Credit Contracts and Consumer Finance Bill

This is the Committee stage of the Consumer Credit Bill, which has found itself morphed into the Credit Contracts and Consumer Finance Bill. We will refer to it as the “TripleCFB” during our debates. I have a team of experienced members of Parliament who will debate this bill. We are seriously concerned about a number of factors, and we will spend quite a considerable amount of time on the debate. I have at least five members on my team, and they will each want to take a couple of calls on the quite important matters here.

During this debate we will focus on the compliance costs associated with the bill. We will also talk about, and attack, the new hardship provisions, because we believe that they will add to the cost of consumer credit in New Zealand. We have discussed this issue with a number of financial institutions, and it is quite clear that the cost of credit will go up. What is worse, the cost of credit for people who can least afford it will increase.

We have also discovered a major loophole in the bill, which will see a significant credit cost to a lot of borrowers omitted from the disclosure regime. We will discuss that later in the bill. We signal to the Minister that she will want to discuss the loophole with her officials, because it completely undermines this bill. If the bill is all about making sure that borrowers know the full cost of what they are undertaking, the loophole that we have discovered could have a very serious implication for that purpose, and we know that that Minister will want to make changes to the bill.

We have proposed a number of changes to the title of the “TripleCFB”, because we do not believe that it correctly identifies what is being proposed. This bill should be called “An Additional Compliance Bill”, because it will put a huge compliance cost on those involved in the financial service industry, which will be passed on immediately to the consumers of credit.

I give the Committee just a couple of examples of additional compliance costs. New credit documents will be required to be drafted by all financial institutions, and the institutions will have to revamp their compliance regime in respect of consumer credit matters. It is very worrying that there will have to be quite a new set of procedures and practices in relation to the setting of fees, because this bill provides for a legal challenge to fees provided by institutions. It also provides for a legal challenge to the terms and conditions of loans advanced by institutions.

💬 Jill Pettis: What about the title?

We have had a little chirp from the cheap seats asking about the title. If that member would listen to a debate for a change, instead of looking at her papers and piping up from time to time with those irrelevancies for which she is known, she would realise that we have put forward amendments because this title reflects additional compliance. I am trying to explain that to her. Obviously, I need to do it, in monosyllabic terms, to try to tell her about the difficulties—four syllables—associated with this bill. One of them is that there will be an additional compliance cost associated with the fact that borrowers will be able to go to court, and, for something called “reasonable cause” or “sufficient reason”, request that the terms and conditions of their loans be set aside by the court. That is a very serious implication, because a lot of those finance institutions factor their books—

The CHAIRPERSON (Hon Clem Simich): Could the member please come back to the title?

The point is that the Committee should look at my amendments. It is clear that, in the amendments, we are talking about additional compliance and disclosure of regulations. I have moved those amendments, I am allowed to talk to them, and I say that the additional cost associated with a bill that will undermine certainty about the value of debt needs to be reflected in the title of the bill. I have two amendments. One refers to “additional compliance” being added to the title, because that is being proposed—

💬 Mark Peck: No submissions.

The member says there were no submissions about additional compliance. Well, members should look at the submissions made by the Financial Services Federation and the Bankers Association.

I am absolutely delighted to be able to follow on from my learned colleague the Hon Tony Ryall. He has done an excellent précis of the concerns that we have around this bill. To follow on from the excellent words he had to say, I say that many submitters expressed huge concern about compliance cost. There was to be a compliance cost somewhere in the region of hundreds of thousands of dollars for some of the provisions. [Interruption] OK. Members want me to speak to the bill.

We are identifying the bill as the “CCCFB” bill. However, we could call it some other titles, as well. We could call it the “Additional Compliance Bill”. We could also call it the “Consumer Credit Disclosure Bill”, because it is all about disclosure for people entering into what are called consumer credit contracts, so disclosure is the predominant emphasis in this bill. It is about being open, transparent, and accountable in our transactions. However, given the emphasis from this Government on disclosure, we could also call it the “Do as we say, not do as we do Bill”. I give a number of reasons for saying that it is the “Do as we say, not do as we do Bill”, because doing as the Government does would certainly mean that we would be happy not to disclose documents—as occurred in the “corngate” affair. That was where the Government did not do what it purports to want other people to do—which is to have full disclosure. It is all about the “lie in unison” issue in immigration.

💬 Jill Pettis: That’s got nothing to do with it.

Well, yes, it has, because I am saying that the title is the “Do as we say, not do as we do Bill”. I am saying that “to do as we do” would mean that one would be able to lie.

💬 Hon Harry Duynhoven: That’s not on.

Well, no, it is not, actually. The “lie in unison” immigration matter was not on either, nor was the lack of disclosure under “corngate”.

💬 Mark Peck: That’s got nothing to do with the title.

OK. The title was, as I said, the “Do as we say, not do as we do Bill”, and that is what I was referring to—all those other activities of the current Government when it says, “Do as we say—have full disclosure—but we won’t necessarily do that ourselves.” In this bill one is required to have full disclosure, so I will go back to the title of the “Consumer Credit Disclosure Bill” and we will stick with that. It means that Labour members will be a lot happier with that, and a lot more comfortable about their own past activities in relation to the other title I put on this bill.

If we look at the “Consumer Credit Disclosure Bill” there is absolutely no certainty that one will get full disclosure. The reason for that is that under “full costs”—[Interruption]

💬 Mark Peck: Full cost has nothing to do with the title.

Yes it has, because we are talking about consumer credit disclosure. Hello! Gosh, do we need a dictionary here? Perhaps I could have a dictionary. “Disclosure” means providing information, and that means that one is required to provide full disclosure. It is my understanding that that was the requirement of this bill and is what one wants to achieve—the protection of all those consumers who might enter into those credit contracts. They do not understand usually what is going on—they do not fully understand what is being disclosed to them—so that is why I am calling this bill the “Consumer Credit Disclosure Bill”. That is why this bill is being produced—so that there will be more disclosure to consumers.

Do members understand the meaning of the definition of disclosure? Perhaps the Minister would like to take a call and elucidate on what disclosure actually means. I keep referring to the word “disclosure” because that is the word I am emphasising in my new title for this bill. Disclosure certainly is not paramount in the legislation—not when the bill refers in clause 15(1) to “disclosure of as much of the key information …”. Key information is not necessarily full disclosure. Under “full costs”, the definition does not necessarily mean that one will get full disclosure either.

This bill is meant to be about disclosure. That is why I am suggesting that the title should be the “Consumer Credit Disclosure Bill”. It should be, but is it? That is the real question. Perhaps the Minister would like to take a call and give us her interpretation of what “disclosure” means, why the definition of “full costs” does not necessarily mean full disclosure, and why only key information comes within the definition for disclosure. So I think that my title for the bill—the “Consumer Credit Disclosure Bill”—is adequate.

I move, That the question be now put.

The chairman of the Commerce Committee is trying to shut down the debate, and I am disappointed.

The Consumer Credit Bill has been renamed the Credit Contracts and Consumer Finance Bill. That is quite a mouthful. The bill, as it stands, is trying to stop oppressive credit contracts and buy-back schemes. Probably a better title would be: “Prevent Buy-back Scheme Bill”—or even “buy-back scams”, as they have come to be known. That would be a much better title, because these buy-back scams are one of the reasons that this bill is being rushed through the House.

💬 Hon Judith Tizard: Rushed!

The Minister screams out “Rushed!”. It has taken a long time to get the bill back into the House, and there has recently been a rush to get it back. That has happened in response to the buy-back scams that have been going on, particularly over the last few months. The Minister is nodding in agreement, because she knows that these scams have come about in the last few months?

💬 Hon Judith Tizard: I concede that.

The Minister agrees. I think the title should be the “Prevent Buy-back Scheme Bill”.

If we do not accept that suggested title, perhaps we should look at an alternative title: “Credit Contracts (Offered in Languages in Which They Are Advertised) Bill”. There was a concern that advertisements for consumer credit were sometimes advertised in a language other than English or Māori. This issue is covered in Part 6. It was discussed in the Commerce Committee—I am coming back to the title, Mr Chairperson—and there was a belief that credit contracts should be offered in the same language in which the consumer credit was advertised. If we do not put that wording into the title, then people will continue to believe that only English and Māori are to be used for the credit contracts. They will think that creditors can advertise consumer credit in whatever language they like, but the contracts will be written in either Māori or English. Without that new title, this bill is quite worthless.

I say again that the title should be changed to: “Oppressive Contracts Buy-back Scheme Bill” because that is really why the bill has been rushed back into the House. I think the Minister will agree that that has happened, because we need to deal with the problem of these scams.

I move, That the question be now put.

The “CCCF Bill” has had a number of iterations. It started out as the Consumer Credit Bill but, as my colleague Mr Ryall has pointed out, there are a number of titles that could be floated, and I want to build an argument as to why they have merit. I think an apt title is “Increased Compliance Bill”, and I want to build an argument to demonstrate why I feel that is so. The “Nanny State Bill” would be an apt title. I will deal with that when we come to the hardship provision, which, I think, is an absolute nonsense. The hardship provision will undermine the legislation’s credibility as far as the finance industry is concerned, and will do immense harm.

The bill could also be renamed the “Disclosure Bill”. When one thinks about it, this bill is all about disclosure. But disclosure would not relate to the Prime Minister, would it? Remember “corngate”? Members will recall all the “disclosure” we have gone through.

The CHAIRPERSON (Hon Clem Simich): Can the member—

I am relating my comments to the title. The title “Disclosure Bill” goes to the heart of confidence—the “Corngate Disclosure Bill”. Remember the one memo that was held back—the only one that was not disclosed? Well, that one memo turned into 105. If one were talking to the Prime Minister, one would not know what else could be disclosed. God only knows! I put it to the Committee that the country needs a conservative—

The CHAIRPERSON (Hon Clem Simich): The title is a very narrow debate.

I am talking about disclosure.

💬 Hon Harry Duynhoven: Let’s have a few declarations here.

Harry Duynhoven—the “One Rule For Me” member—calls out. The Credit Contracts and Consumer Finance Bill deals with disclosure around interest rates, fees, payment schedules, and legal fees. I accept that that is fair and reasonable, though it begs the question that small business is not covered in the title. Why is the title not extended to “Credit Contracts and Consumer Finance (Including Small Business) Bill”? That would be fair and reasonable. With the benefit of time, I am sure we could find a more concise title. We do need to be told why small business is not covered. About 80 percent of small business in this country is run by owners who employ five people or less. Why are they not being afforded consumer protection like individuals? I want to expand on that point and build my argument, as we go through the Committee stage.

The provisions on foreign languages in terms of contracts are clear enough. People should understand what they are signing and what they are contracting into. That is why I go back to the suggested title of increased compliance costs. Every time someone goes to a solicitor, a compliance cost will be built into the credit consumer arrangement that people are entering into. That is something I want the Committee to dwell on, as we go through this bill. Certainly, the hardship provisions will create uncertainty. The way the Credit Contracts and Consumer Finance Bill is constructed at the moment, it will bring that uncertainty to the retail sector of large banking organisations across this country, and I do not think that was ever the intention. The bill will drive up compliance costs, and that is a matter the National Opposition wants the Committee to think about. That is why National is giving this bill very limited support and is suggesting that it be sent back to the Commerce Committee for further work.

The Minister in the chair should take a very good look at the legislation as it is constructed at present, because it contains loopholes that will do enormous harm to the finance industry.

I move, That the question be now put.

The CHAIRPERSON (Hon Clem Simich): I think members have clearly indicated that they wish to continue discussing the provisions of the bill.

I rise on behalf of the ACT party to oppose this bill and to address the title. I would like the Minister to explain to the Committee why there has been a change to the title. Up to this stage we have debated a bill titled the Consumer Credit Bill 2002. This morning the bill is back on the Order Paper as the Credit Contracts and Consumer Finance Bill, still showing 2002. We are actually in 2003, in case people in the Labour Party have not noticed.

The commentary on the bill, as reported back from the Commerce Committee, does not provide a good enough reason for the change of title. The commentary tells us that part of the reason is that Part 5, which we will be discussing later on, addresses non-consumer arrangements and non-consumer contracts. I shall refer briefly to some of those reasons. A previous speaker mentioned the need for a dictionary when considering the words used here. All of those things do concern consumers, but does the Government now consider that small business is not a consumer? That could be the only reason for changing the title. The bill should be called the “Leaving Small Business Out in the Cold Bill”, because that is what it does. I call on the Minister to take a call to give a valid explanation of the change in the title of the bill.

A previous speaker for New Zealand First said the bill is being rushed through. I do not think that Minister could rush to anything—except an art award that would be seen on television. If she were really passionate about the bill’s ability to address consumer finance, we would not have waited so long for it to be introduced. After all, the Ministry of Consumer Affairs discussed the issue in 1999. It has taken for ever, and the title still includes the year 2002.

The bill could be called the “Loan Sharks Bill”, because it will make it much easier for loan sharks. The bill has absolutely nothing to do with protecting consumer finance. It has to do with paving the way for loan sharks. It should be called the “Loan Sharks Bill”, because it will make it much harder for those poor people to get access to credit. Credit will be more expensive. Rich people can afford lawyers, so they will be fine. However, loan sharks will move into the underworld of advancing credit. In terms of complying with the legislation in respect of recovery of payments, their way will be a brick through the window, or sending the heavies around to deal with a debtor.

I call on the Minister to give us a valid reason why the title of the bill was changed. It was introduced as the Credit Consumer Bill and was referred to the select committee. It was reported back with recommendations and changes, but some changes made it worse. It has been reported back as the Credit Contracts and Consumer Finance Bill.

The hardship provisions will make it easier for some people to get out of repaying credit. They can apply to the court if there has been a relationship break-up or some form of hardship. [Interruption] Why does that member not take a call? Why does he not stand on his hind legs? I know it is difficult for us to see him, even when he is standing on his hind legs, but why does he not get up and take a call, instead of bleating?

I move, That the question be now put.