bill’s provisions. It does allow consumers to apply to the lender to vary the terms of their contract if they cannot meet their obligations, in some very legitimate and reasonable circumstances. Two of the most common ones are illness or unemployment. This is an opportunity to ensure that where there are constraints on a person being able to fulfil his or her obligations, but the person still wishes to remedy that and to make some arrangements, they now have the opportunity to do that through this bill.

A consumer credit contract is defined in clause 9 as being one where a debtor enters into a credit contract primarily for personal, domestic, or household purposes. I did note in the first reading of the bill that the words “domestic and household” were both included in that definition, yet have practically the same meaning in the dictionary. I am interested to see that that still applies in the second version of the bill. I do not understand why that is the case, and I ask why one of those words was not dropped out. I do not think any of the submissions addressed that matter.

Clause 13 outlines those contracts that do not fall within the consumer contracts provision, and Subpart 2 deals with the disclosure requirements. There are also one or two new additions to the bill. Those are the measure concerning buy-back schemes and the hardship provision, which I have already mentioned.

Finally, there was an assertion in the preface to the original version of the bill that compliance costs would be no greater, and maybe even less, than was expected. However, that is an extraordinary assumption. The compliance costs of this bill are incredibly substantial. I cannot understand why the compliance cost report was not carried over into the bill, so that more consideration could be given to the length of, and the need for certainty around, the lead-in time of this bill. To suggest that compliance costs may reduce when a creditor or lessor essentially has to take a number of actions—have a compliance programme whereby employees and agents have to follow procedures, implement automated procedures, ensure there are methods in place to systematically identify any deficiencies in the effectiveness of the programme, and promptly remedy any deficiency discovered—defies belief. After stating all that, to then make an assumption that the compliance costs will not be very great, or will be significantly reduced, is absolutely ludicrous in the extreme. Once one has been made aware of the provisions of the bill, one has to be aware of the increased compliance cost for the creditors who will be affected by this legislation.

The matter raised by the Accident Compensation Corporation with regard to privacy has not been addressed, but may be at the Committee stage.

First, I congratulate the Commerce Committee on the good work that it did on this bill and on two others that were reported back on the same day. I know I cannot refer to other bills that have been reported back, but the Commerce Committee is a very busy committee, and—

💬 Darren Hughes: A very good committee.

Well, it is a very good committee. I also recognise that Darren Hughes is a member of that committee, which is probably one of the reasons that it is such a good committee and gets through its work in a timely manner.

This bill is quite a major piece of work. It does replace a number of statutes—the Hire Purchase Act, the Credit Contracts Act—and consolidates them into one piece of legislation. The submitters were quite keen on that, as it now means that we can essentially find our way through the credit contract law within one Act. That is a good thing—and it is about time it was done.

For the record, I also note that Sue Bradford was a member of the committee. Sue Bradford has long been a tireless worker on behalf of the oppressed and downtrodden, and she was certainly there providing a voice for them—along with her Labour colleagues, I might say, who put a lot of effort into making sure that the interested consumers were well represented at that committee.

I congratulate John Tamihere on uncovering the scam involved in the buy-back schemes. As a result of the work that he did, the Minister of Consumer Affairs presented us with a Supplementary Order Paper. I congratulate her and her officials on getting that work to the committee in a timely manner, as it was a major piece of work. There was a lot to consider as we went through the bill. Getting that Supplementary Order Paper included in the bill involved quite a bit of footwork, but it was nicely manoeuvred along the way. That is one of the reasons that I do want to congratulate other members of the committee, as well. There was unanimous agreement that the buy-back schemes needed to be dealt to. I do agree with the Minister’s speech, when she said it is likely that that form of credit will disappear, as a result of the provisions that are to be put into place by this legislation.

I do not want to speak at any great length on this matter. This bill is good legislation that will protect the interests of consumers. It will also enable consumers to become informed at the time that they enter into contracts, and it provides very clear, transparent rules for charging interest fees, calculating balances, and things of that ilk. This is a good piece of new law, and I look forward to its rapid progress through the House.

New Zealand First will broadly be supporting this legislation. There are two or three matters that need to be tidied up, which hopefully the Government will respond to at some stage. Brent Catchpole, the New Zealand First member of the select committee, worked particularly hard on this bill.

💬 Mark Peck: He is a very good member.

As Mr Peck has said, he is a very good member. He is on another select committee at the moment, having been, I think, in Christchurch this morning and back in Wellington this afternoon. It is unfortunate that he could not speak to the bill, because I am sure he would do a much better job on it than I am about to do—although I spoke in the first reading, and have a broad idea of what is involved in this legislation.

I see that the Consumer Credit Bill was reported back from the Commerce Committee on 5 August. It went there a little while ago, and has come back very promptly, and the select committee as a whole is to be congratulated for its endeavours. It was called the Consumer Credit Bill and, as I understand it, it is now to be called the Credit Contracts and Consumer Finance Bill. So anyone looking for it will get the idea that to some extent it has gone back to the name it used to have—the Credit Contracts Act. But it is now called the Credit Contracts and Consumer Finance Bill, and although it says 2002, it will become 2003.

One of the areas of concern already mentioned by Sandra Goudie of the National Party is the commencement of this legislation, which is very unclear. The commencement, as shown in clause 2, states that certain parts of the bill will come into effect when it receives the royal assent, other parts when it receives the royal assent and “on a date to be fixed by the Governor-General by Order in Council”, and a third section also “on a date fixed by the Governor-General by Order in Council.”

It would be much more satisfactory for the commercial community, and the public generally, to know precisely when this bill will come into effect. A tremendous amount of software change will be required to give effect to this legislation, and one of the important things about law is certainty. Leaving the commencement as it is will mean members of the commercial community working flat out so that they are not caught out by legislation that might suddenly be introduced in 3 months’ time—only to discover that they have changed everything, but the bill does not become law until 12 months later. Certainty is important, and during the select committee stage I am sure that other members of this House, and other parties in this House, will join New Zealand First in setting a date by which those particular sections of the Act are to come into effect. That will avoid uncertainty, and a waste of time and costs, for the people who have to implement this legislation.

I was interested to read the Consumers Institute’s submissions. It is always very useful to look at certain highly regarded bodies in particular areas, and the Consumers Institute is always a leading body in this area. It was concerned about enforcement procedures when dealing with disputes tribunals, guarantors, and suchlike.

Overall, I think that the committee has responded well, especially with regard to the hardship provisions—something that appears to have been taken from Australian legislation, but there is no reason that they should not apply to New Zealand. One of the problems with hardship provisions, though, is that granting relief to people when they never have any way of getting out of the hole they are in makes it even worse when the day of reckoning comes. I hope the people who apply the hardship provisions contained in the bill bear that in mind, and do not automatically grant relief when they are just making it worse for borrowers. As far as lenders are concerned, their security, or amount owing, gets greater, and the degree of security is reduced, as well. That is something to keep a close watch on.

With this type of legislation, I always look at the views of the New Zealand Law Society, and perhaps a Government member will explain to me why the society’s suggestion that the “annual interest rate” be redefined was not taken up. In paragraph 3 of its submission, the society stated: “The bill is apparently designed to simplify the concept of the annual interest rate, annual interest, or finance rate. It does this by defining ‘annual interest rate’ as ‘a rate specified in the credit contract as an annual interest rate’.”

That does not take us terribly far. The Law Society states: “This is problematic because it allows a creditor to decide which, if any, charges and fees to include in the definition, which in turn defeats the purpose of facilitating meaningful comparisons between competing credit arrangements.” It refers to the ministry’s consultation document, and in looking at the question of the annual interest rate, it looks at schedule 1 and the way in which Parliament has prepared key information concerning consumer credit contracts. References are made in schedule 1 to the annual interest rate, but apart from a couple of words being changed, there do not seem to be many amendments to that schedule. I wonder whether the select committee has done enough to clarify the problem suggested by the Law Society, but no doubt we will hear further if problems arise in that respect.

The question of advances is an interesting one. Various suggestions were made as to the definition of “advances”, and I am sure that people will take the matter into account. No change was made to the definition of “cash price”, which I thought was a little strange, but I guess that will become clearer later on.

One of the important definitions put into the bill, which I am sure all people in the finance industry will be interested in, is a clearer definition of “credit contract” in clause 6A. It deletes the reference to “credit contract” in the interpretation clause and puts a special definition of “credit contract” into that provision.

Members have already mentioned the buy-back provisions, which is not a new area. In all of those fields, I think it is important that an independent lawyer looks at the whole situation. Unfortunately many of those affected have borrowed far too much and are heavily encumbered. One hopes that there will be a lawyer about who will take the time to look at the proposal, because sometimes the documentation is very expensive and the people involved in the buy-back do not have any money with which to do it. The appeal of a buy-back situation is usually that people do not have to outlay any money, and on the face of it all it sounds good until they are caught up by the whole transaction.

Clause 32A requires a creditor to ensure that the contract specifies the annual interest rate or rates, and is probably linked up with the Law Society’s suggestion. It seems a strange place to put it, but that is where it is—under “interest charges”—and to some extent it will be a matter to take into account with the earlier point I made.

On the whole this is a very technical bill to do with credit contracts. If anyone out there remains concerned about the way the legislation is drafted, I am sure all members of Parliament will be extremely interested in trying to take the matter further.

I love lawyers like Mr Dail Jones. They go through the legislation, and I really appreciate them doing that. But being a simple man, I often find that when I go to see a lawyer about these types of contracts, I come out more confused than when I go in. I mean no disrespect or anything by that—we need lawyers.

This legislation is well overdue, because over the years society has changed tremendously. I remember that when I was a young boy I had only cash in my pocket. It was quite simple—when it ran out, it was finished. Nowadays, however, the young ones have the advantages, and it is progress. It has been fantastic how electronic transactions have come on, and that we can look at our finances on the Internet, and all of those other things. It is good, but, likewise, it has also become very easy for anybody to over-borrow. As it is often said: “If the incoming is not greater than the outgoing, the shortfall will be your downfall.”

I believe that financial pressure is one of the greatest pressures that one can live under. Those who have creditors knocking on their doors all of the time and have no ability to pay leave themselves open to the unscrupulous people in finance industries who prey upon those types of people. Because people are under pressure, they are unfortunately more interested in obtaining the cash required to alleviate their immediate problem than standing back to see what the transaction will cost them. I welcome the fact that this bill requires greater transparency, so that those borrowing the money will have the cost of the transaction clearly laid out before them. A small difference even in the interest rate at the point when people borrow the money can make a huge difference over the course of a loan. Just adding a few extra dollars per month to the payment on a 25-year mortgage can end up at thousands of dollars at the end of the day.

One of the main issues is providing information to borrowers—not only at the beginning of the contract, but also as the contract progresses through its term. People should be informed of these things. In the current market, we see interest rates fluctuating on an incredibly regular basis. The days of signing up a mortgage for 25 years at a fixed rate for the term of the contract is long gone. Interest rates will alter at least every 90 days. Unscrupulous lenders tend to focus on those less able to pay what is necessary. I share Dail Jones’ concern about people having good legal advice, so that they really do know what they are letting themselves in for.

Internet transactions are recognised in the bill, and I welcome that, as this is the age we are going into. Within a short period of time most transactions will no longer be done by cash, or possibly even by cheque, but will become electronic.

The high cost of interest on credit cards concerns me. I am not dead sure how these will be looked at, as they alter according to the borrower, but I trust that provisions will be in there. Lately I have been asking people whether they know the interest rates they are paying on their credit-card borrowings, which can be 18.75 percent or higher. I have been amazed at the number who do not recognise the cost to them of those transactions. Interest seems to be a small amount when people pay it on a weekly or monthly basis. However, over the years of a contract it is an incredibly large amount of money.

In relation to the concerns about the compliance costs, additional software will be required, but that is just part of life these days. As things progress, software always has to be updated.

United Future is very supportive of this bill, especially now that it brings in buy-back schemes. The only concern I have about those schemes is that the penalty for an offence will be up to 3 months’ imprisonment and/or a fine not exceeding $200,000. Let us think about this a little bit. In many cases, buy-back schemes concern the elderly, who perhaps have freehold homes. All of a sudden, they are told that a family member, or somebody like that, needs some cash, and they are asked to just sign on the dotted line and not read the papers, or know the full story. They then find that they have sold their houses and are now renting them, and all of a sudden—a few years down the line—somebody comes knocking on their doors to take their homes away. Nobody in this House would find that acceptable. That is white-collar crime at the extreme.

When I read that the penalties for theft by a servant, which is an employee robbing his or her employer, I would have to rate this type of offence in at least that league, if not worse. I personally would like to see the maximum penalty for it increased to the same as for theft by a servant, which is 7 years’ imprisonment.

💬 Dail Jones: Family members would have to be imprisoned, as well.

That may well be the case, but that is a maximum sentence. A 3-month maximum sentence is far too short. The judiciary should have the ability to weigh up various situations and impose a maximum penalty of up to 7 years. The judiciary would have the wisdom to be able to do that.

United Future welcomes this bill. We support it, and commend it to the House.

The Green Party welcomes the Consumer Credit Bill back to the House for its second reading, and is pleased that this useful and socially reforming legislation is being enacted in a much more timely manner than some of the other bills we have dealt with in this Parliament lately.

The Green Party has been keen to see improvements in controls and accountability in relation to lenders, particularly those operating at the third tier or bottom end of the market. For a long time debt has been identified as one of the main factors in the ongoing reliance by beneficiaries and other low-income people on both food banks and on that endless cycle of recoverable and non-recoverable supplementary assistance from Work and Income. Debt entrenches poverty and exacerbates the problems of individuals and families already having a hard time surviving. Debt has got out of control in this country, and for those least able to obtain it and least able to understand the conditions under which they are obtaining it, there has been far too little protection against the degradations of exploitative lenders. Many examples of this have littered our daily newspapers over recent years.

This bill was the product of an extensive review of consumer credit law, undertaken over 2 years between 1999 and 2001. I think that the overall support for it from a broad and diverse range of submitters during the select committee proceedings was an indication that the consultation process has worked pretty well. A large number of amendments were made during the select committee process, many of them technical, with others going to shore up and strengthen the intentions of the bill.

The Green Party was particularly concerned to make sure that some hardship provisions were included, in line with legislation like the Australian consumer credit code. We were disappointed that hardship provisions had been omitted in the first draft of the bill under consideration. We were therefore delighted that the select committee, and the Government, in particular, saw fit to support our call and that of a number of submitters to incorporate hardship provisions in the revised bill as reported back to the House. With the addition of these provisions, the bill now provides for far more adequate protection for people who suddenly or unexpectedly find themselves in difficulty and need some tolerance from creditors so that they can, for example, pay off what they owe over a longer period. We believe that this is a better situation from the perspective of both debtor and creditor. Creditors have a greater likelihood of recovering what is owed, and debtors do not face having goods repossessed and a black mark on their credit rating, as long as they can make good the loan over the longer, renegotiated term.

The hardship provisions that we have supported include ensuring that someone who becomes ill, is injured, loses his or her job, or suffers the ending of a marriage or similar relationship can apply to the creditor to change the terms of his or her contract with the creditor. The bill makes it clear that such an alteration to the contract must be fair to both creditor and debtor, and I really do not think that fears held by some submitters from the lending community in this area will come to pass. After all, many reasonable creditors are already willing to renegotiate contracts in these types of situations. What the revised bill is doing is ensuring that this opportunity is afforded right across the board, instead of just to some.

When we first looked at the bill we had several other reservations, besides the hardship clauses. One of these was in the area of small business. We felt that small-business people needed as much protection as anyone else when taking out loans, especially given that many of them are on the same low incomes as personal borrowers. However, during the select committee process I was convinced by the arguments of officials that most small businesses would be disadvantaged if they came under the new Act, because the cost of credit would be higher due to the greater compliance costs associated with consumer lending, and that the small-business people with whom they consulted understood this and did not want to be included under this legislation.

Another area of concern for the Green Party originally was around the definition of “oppressive contract”. We felt that the definition of “oppressive” was too narrow and should have been broadened to include a wider and more explicit range of factors. However, again I was persuaded by advice given to the committee that the meaning of “oppressive” has been subject to considerable judicial interpretation, and that what has been lacking has been the ability of ordinary consumers, rather than commercial borrowers, to take action against oppressive lenders. I see that Mr Jones is nodding. I think he understands the situation.

This bill gives the Commerce Commission additional enforcement powers so that disputes can be heard in the regular court system, and the commission itself will be able to take proceedings on behalf of consumers. I hope that this will indeed help the development of good case law around the meaning of “oppression” as it relates to individual borrowers, as well as upping the ante considerably and stamping out the worst practices of certain lenders.

I turn now to the new section of the bill dealing with buy-back transactions. The Green Party is delighted that the Government had the will and the capacity to act quickly enough on this to incorporate a new section dealing with the land and housing buy-back scams that have been perpetrated against hundreds of unsuspecting people in recent times. We believe that the State does have an obligation to protect the vulnerable, and people are never quite as vulnerable as when they have their homes stolen out from under them by quasi-legal fraudsters. Some of the interest rates and charges found under the buy-back scams make even the worst of third-tier lenders look pretty good. Thus we welcome the addition of amendments to this bill, which include ensuring that independent legal advice will be given to protect occupiers involved in buy-back transactions; that consumers will be offered as much advice as possible about the dangers of these schemes; and that there is full disclosure at every step, just as in any other credit contract.

I believe that this bill will go a long way towards ending some of the worst excesses, scams, and frauds that have been perpetrated on large numbers of New Zealand people. I look forward to its being signed into law in the very near future so that the much fuller protection it provides will be afforded to all who need it, as soon as possible.

I will take just a brief call on this very important legislation. First, I want to refer to the background of this bill, and to what was in place before it came into existence. The first page of the explanatory note of the bill takes into account the fact that many of the concepts of the Hire Purchase Act of 1971 and the Credit Contracts Act of 1981 are out of date—and that is fair comment. So what this bill aims to do is to bring them up to speed and to change them. But if we look at the content of the bill, and we go back to the original Credit Contracts Act, which I want to quote from, we see that that Act and what we are talking about today are very, very similar.

The objectives of the current Credit Contracts Act, which this new bill is supposed to replace, are: “(a) Prevent oppressive contracts and conduct; (b) Ensure that all the terms of contracts are disclosed to debtors before they become irrevocably committed to them; (c) Ensure that the cost of credit is disclosed on a uniform basis in order to prevent deception and encourage competition; and (d) Prevent misleading credit advertisements;”. So the point I am making is, what is different in the new bill that we are talking about today from what is already in the current Credit Contracts Act?

It is interesting to look at the submissions that came to the select committee. I want first to look at the Law Society’s submission. Dail Jones mentioned the Law Society. When the society analyses these bills it scrutinises them very closely. Some of the points that the society made, I think, are very important. The bill is designed to repeal the Credit Contracts Act, which is outmoded because of technological changes, computerisation, and financial deregulation. That is fine; we all appreciate that, and we can work with that. The bill also adds a modern framework to the way that people will be able to do business. It generally applies to credit contracts entered into by people, primarily for personal, domestic, or household purposes. But the real concern I have is that the bill does not cover business applications. We looked at some of the business submissions that came through, and I will pursue those areas further, during the Committee stage.

A lot of people who are sole traders are borrowing money—they are getting credit. But one does not know whether they are borrowing it for personal use or for business use. A huge number—85 percent—of businesses in New Zealand are small businesses, and most of them primarily are sole traders or sole proprietors. They are not partnerships or companies. It is very difficult to distinguish whether the money borrowed is for personal purposes or business purposes. That is an area that I want to pursue during the Committee stage.

Some of the other major reforms include limits on the interest to be charged, and clarifying that the debtor has a right to pay out the contract at any time—the full repayment—while allowing the creditor to recover a charge that does not exceed a reasonable estimate of the loss suffered on a full repayment. Those areas have been included in submissions, and that is fine.

One of the other areas that I think is important is the time frame to implement this bill. The original bill was to come into force on receiving the royal assent, but this has been extended out. Business people have said—as has the Law Society—that because there will be major changes to the way this bill will be implemented, then at least 12 months would be appropriate. In fact, the bill achieves that, and we are certainly supportive of that.

I draw the House’s attention to a couple of areas that I want to look at during the Committee stage. The first is the cancellation of a credit contract on return of defective goods. The view has been that the bill should have been amended to provide for the release of debtors from a credit contract under the return of defective goods, which comes under the Consumer Guarantees Act. But, unfortunately, the select committee did not accept that, so during the Committee stage I will be pursuing the reason that provision was not accepted.

The next area that I think is important is clause 13, the definition of credit fees. Credit fees should be, and should include, all fees or charges that are payable. A lot of people who borrow money will have add-ons. I am not talking only about the interest rate; there are also setting-up costs associated with borrowing money. There may also be insurance charges included. When I borrow money at an interest rate of, say, 10 percent, but there are other charges associated with it, then the true rate of borrowing is a lot higher. In fact, it could be 30 percent. This bill does not accommodate that. I think that when we are talking about the total costs of what we are in for, I will be asking some further questions.

Another area that I think is significant is what happens with variations of existing contracts. Part of the work that I did in my previous life, before coming here, involved the restructuring and refinancing of businesses. One of the areas that we looked at very closely was how we could help a proposition. A lot of it revolved around money, restructuring, and refinancing. With that in mind, I looked at variations of existing contracts—variations to lease arrangements maybe, or maybe variations to mortgages that somebody had. In my time as a farm appraiser with the Rural Bank we did a lot of variations of existing mortgages. One of the areas that the Law Society said we should look at was that full disclosure should be required if any additional costs are incurred by the debtor through a creditor’s variation of a contract. That is an area that I think needs to be looked at further. The bill does not accommodate that. There is a huge market out there, in the area of restructuring, that looks at variations of existing leases, existing mortgages, or whatever.

Another area that I think needs to be looked at is what happens with leases. There is a huge market now in leasing, and there are many types of leases. There are variable leases, and full operating leases. Leasing cars spring to mind. Over the years I have always leased a vehicle, and huge mileages have been clocked up. I have had the opportunity to run a leased vehicle on a percentage—a monthly payment that included GST. But, at the same time, I have always had the option of a full operating lease that covers insurance, repairs and maintenance, registration, and the like. So that is an area that needs further looking at.

Of course there is a huge lease market now, and not only for people in business who are looking to lease, whether it is vehicles, cellphones, computers, or other equipment; private individuals have moved into the area of leasing. They can lease vehicles for maybe $300 or $400 per month, as opposed to buying a new vehicle that may cost them thousands of dollars. So a leasing option becomes increasingly important. National is supporting this bill. During the Committee stage we will put some questions to the Minister to fine-tune it and to get a better understanding of the implications of the bill.

Bill read a second time.

Name changed to Credit Contracts and Consumer Finance Bill.