Credit Contracts and Financial Services Law Reform Bill

As the Chair has said, we are in Part 2 of the Credit Contracts and Financial Services Law Reform Bill. This is probably the smaller part of this bill. Part 1 included all of the new provisions around repossession, enforcement, and penalties, as well as the responsible lending provisions and other changes that we support. This particular part includes provisions around the Financial Services Providers (Registration and Dispute Resolution) Act and requires that financial service providers, including people providing credit under a credit contract, be registered.

Sitting suspended from 6 p.m. to 7.30 p.m.

We are speaking now on Part 2 of the Credit Contracts and Financial Services Law Reform Bill. This part is the amendments to the Financial Service Providers (Registration and Dispute Resolution) Act. I am going to just talk specifically about the provisions in this part. I also note that in Part 1 there is a provision now around requiring registration, so if a person is not registered as a financial service provider, then they will be unable to collect fees or interest. That will potentially and hopefully improve the current situation, where the level of registration is—and it certainly was in 2011 when people started looking into this—actually potentially pretty low, particularly in the third-tier or fringe lending market that many of us are so concerned about.

This part focuses really on the provisions around the reserve scheme. It removes the requirement for a Government-sponsored reserve scheme. Also, and probably most significant in this part, it also has clause 98, which provides for the jurisdiction of dispute resolution schemes to be increased so that they can deal with all of the matters under the legislation. Potentially, if we had informed consumers, that would mean that a number of the matters that are raised in the more substantive parts of this bill could be matters that are dealt with by the dispute resolution scheme, which would be an improvement on the current situation. But, of course, like the other provisions in this bill, my concern is that many consumers will still be unaware of their rights, even though under responsible lending and all of the disclosure provisions they will potentially be aware of the dispute resolution scheme.

We have got, I think, some way to go before we see fully informed consumers who will be willing and able to take up matters, and there will no doubt be many, many matters still left to take up, because none of us, I think, would think that the passing of this bill by itself is actually in the short term, and possibly even in the medium term, going to change some of those dodgy practices that are out there. Of course, when consumers have to enforce or take action themselves, then it is necessary for that person to know their rights to have the confidence to take actions.

I guess one of the things that would be very good to hear from the Minister of Consumer Affairs is that once this bill is passed and comes into effect—and there is a staggered process there, which we will talk about later this evening—the Government will invest some money in ensuring that the legislation is understood, and that there is more information and support for consumers put in place. We all know—and I am sure many of us in this Chamber will have experienced directly—of the sorts of rip-offs and the shoddy treatment of many of our particularly vulnerable consumers by many dodgy lenders out there. So I do hope that the dispute resolution schemes are used well. It is good that they can cover the full range of issues in the legislation.

Another area that is quite positive in this part is clause 100, where it is now a requirement for the dispute resolution schemes to communicate with the Commerce Commission if they are aware of a series of complaints about a particular creditor or type of creditor. I read that to mean that if there is a company called x, y, and z that comes to their attention on numerous occasions—or, indeed, if the whole category of, say, pay-day lenders, truck shops, or some of those other delightful creatures that are out there does—they can then pass on that information, and, in fact, will be required to tell the Commerce Commission. This is where I think the rubber will really hit the road in some regards: whether the Commerce Commission itself is going to be resourced to really keep an eye on what is going on and to ensure that provisions that have been passed in this bill are, in fact, utilised effectively. I would like to see—and again I would like to ask the Minister about this—some sort of baseline, if you like. In the very delayed passing of this legislation, we should make sure that we have our baseline of how things look at the moment and that we actually do actively seek Commerce Commission monitoring of what happens out there. I think that also needs to include interest rates.

The reason I say that is that the one area that this bill is particularly deficient in is the failure to cap interest rates and the failure to stop people lending money with really extremely high interest rates, often in the hundreds, and sometimes the thousands, of percent. We know that most people try to pay back the loans that they take out, including that interest. That is money they can ill afford to pay, and yet that was not dealt with in this bill. So in having the dispute resolution schemes being required to inform the Commerce Commission, my view is that the Commerce Commission should actually start with some baselines.

To all of those who have argued, including members opposite, that the other provisions in this bill—the responsible lending requirements and the disclosure requirements—will start to drive down interest rates, I say let us get our baseline now and let us actually measure that, because that will be where we really see whether or not this is effective. It is a great disappointment that amendments that were put up to bring in interest rate caps and add them to the tool box of tools to try to control some of the things that go on in our consumer credit area, particularly in that third tier, have not been done. So I think that it is fair to say that the purpose clause for financial service providers, inserted by clause 72 in this part, new section 2A, includes the requirement “to promote and facilitate the development of fair, efficient, and transparent financial markets.” I want to know what people think fair, efficient, and transparent financial markets are. I challenge anybody to stand up and say that interest rates of 50 percent, 70 percent, 100 percent, or 200 percent are actually fair. They are not fair.

I think that there is a real need and there is still an opportunity, potentially, for the Government to say that it wants the Commerce Commission to measure the whole playing field as we start down this track, to particularly look at whether or not interest rates are affected by this legislation’s other provisions, and, if they are not, to actually do something about it. We should have done it now; we have not. But there is still an opportunity for the Minister to say that he would expect that that is something that the Commerce Commission, informed by the dispute resolution schemes, could still do. Although it would not make us as happy as actually having interest rate caps in the legislation, it would at least show some willingness on the part of the Government to actually deal with what we all know to be a real issue out there. So I hope the Minister will get to his feet. I hope the Minister will deal with those questions around how we are going to inform consumers, and how we are going to make sure that the Commerce Commission is adequately funded to be actively out there looking at what is going on.

It is a pleasure to continue speaking on this very, very good bill, the Credit Contracts and Financial Services Law Reform Bill. This once had cross-party support. I will be interested to see whether New Zealand First has come to its senses and will now be voting for the bill. We will wait and see.

The member who spoke previously, Carol Beaumont, raised some interesting points. Part 2 really deals with the financial dispute resolution services, even though she started to talk about some other matters that were in the earlier part. But she did raise a couple of points. It came out in a recent study that the awareness of dispute resolution schemes amongst the general public, amongst users, and even amongst suppliers, actually was lower than desired. There is work going on by those various services and others to raise the profile of dispute resolution schemes, because they do play a key part in consumer dispute resolution, of course, in the life cycle of a consumer credit contract.

I just note that the bill deals with that kind of life cycle: the information disclosure, the responsible principles that must be adhered to, the stand-down period, the signing of the contract and what can happen after that, what can happen during the life of the contract if problems occur, and, of course, what can happen if the borrower has some complaints or some issues. It is important to note, I think, that the financial dispute resolution services are paid for by the industry. They are very, very low cost for the borrower or for the user. They are paid for, for the good of the industry. As the member noted earlier, if any entity that tries to engage in commercial ending activity is not a member of a dispute resolution scheme, it cannot charge interest—it cannot charge interest. It is somewhat of a pretty good and sharp economic incentive for those organisations to belong to an accessible, low-cost dispute resolution scheme that, by and large, does a very, very good job. I agree that the awareness of them will increase.

The member asked about the Commerce Commission’s information and the sending out of the changes and new obligations to the sector out there. I can assure the member, as I did on Part 1 when I spoke, that, yes, I have asked the Commerce Commission and it has assured me that it is taking this kind of new retail-facing part of its work very, very seriously. It has already hired, from the Māngere Budgeting Services Trust, a person who is like a community liaison officer, a community adviser. That is something that the Commerce Commission has never had before. As members noted in the previous part, that adviser is on the ground gaining knowledge and raising awareness in community groups of what they can do if something goes wrong—such as talking to the financial dispute resolution services.

This is a pretty confined part of this bill—clause 71 through to clause 90-odd, I think. But there is just one quick point. There are some changes in the bill that the Financial Markets Authority can make changes to. Sadly—and this is why we have such complex legislation that goes across many pages, as always—there are some people out there trying to exploit the holes in legislation. There have been some people, within New Zealand and from afar, who have tried to exploit the good reputation that New Zealand has as a fair and just place to do business, backed up by robust regulation and a justice system that has integrity.

Some of the changes in those clauses, as you will note, give powers to the Financial Markets Authority to deregister various people and to services to not accept registrations from particular individuals. Sadly, some individuals with ulterior motives of essentially trying to rip New Zealanders and others off have actually tried to use that stamp of approval of being a New Zealand financial services provider and belonging to one of these dispute resolution services, and the procedures probably were not as good as they could have been, as we have found out, to disallow those people from exploiting New Zealand’s very, very good name. It is very important that we maintain our reputation around the world as a good place to do business and domestically for New Zealanders—particularly for vulnerable New Zealanders, but, of course, across the country.

So this bill closes some of those opportunities that individuals could have used to exploit our regulatory environment for their own commercial gain, where, in fact, they have no standing whatsoever to do that. As I said earlier, often their motives were not good and they may have been convicted or have had actions taken against them in overseas jurisdictions, and this part of the bill addresses those particular holes.

Thank you very much for the opportunity to speak to Part 2 of the Credit Contracts and Financial Services Law Reform Bill. Can I thank the Minister of Consumer Affairs for making a substantial contribution to the debate. Can I also take this opportunity—I did not get the chance during the debate on Part 1—to thank the officials who are in the Chamber tonight. This, as the Minister said, was—[Interruption] I will get to you soon. Do not worry. You will get your day in the sun.

I thank the officials who helped us with this bill because, as the Minister did say, it is a complex bill, but it is a bill that deals with the nitty-gritty of what a lot of our constituents face in our communities when they are dealing with the likes of second and third-tier lenders. So thank you very much, because I think we have made some substantial changes that will help many people in communities right around New Zealand. Thank you, because you made it into plain English for those who did not understand the legalese of it. There you go, Jonathan.

To the other members of the Commerce Committee, there were a few points of difference around interest rate caps, which I will get to in my contribution. But, on the whole, the length of time that we spent on this bill and the nature of the way in which we worked on it in the select committee meant that we have got a bill that we will support. We do have some concerns about the length of time that it took to get here and some things that have been omitted from the bill, but on the whole it is a good piece of legislation that we will support. It will make a difference to people’s lives.

The Minister in the chair, the Minister of Consumer Affairs, did mention the Commerce Commission, and certainly during the submissions process in Auckland we sensed some frustration that the Commerce Commission was not doing enough at the business end of the formation of credit contracts in terms of policing what was going on there. Certainly, I think the Bankers’ Association, in its submission, sensed a level of frustration that the Commerce Commission was seen to be not doing enough to keep an eye on some of the behaviour of certainly the third-tier lenders, who were giving the whole industry a pretty bad name.

I do acknowledge that the Minister said that the Commerce Commission has taken on one employee from Māngere to assist in the understanding of what is going on at the grassroots level in the communities. But I would suggest that that is far from enough. Maybe the Minister could let us know, as he has told us what has happened so far, whether there are any more plans for the Commerce Commission to extend it well beyond Auckland, because this is not just an Auckland issue. It needs to be spread right throughout the country and be resourced properly, because this is a big issue and there are two very important Es that need to be considered here: education and enforcement. We need education, so that everyone knows exactly what is happening in this bill and the rights that it gives to consumers, and we need to make sure there is enforcement. There is no use in our passing this law if no one is going to police what is going on with our second and third-tier lenders.

I hope that the Minister gets back on his feet and suggests whether there is a plan for the Commerce Commission to go beyond just the one person it has employed and to employ people right around the country in order to have enough resources to make sure that what we have done in this piece of legislation is effective. As he pointed out, just with the financial disputes resolutions system, there is not enough awareness of what you can do if you think you are being ripped off. Certainly, we would want to make sure that there is enough education and enforcement out there so that this piece of legislation will be effective. It is good to put measures into law, but it is another thing to make sure that the legislation is effective so that the families we are worried about, the vulnerable families who do not have that information and do not know which avenue to go down, can get the help they need. They are people whom this legislation is there to help.

My colleague Carol Beaumont pointed to clause 100 in the bill, which I think is a good one. It carries on a theme with the Commerce Commission, because if, through a number of complaints, the dispute resolution scheme sees a trend with a particular type of borrower, it is able to notify the Commerce Commission. I want to use the example of truck shops, which certainly go about with their guerrilla tactics in my area of Mana. If they are out there, trading in a way that is against what we have passed here, and the dispute resolution scheme notices that trend, it is able to pass those issues on to the Commerce Commission. I think that is a good thing. But, again, we need to make sure that the Commerce Commission moves away from the high-level thinking and enforcement that it does at the moment and gets down to the nitty-gritty of what is actually happening in the communities.

I do not think that the likes of the budget support organisations in our communities have the support from the Commerce Commission to be able to enforce what we are passing here today. The people at the grassroots who are helping these families day to day—the likes of the Porirua Budget Service and the Kapiti Family Budgeting Service; we have all got budget advisory services in our communities—would certainly want to know that they have got support from the Commerce Commission to be able to put the kinds of powers and the advantages they get from clause 100 in this bill into practice. They want to be able to make sure that if they do see a trend developing with a particular type of borrower, they can certainly crack down on that.

The kind of instance I am talking about with the truck shops is the kind of what I would call dodgy behaviour, where we have customers incurring a debt—say, a credit of around $1,000. The customer pays it off and instead of saying: “Your bill is paid.” the truck shop says: “Well, you’ve got another $1,000. Go for it.” I think that kind of behaviour is encouraging people into even more debt. I would hope that through the code we have in this legislation we will see much more responsible behaviour from the likes of those truck shops, because I know that their behaviour has certainly not been responsible to date. That kind of behaviour is off. There are people who are working their guts out. Yes, they got themselves into debt, but they are working their guts out to make sure they can pay it off, and the message they get back from the truck shops is: “Well, you can spend up again, because you’ve got $1,000 because you’re back to zero.” I do not think that kind of behaviour is on. Hopefully, that is the kind of thing that we will see the Commerce Commission cracking down on more if, as the Minister says, it is putting more resource and focus on dealing with grassroots issues that pertain to this bill.

My colleague Carol Beaumont also talked about clause 72, in Part 2. In Part 2 we are dealing with amendments to the Financial Service Providers (Registration and Dispute Resolution) Act. Clause 72 inserts into the principal Act a new section 2A about the purposes of the Act. If I can take the opportunity to read it: “The purposes of this Act are—(a) to promote the confident and informed participation of businesses, investors, and consumers in the financial markets; and (b) to promote and facilitate the development of fair, efficient, and transparent financial markets.” Basically, it is marrying up the financial service providers purpose of that Act with the bill we are dealing with tonight.

I think that one of the disappointments with Part 1 of the bill, now that we have got that Act and this bill married up, is that we have not been able to pass Carol Beaumont’s Supplementary Order Paper 430 in terms of interest rate caps. I think that that Supplementary Order Paper would have made a huge difference and sent a message to those third-tier lenders that they cannot get away with offering those ridiculous, exorbitant interest rates. This Committee had the opportunity to do that.

I know that there are arguments across the Chamber, but I think we have missed an opportunity to send a message to those vulnerable families that it is not OK to charge 100, 200, or 700 percent interest on loans. That is just outrageous, and we needed, as a House, to take steps to make sure we stop that kind of behaviour. That was a missed opportunity. There was a degree of bipartisanship around this bill, but I think that in a political way that side of the House missed an opportunity to help those vulnerable families who are getting absolutely ripped off by those sharks in our community. It was something simple—it was something simple. It was something that would have just capped the interest rates, but that side of the House—and, unfortunately, Peter Dunne, who said he would support such a move 3 years ago—decided not to support that, and that is a disappointment. Maybe in this part of the debate the Minister in the chair, the Minister of Consumer Affairs, could explain why that was not taken up.

Part 2 does deal with those dispute resolution schemes. On the whole, they are good changes. As the Minister said, we are preventing overseas organisations from coming over here and joining this, to take the good name of our dispute resolution schemes around the world and trade on that. I also think that it is a good change. To make sure that the dispute resolution scheme extends out for everyone is a good thing, but, again, I would hope that the Government would back it up with resources and educated enforcement to make sure that this piece of legislation is not something that is just going to hold the door back but is going to be effective.

It is good to be able to speak again in this debate on the Credit Contracts and Financial Services Law Reform Bill. I would like to start by acknowledging and thanking two very special people in Dunedin who work at the coalface of people who are low-paid, vulnerable, and dealing with huge budgetary issues in their lives. Their names are Shirley Woodrow, who is the front-person for the budget advisory service in Dunedin, and Ngaire Duke, who fronts the team at the Dunedin Citizens Advice Bureau. There are other people who work with both those services, but they are both really tiny little teams that make a huge difference in our community. It is one of the many communities throughout New Zealand that are grappling every day with the effects of bad practices on the part of organisations that are lending money and charging exorbitant interest rates and undertaking very dodgy practices that are having huge ramifications. Yes, there is a responsibility on the people who are taking out these loans and who get themselves into these situations, but, to be frank, I think that everybody across the Chamber tonight would acknowledge that there are very, very strong reasons for the terrible situations in which people find themselves in this country.

As the Minister in the chair, the Minister of Consumer Affairs, himself acknowledged before, New Zealand does have a reputation for being a good place to do business, a transparent place to do business, and, in general, a corruption-free place to do business, but if you scratch the surface of that reputation, underneath you do find practices that are not good, that have been endemic in this country, and that need to be sorted. Labour is supporting this legislation, though we believe there is a really key part missing, and I am sure you will not have missed that message tonight. We support it because it has to get passed. I am acknowledging tonight the efforts and the daily grind of these small organisations, which are underfunded and that struggle, but carry on because they know that the work they do is really important. Alongside them in Dunedin is the community law centre and also the Dunedin Council of Social Service. I could go on and on about these small organisations, which often are staffed partly by volunteers because they are people who care enough about their communities to do this sort of work.

I would like to make the point to the Minister tonight about the words he used about the work that is being done to raise awareness of financial literacy. I would like to see the facts and figures around how that is being increased and where that is being increased, because we are not seeing any increase in Dunedin. I would imagine that a number of my colleagues who have spoken tonight and who will be speaking on this bill would say that they do not see any increase in the resources that are being put into improving financial literacy and upskilling people in knowing how to manage the small amounts of money that they are then forced to live on, and to be able to make the choices that are going to enable them to carry on without having to apply for these loans and find themselves in this downward spiral of despair, which is one of the reasons we have got this bill in front of us tonight.

If we want to talk about resources, we have talked about the resourcing for the Commerce Commission. Well, having one person in Māngere is not going to solve this issue and it is not going to help with the enforcement of this issue. I would like to ask the Minister respectfully, when he says that he has been given guarantees by the Commerce Commission—which, as I understand it, is already fairly stretched—whether there are any further guarantees that it is going to be looking at how the enforcement and the monitoring of this law is going to be carried out in other parts of the country. Are we looking at extra resources for financial literacy in schools, throughout tertiary education, and throughout other parts of the community where we need this to be embedded in our culture in terms of how we manage our money? Especially if you are on a very low wage, and especially if you find yourself in circumstances not of your own choosing, where you have lost your job, you have got a mortgage, and you find yourself ending up needing to get access to money and then finding yourself again in this downward spiral of despair and debt with high interest rates.

There is a financial literacy and financial awareness gap in this country. I have sat on the Commerce Committee for nearly 6 years, and I have heard countless submissions from individuals, from organisations, and from Government-attached organisations saying that what lies beneath the reform in this area in terms of financial regulation, whether it is for mum and dad investors or people taking out loans, is financial literacy. That is one of the issues in our country that is at the heart of these problems. We can, as a Parliament, introduce laws like this bill, which we are passing through the Committee stage tonight, but we need to address the underlying issues.

The financial issues do not just stop there either; the resourcing issues also go to the regulations, how the regulations are developed, and how quickly they are able to be developed to enact this bill. It is my understanding that this bill, even though it may get passed in the next short while, may not come into effect for 12 months. It may not come into effect for 12 months if the regulations have not been developed or have not been developed in a way that is robust. In order for that to happen there needs to be adequate resourcing within the ministry. Mr Chair, through you I would also respectfully ask the Minister to address those issues and to give an indication of the expectation of how long it is going to take for those regulations to be developed so that the country can be reassured tonight that we are not going to have to wait another 12 months before this legislation can be enacted and actually be law. We have waited for years. Before this Government came into office at the end of 2008, this legislation was in development. The bill comes out of very good work that was being done by the previous Minister of Commerce—or one of the previous Ministers of Commerce; there have been a few in the last 6 years—the Hon Lianne Dalziel, who should also get a mention tonight with regard to this bill.

I said in the first part of this Committee stage debate that the Government has a number of levers it can use in this area. In this bill it has introduced a number of those levers, which include the Responsible Lending Code, the disclosure requirements, the clearer tests for unreasonable credit fees, and the licensing of repossession agents, etc. But the missing link—the absolute missing link—is the cap on interest rates. We are seeing that being introduced in other jurisdictions throughout the world, but is New Zealand doing it? No. Why is New Zealand not doing it? Well, it appears either for ideological reasons, because perhaps the Government could not have got the support if the ACT Party had not supported it—and we certainly know that one of the previous Ministers of Commerce, Heather Roy, was opposed to interest rate caps—or there could be other reasons that perhaps involve lobbying from organisations. The fact is, though, that interest rate caps have been introduced in many other jurisdictions. They have been named. They include Canada, Mexico, Japan, Singapore, most African countries, most South American countries, most European countries, South Africa, and Australia. They all have interest rate caps and they have all done a substantial amount of work in this area. Why can New Zealand not do that too?

I take a call on behalf of New Zealand First on the Credit Contracts and Financial Services Law Reform Bill. I understand that before I came into this Chamber, the Minister of Consumer Affairs, Craig Foss, questioned why New Zealand First is not supporting this bill although other parties are. We have already spoken in this Chamber in the last week on this particular bill, at the previous Committee stage debate, and said that, yes, it had great purpose, it was an opportunity to rectify some serious situations with credit and loans of money in this country, and it had significant potential. However, what it did fall short on badly was the opportunity to put caps on interest rates from loan sharks and lenders who operate in an unscrupulous manner. I will repeat that: this bill had the opportunity to put a limit, put a cap, on interest rates from unscrupulous lenders and loan sharks, and this Government has chosen not to do that. This Government has chosen to block any of the Supplementary Order Papers and any attempts by the Opposition to put in place such caps.

We simply ask the question why. Why would any responsible Government looking to protect its citizens, looking to protect the most vulnerable people in society, and looking to protect those who are borrowing money not protect them by putting in some form of protection in the form of caps on interest rates, when other jurisdictions, as we have heard, such as the UK, the United States, Canada, Japan, Australia, and most European Union countries have? Why would New Zealand know so much more than these other developed countries? Why would we think we are so smart? When all these other countries can put caps in place, why would we not do so? So New Zealand First will not do this—we will not support a bill that leaves New Zealanders vulnerable in this manner.

It does boil down to the fact that this bill will be passed and New Zealand First will be the only party voting against it, but those Supplementary Order Papers could have brought that protection about. They were lost 61 to 60 on the one vote of the Hon Peter Dunne, the former Minister of Revenue. We again ask the question: why did the Minister not vote so that his one casting vote would have allowed those caps to be put on interest rates? The fact is that this bill emanated from 2010, in the days of the Credit Reforms (Responsible Lending) Bill, a member’s bill from Carol Beaumont, which was originally put together by Charles Chauvel of the Labour Party, and which back then was requiring caps on interest rates. Back then the Minister Peter Dunne voted in favour of those caps. In fact, not only did he vote in favour of them but one of the people responsible for devising the bill, the Hon Peter Dunne—

The CHAIRPERSON (Eric Roy): Order! Can the member talk about Part 2.

No, I am talking about the whole bill.

The CHAIRPERSON (Eric Roy): No, well, we are on Part 2.

Well, yes, but the Minister referred to us—

The CHAIRPERSON (Eric Roy): No, look, we are on Part 2.

Sure, but the Minister made criticism of New Zealand First in terms of Part 2.

This speech is terminated. Is anybody else seeking a call?

I move, That the question be now put.

I raise a point of order, Mr Speaker. If the Minister is going to criticise New Zealand First—

Order! I have already ruled on that, and I made it quite clear that the member should be speaking about Part 2. [Interruption] I have ruled on the point of order. If the member is seeking to redress that, he is on dangerous ground.

💬 Andrew Williams: I do not like threats, thank you, Mr Chair.

The CHAIRPERSON (Eric Roy): The member will now leave the Chamber.

Andrew Williams withdrew from the Chamber.