Credit Contracts and Consumer Finance Bill

This part deals with enforcement and remedies. I have had a look through the provisions, and they are quite substantial. I think the Minister is trying very hard to make sure that the penalties are substantial enough to stop the crooks out there from trying to rip off the people who are in fact the least able to look after themselves, and that is very good.

💬 Brian Connell: The most vulnerable.

They are the most vulnerable, as my colleague says. The only problem is that the people who will get hit by the greatest force of these provisions are the people who set themselves up in business or try to get into the business of hiring or buy-back schemes, but who are not necessarily the crooks. The crooks are the people who will operate through corporate identities. They are often based off shore, they will not be here, and in fact will not be worth suing when they are sued. That is one of the big problems. When I look at the provisions in this part, and agree with many of them—and I absolutely agree with the intention of the part—the fact is that this will not catch the real crooks, and that is a shame.

When we look at the costs involved for the individual person who has been cheated out of his or her money, or who has been the victim of a scheme that does not comply with this bill, we can see that the ordinary person will not be able to afford to take a case to court. I note that there is provision in the bill for the Commerce Commission to take prosecutions, and I think that is great—except, has anybody in this Chamber ever tried to get the Commerce Commission to take a case? I can tell members that it is quite hard to do, unless one is a Minister. That is because, of course, most of the people we are dealing with here are the little people of the world, who are not in fact able to trot along to the Commerce Commission, have a wee word, and say: “Now, this is a big issue for you.” They are not the people who will ring the Sunday newspapers and say: “Boy, have I got a story for you!”.

The fact is these are the very people who will never be able to take this matter to court, who will never be able to get the Commerce Commission to raise an eyebrow, and who will never be able to get even anybody other than their good, hard-working MP to take a scrap of notice. That is because they are the people who will always be the subject of these sorts of scams and schemes. It worries me that we have this.

I was chatting before to my colleague Sandra Goudie about this and she said: “Well, what about legal aid, Judith?”, and I said: “Well, that would be a fine thing.” That is because legal aid in a civil matter like this would be available only if the legal aid subcommittee felt there was a very good chance of getting the money back. When one is dealing with fraudsters and scam artists, there is almost no chance of ever getting the money back. So reality tells me, and experience tells me, after 20-odd years of experience as a lawyer, that for most people there is no chance at all of getting any money back under these provisions—no matter how hard we in Parliament try to get people to understand what is going on here.

That is why it is so important that no matter what we do with this bill, once it has passed into law—as I am sure it will be—we have in place proper provisions whereby we advise people what they must be aware of. If we have to go into their churches, if we have to go into their communities, or if we have to go to the newspapers or on television in order to let people know that these sorts of schemes are out there, that they are abounding, and that they are ripping people off, then that is the best way to stop people from being taken to the cleaners. We have to let them know those sorts of schemes are out there, and if the deal looks too good to be true, then it is too good to be true. If we let people know that, that is of more use than any of the provisions in Part 4 or any of the provisions about enforcement remedies. I absolutely believe there is little or no hope that people will be prosecuted under these provisions, unless they happen to have fallen foul of the provisions because they thought they were doing the right thing—but they were not—and so the real crooks will get away.

One of my big concerns is about the cost and the ability to bring the cases. We can bring all the cases we like and we can impose all the fines we like, but if the fines cannot be paid, the people will not get paid.

I raise a point of order, Mr Chairperson. I would just like to bring to your notice that there is some feedback in the House and it is getting a little bit louder and louder. While my colleague was speaking, there was a buzzing sound and a whistling sound starting to come through. I just bring that to your notice.

The CHAIRPERSON (Hon Clem Simich): I thank the member for raising that matter.

Just before I begin on Part 4, I ask to be given the liberty to cover a couple of points that Lindsay Tisch mentioned under the last part. On this whole bill we are dealing with financiers, who are people in the business of selling money. As I said in debating the first part, this is where I think we sometimes need to educate the public, and that is part of what this bill is attempting to do.

For example, the member mentioned leases. Whoever is leasing a car is just selling money. The residual value of a vehicle establishes the price the lease company will receive for it at the end of its contract. That takes out a lot of risk for the company, because it knows the price it will get for that car, instead of having to take the risk of getting what the market may pay in 3 years’ time. There is a huge difference between repayment amounts and the cost of a contract.

As I touched on in the earlier debate, if the sum of $10,000 was borrowed on a house, the total cost with 17 years remaining on the mortgage was $80,884, whereas a hire purchase agreement taken out for 3 years cost an extra $375 per month, and the total interest to be paid was $3,450. Those are huge amounts, and I would like to see the public educated further on what those sorts of transactions actually cost them.

I have a Supplementary Order Paper on Part 4, relating to buy-back schemes. I think that a majority in the Committee would agree that those schemes have been a disaster for people, who have had their houses taken away from them through virtually no choice of their own, because they have not had information or they have been deceived. Unfortunately, we are also aware that a lot of cases involve family members or people who are very close to the families concerned.

But my comments really are with regard to Part 4, and specifically toclause 77(1A), which deals with offences. I intend to move a Supplementary Order Paper to amend this clause. As it currently reads, a conviction for the offence of breaching clause 58E could bring a term of imprisonment of a period not exceeding 3 months. Given the weight of the offence, I argue that this penalty provision is totally inadequate. I therefore propose an amendment that the term of imprisonment be increased to a term not exceeding 1 year.

My amendment is based on the reasoning of consistency under the law. When one considers that the penalty for a similar offence relating to the fraudulent procurement of title, such as a breach of section 225(1) of the Land Transfer Act, is imprisonment for a term not exceeding 3 years, the present penalty provision in clause 77(1A) is clearly deficient and incompatible.

Secondly, the need for a more stringent penalty is further underscored when one compares it to the penalty for an offence of arguably less weight, and when one considers that the penalty for theft of an object not exceeding the value of $100 is the same as the penalty for someone convicted of a fraudulent title grab. That is patently disproportionate, and I hope the House agrees, undoubtedly, that the penalty needs strengthening.

The financial and emotional consequences for the consumer, after being ripped off by a buy-back scheme swindler, can be extremely harmful and long term. This bill needs a punishment to fit the crime. The amendment I put forward in my Supplementary Order Paper meets this need, and provides a greater deterrent for those contemplating this devious and malicious crime. I ask the other parties to support my Supplementary Order Paper.

We open the bill at Part 4, “Enforcement and remedies”, and under Subpart 1, “Preliminary provisions”, the first thing we see is compliance programmes. So here we go, in Part 4 we immediately get into the costs—the compliance costs—for lessors. Clause 59 provides that they must have a compliance cost programme to ensure that their employees and agents are following the procedures or have implemented automated procedures that are designed to ensure compliance with the Act and the regulations—we must not forget the regulations—and to ensure that there are in place methods for systematically identifying deficiencies and the effectiveness of the programme. Here we have a direct compliance cost staring us right in the face in this bill. This will be substantial, because this is an ongoing cost, not just a one-off cost. It is not just an interim cost, but is an ongoing cost for monitoring the effectiveness and compliance in accordance with the Act.

Then further on in Part 4, clause 62 deals with the jurisdiction of disputes tribunals. Given some of the complexities of these issues, we are concerned about the capability of those people taking part in a disputes tribunal and dealing with some of these issues. I am aware of the effects of disputes tribunals—particularly in the agricultural sector—and they are not always as judicially objective as they might be. The experience of participants adjudicating through a disputes tribunal is sometimes questionable. There has been considerable concern expressed through my office about the way and the manner in which disputes tribunals operate. That is certainly an area that I would say needs to be addressed and probably given an overhaul in time to come.

The other matter I want to refer to is clause 69(2) and the ability to take a person to court. One of the submitters actually talked about double jeopardy. This concerns clause 69(2), which talks about persons being able to take a provision to the courts. Anyone can take an objection to the courts, in relation to the courts’ general power to make orders against a person. It talks about double jeopardy by making clear that exemplary damages cannot be awarded in respect of a breach that has already been the subject of a statutory damages order. Inappropriate risk of double jeopardy continues to exist, because it would still be possible for non-compliance to result in a criminal law sanction, as well as in either exemplary damages or statutory damages, and that was a concern.

It was felt that it was not appropriate for clause 83 to give “Any person”—and that is the term used in this bill—the ability to seek a banning order, given that the bill already makes ample provision for enforcement by borrowers and by the Commerce Commission. It is laudable to see that the Commerce Commission has been strengthened. I note that the Minister sought an additional vote for 2003 with regard to the Commerce Commission, and that is a laudable effort. There is a concern, which I have already expressed, about needing more vote for educational purposes, but that might come in time.

However, in coming back to this part, I say that it is not desirable for the provisions in clause 82, for example, potentially to be able to be used by one lender against a competitor, and that is a possibility. It may be that groups and organisations representing self-appointed guardians of the public interest could be in such a position to seek such orders also, because the provision could be used spuriously. It may be that someone has been convicted previously and that was an error on the person’s part, but he or she has seen the light. I tell Mr Adams that perhaps that person has come to God, and realised there are better, more honest ways of functioning in his or her life. Although that person is going to operate in a much more socially conscious and morally based manner, he or she could still be victimised by the provisions of this bill.

Part 4 deals with enforcement and remedies, and I would like to touch on clause 76A, “Enforcement of buy-back transaction prohibited”. I am pleased that the enforcement of buy-back schemes is prohibited, but I wonder whether this clause actually picks up those people who are already trapped in a buy-back scheme. Such schemes have been set up under a previous Act, and I wonder whether this provision will protect those people. I have the feeling it will not.

The next point I would like to raise relates to clause 80, “Reasonable mistake defence”. It is quite easy to claim a reasonable mistake, if people have it planned the right way. When people are caught, they can plead there was a reasonable mistake. There are ways of proving that, even though they had set out deliberately to make a mistake. I have the feeling that that provision is a let-off for some people, particularly those people dealing in financial areas. They are the ones who have no scruples, and the ones who are likely to use that defence, having set themselves up to deceive people and then claim it was a genuine mistake. That will be a tough one to police.

The next clause I will look at is clause 82, “Power to order certain persons not to act as creditors, lessors, transferees, or buy-back promoters”. Certain people and companies will be able to set themselves up with very complex schemes, to avoid being affected by this provision. Once again, it is those unscrupulous people who will have extraordinary ways of avoiding being detected, and who will move on to another company or organisation—fronted by somebody else, perhaps—to run exactly the same scheme. It will be very difficult to police.

I come back to Paul Adams’ amendment. He wants to raise the penalty for an offence from 3 months to 1 year. That is commendable, and, as he says, it makes the “time suit the crime”. Unfortunately, this Government has a tendency to allow this sort of period—

💬 Brian Connell: Soft on it!

It is certainly soft on crime. This sort of period falls into the category of home detention. That is no penalty at all for this particular crime, because people who have been convicted will sit at home and continue their transactions there.

💬 Judith Collins: Sit at home and do Internet gambling.

Yes, they could sit at home and do Internet gambling, as Judith Collins mentions. These people will be able to sit at home and continue their illegal transactions and schemes. It is no real penalty—3 months or 1 year is not a penalty, particularly when people have the right to apply for home detention. The fine of $200,000, or both penalties together, might be a little bit of a slow-down, but these people are dealing with quite extraordinary figures in their finances, and I suspect that even $200,000 would be a drop in the bucket for many of those operators and it may well miss the mark. I tell Mr Adams that it was a good attempt, but, unfortunately, the law as it stands today will mean it will have very little effect, as far as penalties of 3 months or 1 year are concerned. The important thing is that this part has a provision to enforce the fact that buy-back transactions are prohibited. We commend that provision, and I certainly hope it is capable of protecting those who are already in such schemes.

I move, That the question be now put.

It is very clear from the debate from the Opposition side that we are mightily concerned about the compliance costs associated with this bill. Our concern is that compliance costs will add to the cost of finance for consumers—and it is quite clear that it always will, as Mrs Collins said. The issue revolves around requiring extra burdens on lenders, in terms of what they must be prepared to carry with legal sanction, scrutiny from the Commerce Commission, as proposed in this part, or actions from other parties. All carry an element of risk and an element of cost. That cost will always be passed on to the consumer, and that is the point the National Party in Opposition has been making throughout this debate. Compliance cost is a very big issue.

Part of the Government’s claim that it is dealing with compliance cost issues is the regulatory impact and compliance cost statement that formed part of the explanatory note of the original Consumer Credit Bill, as tabled in the House. I have to say to the Minister that that was a very poor exposition of the costs and benefits associated with this bill, because not one figure is provided of either the financial costs or the financial benefits of this deal—not one figure. In the whole provision, only one number is mentioned, and that is in respect of the $250,000 in the definition of what a commercial contract amount would be in terms of the level of disclosure. That is the only figure mentioned. If the Government seriously believes that Parliament should take notice of the compliance cost and regulatory impact statement provided to it, then Parliament should be treated with respect and the Government seek to quantify those costs.

Opposition members have taken quite a lot of time in the last few weeks to go and talk to a large number of these consumer lenders. They are not just the major banks, which the Ministers might wine and dine; they are a whole lot of people who run small, localised finance companies that provide credit to New Zealanders. The average amount that those people lend might be $3,000 to $5,000. They might employ two or three staff. The capital is essentially the owner’s, plus some—

💬 Hon Chris Carter: This is exciting stuff.

It is exciting, because it is quite an important point. It should be exciting for the Government, because we are saying to the Government that we should get the full costs and benefits in this bill.

The issue is that we have talked to a whole lot of consumer finance companies around New Zealand, and it is quite clear from them that there will be significant costs associated with this bill. I suspect that is the reason the Government has not provided any figures in this legislation. Some of the costs associated with this part will require additional forms to be printed, additional staff training to be undertaken, and additional compliance regimes to be implemented by the various businesses. All that costs money.

People who run a finance company have to take into account a whole lot of risk. One of the risks that Opposition members of the Committee are not happy with is that the Commerce Commission might be able to take a class action against all lenders. We think that the Commerce Commission should have to act on the specific offenders. It is clear that the Government is seeking to target unscrupulous moneylenders. It is going to target what I would refer to as the second-tier moneylenders. The “pay-day Charlies” who stand at the gate to the factory and collect the loan repayments on pay day are not going to be controlled by this legislation.

I move, That the question be now put.

I would like to start by making a comment on the amendment that Mr Adams has put forward. One year hardly seems enough, and I question why we would bother. We know that this Government is soft on crime. I do not think a sentence of 1 year, which would mean that people would be out in 2 months—if they even get to jail; they would probably be on home detention along with Mr McDonald—would keep those types of people awake at nights. If Mr Adams is to do it, he should do it seriously, and I suggest he talks to his colleague Mr Alexander about what a real sentence means.

The issues I want to raise are contained in clause 59, “Compliance programmes”. In particular, there is a misconception that the compliance costs will be something that organisations carry easily. Most finance companies that I have experience of, whether they are big or small businesses, have structured themselves to get economies of scale. Most often, they have combined their resources and established back-office functions. Those functions are, essentially, all those functions that used to be done in the branches or at the back of the shop. They have now been put into a centralised site and are highly automated. I am concerned, if we go down this track, that there will be a huge amount of reprinting of forms, that new systems will have to be created, and that, once those systems and forms are in place, there will have to be training of staff. Because most of those programmes are automated, there is no human input. Once people have restructured, and have had to print new forms and create new systems, there will have to be training of staff. The compliance costs associated with employing more staff and training them are extremely clear. Then there will have to be a new audit process, to satisfy consumers and those who administer the law that those things are in order.

Establishing back-office functions is not something that is done easily. In most cases, they are multimillion dollar sites. Most of the major banks in this country operate out of one site and work collectively. It is not just one site per bank but one site for many banks.

💬 Hon Chris Carter: He should get a life.

It is an issue that Mr Carter does not understand and will never understand, but it is a real issue for those organisations. Of course, what will happen to consumers is that the cost of this compliance will be priced into the loan. The compliance costs will be passed on to consumers, and I fear that the very people we are trying to protect will be priced out of the marketplace.

The other issue that concerns me is the hardship provisions. Of course, the compliance costs that run with those are enormous. Banks price for risk, but where there is uncertainty—and this will lead to uncertainty, because security will be eroded—price will be factored into the loan, and the consumer will be the worse for wear. Some people will not get finance. Banks, finance companies, and consumer credit companies will simply become risk adverse, and they will take the easy option of telling consumers that they are not worth banking, not worth lending to; they will tell consumers that they cannot take the risk, and will say no. That is exactly what will happen.

The next thing I want to raise is legal recourse. The bill calls for jurisdiction of the district court and of the High Court. That is all very commendable, but the reality is that it is good in theory, not in practice. The very people who will be seeking redress—the very people who will be ripped off by the loan sharks that we are seeking to deal to—will be the people who, (a), are too frightened to go near a lawyer, (b), do not have the money in the first place, and, (c), do not have the aspiration.

I move, That the question be now put.

I raise a point of order, Mr Chairperson. During the vote, members of the Government were calling out across the Chamber. That is against the rules of the House.

The member is quite right, and I am sure that member has learnt, if not his lesson, the way it should be done.

The question was put that the amendment set out on Supplementary Order Paper 141 in the name of the Hon Judith Tizard to clause 77 be agreed to.