Credit Contracts and Consumer Finance Bill

Part 5, like many parts of this bill, has some very laudable provisions and some laudable purposes, but, again, we come to the reality of the situation.

Clause 92, “Meaning of oppressive”, states that oppressive “means oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.” That is pretty much the same as in the 1981 Act. The fact remains that, although that Act has been in place now for over 20 years, there have been very, very few provisions in contracts such that a court has held that the actions of the lender, or the creditor, have been oppressive. The reality is that, as I have said before tonight, and I will continue to say, these sorts of provisions should be in place for the little people of the world, the people who are most vulnerable when it comes to contracts, but those very same people are those least likely to take these matters to court, least likely ever to be able to afford to take these matters to court, and least likely ever to be able to try to prove that something is oppressive, or that a contract should be reopened.

When the Credit Contracts Act first came into play there was a lot of concern expressed by lenders, as there will be under this legislation, as to the stand-down period in credit contracts—the period when people could reopen the credit contract or decide they did not want to go ahead with the financing. There was a great deal of concern, as I recall, among the banks, that contracts might be overturned, and for a little while they thought everyone would have to draw down their loans about 3 days before the settlement of a house purchase, just in case the court were to decide that something was oppressive or unfair. There was all this uncertainty, and I note that my colleague Mr Richard Worth, who was also a lawyer by profession before coming into Parliament—

💬 Clayton Cosgrove: A bush lawyer.

No, a very, very good lawyer. The fact is the banks were very concerned that they were going to end up on the wrong side of the law, and they said that that would have to happen. It took a couple of weeks, as I recall, for them to work out that one cannot do business like that. One cannot do business on the basis that something might go wrong.

It concerns me and it concerns the National Party that no matter what we do with a bill like this, we will constantly be encouraging an increase in compliance costs to the point of over-compliance, of lenders/creditors taking extra care. Those costs will always be added on to the borrowers. The fact is that, in any of these transactions, any cost is always a cost to the borrower. It is a cost to the borrower by way of either a lending fee or a borrowing fee, or it is a cost to the borrower by way of an interest rate. The fact is that the costs of the creditor, of the financier, are and must be added to those of the borrower.

The reality is that, as much as we try to help the little people of the world who are borrowing under these agreements, all the people out there who need to go ahead and do business, we will simply make it harder. We will make it harder for them, firstly, to get loans, and, secondly, to pay them. That is the problem. Nobody is actually forcing people to take loans—unless one counts the Hon George Hawkins, who is introducing Internet gambling through the State. All that will happen is that we will be making it harder for people to get loans to go about their business, harder for them to get loans to buy cars, and harder for them to get loans to buy houses, and we are putting on to them extra costs. That is one of the tragedies of it. We are rushing around trying to be kind, but we could have a programme of letting people know, through schools, television, and radio, what these issues are. If we want to stop buy-back schemes, we should be educating people, and we should be letting them know about the problems they will encounter.

I would like to speak to clause 93, which deals with the reopening of credit contracts and consumer leases. [Interruption] Now that I have Mr Chris Carter’s attention, let me continue. The clause states that the court may reopen a credit contract or a consumer lease if, in any proceedings, it considers that the contract or lease is oppressive. What does that mean? That opens the floodgates! The Government had advice from a number of submitters that it should not go down this track, but did it listen?

💬 Richard Worth: No.

Can it listen? No.

💬 Richard Worth: Excellent advice ignored.

Excellent advice was ignored. The Ministry of Consumer Affairs told the Government that it should not do this. An article in the Independent refers to these as radical hardship provisions. I think they are just stupid provisions. They will create uncertainty in the marketplace, undermine the confidence of lenders, who will increase costs by pricing for risk because they do not know whether they will get their money back, and undermine shareholders’ confidence in the company, and the people who most want the money will be priced out of the marketplace. The Independent article that I referred to stated: “This could adversely affect a creditor’s ability to raise funds by selling the receivables generated by the consumer credit arrangements.” That is simply because they have been factored out.

💬 Richard Worth: Could the member read that again? It is a telling comment.

I certainly can. It is an extremely telling comment: “This could adversely affect a creditor’s ability to raise funds by selling the receivables generated by the consumer credit arrangements.” This is the worst type of nanny State socialism I have seen in some time. Mr Carter knows that I am right. That is why he has stopped yelling out. He is hanging his head in shame. He does not want to be associated with this type of nanny State nonsense, nor do any other people in the Committee, which is why it has suddenly gone quiet.

The Independent articles goes on to state that the provisions may increase costs. Let me make it perfectly clear: they will increase costs; they will increase compliance costs, and increase them hugely. The article states: “They may allow debtors to frustrate legitimate creditors’ actions taken to enforce credit contracts, and”—another telling comment—“unscrupulous debtors could try to take unfair advantage of these provisions to extend contracts for their own benefit.” It will be: “I have had a bad hair day. I do not like the contract any more. I want to get out of it.”

The provisions get down to specifying relationships. If someone’s relationship has gone sour, suddenly he or she does not have to front up, to face up to his or her liabilities. What utter nonsense! It will do huge damage to the marketplace as security starts to dwindle. I have said it before, and I will say it again: this will result in some institutions, the decision makers in those institutions, becoming risk adverse. They will simply say that, no, they would rather not take the risk than be exposed to this type of nanny State, socialist nonsense.

R Doug Woolerton: Sounds like a Clayton’s bill to me.

It is worse than that. I think the Government thinks it is doing the right thing; it is an issue of absolute ignorance. The Government could not be told. A number of submitters went to the select committee and said “Don’t do it!”, but the Government ignored them. I have asked the Minister in the chair before, and it would only be magnanimous of me to suggest again, that we suspend this debate for a day, or maybe 2 days, while the Government gets its head around this issue and fixes up what is clearly an anomaly. I do not think the Government meant to do it. I think it is an oversight in drafting. Do members really think it is creditable that one gets down to saying that the Credit Contracts Act will deal with relationships that have gone sour?

I move, That the question be now put.

Part 5 deals with the reopening of oppressive credit contracts, consumer leases, and buy-back transactions. When the Commerce Committee considered this part, we were confident that this would cover buy-back schemes, but I have my serious doubts that this does. Clause 91,“ Application of Part” states: “This Part applies to—(a) every credit contract (whether or not it is a consumer credit contract); and (b) every consumer lease; and (c) every buy-back transaction.” That sounds great.

However, if we read on, we see clause 93, “Reopening of credit contracts, consumer leases, and buy-back transactions”. If we then move to clause 96, we can see that it is the one that traps us for existing buy-back transactions. Clause 93, “Time and circumstances relevant to reopening credit contracts, consumer leases, or buy-back transactions” states: “a buy-back transaction is not oppressive if the contract, lease, transaction, term, or act would not have been considered oppressive at the time, and in the circumstances, that it was made or performed.” Therefore this clause traps those people who are already in the buy-back schemes, and unfortunately this clause gives the lenders the way out, and those people basically suffer the loss of their property. Sadly, that clause is left in there, because it really does leave it wide open for those schemes.

During our deliberations we considered that the Commerce Commission would be able to take proceedings on behalf of some consumers because the bill, particularly Part 5, deals largely with commercial arrangements and commercial deals. If the Commerce Commission can take cases on behalf of small businesses, then that is well and good. But sadly, I think that clause 96 may well be the death knell for those people who have already entered those contracts before this bill comes into place, as a transaction is not considered to be oppressive if it would not have been considered oppressive at the time the transaction was put in place. This section of the bill, on buy-back schemes, was put in at a very late stage during the Commerce Committee deliberations—after those buy-back schemes had been in operation for a number of months. A large number of people were trapped because it happened very quickly. They were genuinely under the consumer credit legislation previously. So this particular clause is giving the out to those contracts, and it means that the 1981 Act is the one that was covering those—[Interruption] I think I might have lost some of the Ministers over there! I would like the Minister to take a call on this, and I ask that she check with her advisors, because this clause here does not allow these particular contracts to be reopened, because they were not oppressive at the time that they were set in place. This bill makes all sorts of attempts to try to capture them, but it does not. This clause lets them out, and it means that the people who have already been trapped in that situation do not have the recourse to recover their property.

This is a very important section, and I shall pick up on a comment made by Mr Brent Catchpole of New Zealand First. Last month I received a phone call from some constituents in Mount Maunganui—[Interruption] Unlike four of those five members opposite, my home telephone number is in the phone book. Anyway, those people rang me because they were victims of a buy-back. Labour members might think that is funny, but those people were victims of a buy-back—a scam. They had been encouraged by a close friend of the family to enter into an arrangement whereby they would assign the title of their home to a trust of some sort, or to a third party, and in return they would receive a weekly income of $300. That may not sound like a lot of money to some members, but when a person is on a pension $300 a week is an awful lot of extra money. They subsequently found out that the title to their home had been transferred from the company they had entered into this arrangement with to another party based in Hawke’s Bay—so it has got even more removed now—and, subsequently, the third party in Hawke’s Bay claimed that they had no knowledge that there was a rip-off involved in the buy-back arrangement. It is an absolutely dreadful circumstance.

Fortunately, we have been able to arrange for those people to have legal representation pro bono by a prominent solicitor in Tauranga, and I do know that they are working with the Government’s agents to try to work through the situation. I acknowledge the excellent work the Government did in very quickly trying to attack the people behind the buy-back schemes. However, Mr Catchpole suggested that people such as my constituents in Mount Maunganui would not be considered to be under an oppressive contract. I draw the Committee’s attention to clause 96. Mr Catchpole said that because the contract might not have been deemed to be oppressive at the time it was signed, they would have no rights. But I would say, particularly in the case of my constituents, that that buy-back arrangement was harsh, unconscionable, and a breach of the reasonable standards of commercial practice.

I tell members that my constituents are covered by this part of the law, and they must be entitled, as the Minister is indicating, to the full force of the law. They are retired people who have saved up for their entire lives to have a house in a very nice part of Mount Maunganui, and they were led to believe that their money would be safe by entering into an arrangement that transferred the title of their property. They have been duped and ripped off. The likelihood is that those people will lose their house. Those sorts of people should be taken to the cleaners, and I tell Mr Catchpole that clause 92 applies to them.

I would like to see this Government move to really rack up the penalties in respect of those people. The people who perpetrated that buy-back scheme are despicable, deceitful, dishonest, and crooked. They should not be involved in any sort of commercial transaction like that again.

Never again should those people be involved in any arrangement like that whatsoever. So in supporting this part, I say quite clearly that I do consider that the people who were subject to those unconscionable buy-back arrangements are covered by this part. The Minister agrees—no doubt with the support of official advice—and I think that the Committee should be very, very determined to support the efforts of the authorities in cracking down on these buy-back arrangement people.

I move, That the question be now put.