Credit Contracts and Financial Services Law Reform Bill

Clare Beaumont.

Carol.

💬 Mr DEPUTY SPEAKER: I am sorry. I keep doing that—my apologies.

You do. You are kind of merging us.

💬 Mr DEPUTY SPEAKER: You should not sit together! Carol Beaumont, my apologies.

That is all right. Speaking on the Credit Contracts and Financial Services Law Reform Bill, I want to talk about the missed opportunity here—the missed opportunity we had to get cross-party consensus, as others have talked about in this Chamber, and to put in place a really strong bill that actually would have seriously amended legislation in this area and reformed it properly to give us a full range of tools that we could have used to deal with some of the practices that happen in consumer credit. That is not to say that there are not many good features in this bill, and we have worked constructively as the Commerce Committee to improve the bill as introduced into the House—and as others have noted, and I noted in earlier contributions, with really solid assistance from officials; thank you again for that.

We have improved the bill over what was introduced into the House, and yet we have failed to make a particularly important addition to this bill. To me, that has been driven solely by ideology. In the end, right across a number of years now, we have had the same tired old reasons trotted out as to why we cannot have interest rate caps: because of potentially unintended consequences, because it will drive some of these third-tier lenders out of business potentially, and because it will become the target, rather than a cap. These are the same tired old reasons trotted out year after year, and, actually, it is not good enough. We have not had a robust analysis of what happens in other jurisdictions where, in fact, increasingly those jurisdictions are adding interest rate caps. They are saying that this is the only way.

The UK is the classic example, where the Tory Government there was vehemently opposed to interest rate caps—vehemently opposed—and had to do a U-turn at the end of last year. The Chancellor of the Exchequer, I think it was, actually said: “We have come to the realisation that this is the only way to deal with the problem of interest rates being charged by pay-day lenders.” Here we think that we can just trot out the same tired old reasons and not put something into this bill alongside the other provisions. Alongside the responsible lending principles; alongside the responsible lending code; alongside the disclosure provisions and the controls of fees, or the clarification at least, on fees charged; alongside improving the hardship provisions; and alongside all of the other positive elements of this bill we could have put another tool in that toolbox.

We are meant to take it as a matter of faith, almost, from some across the Chamber, anyway, and from the Minister of Consumer Affairs, that interest rates will be dealt with as a consequence of these other provisions and as a consequence of the responsible lending provisions—that this will suddenly mean that the lenders in this third tier will suddenly realise that the types of abhorrent interest rates, the sorts of rates that the community finds offensive, are no longer suitable. Actually, I think that this is going to be a fallacy. The Minister did not, in the last part, answer my question about getting information now as a baseline and getting the Commerce Commission to actually measure and then reflect as this legislation comes into effect whether or not interest rates are being reduced.

That is what we are being told—that these other provisions will have a downward pressure on interest rates. Well, let us actually measure it then. Let us actually put that to the test. Because otherwise what will continue to happen are the sorts of examples that I gave the House in my contribution last week, and those were examples that I had got that very week in Palmerston North, where we got given examples of interest rates of 552 percent or, for a pay-day lender, 1,080 percent. Those are two real-life examples from Palmerston North a week or so ago. They will continue without actively seeking to reduce them, which is what an interest rate cap would have done. So I urge the Minister to say: “OK, we will put this to the test. We will look at what’s out there now. We will measure it in a year. We will measure it in 18 months. We will measure it in 2 years, and see whether it does make a blind bit of difference to this really serious issue.”

The fact of the matter is that if you ask budget services, they will tell you that these extremely high interest rates are very commonplace and people are doing their best to pay them back, and often do. So it is a question of whether that is fair and reasonable. We talked in Part 2 about the purpose provision around financial services providers registration and disputes resolution schemes and so on, and it says in new section 2A that the purpose of the Act is “to promote and facilitate the development of fair, efficient, and transparent financial markets.” How can interest rates like those I have just given examples of—552 percent or 1,080 percent—be claimed by anybody to be fair? They are not fair. We all know that they are not fair. So why, as a Committee, are we not addressing this issue? Why is it that the Government has been just so ideologically opposed to this question that it has turned down an opportunity for us to pass a piece of legislation that we have all wanted unanimously to see for a very long time? We could have had a piece of legislation passed unanimously. The Government has failed to do that. It seems to me that it would have been a very, very strong message indeed to those that behave badly in the consumer credit area if they knew that Parliament was unanimous about dealing to their issues.

We are supporting this bill without question because, as I said at the start of this contribution, there are many good features to it. But it is with a great deal of anger, really, that we are having to accept that at this stage there will not be interest rate caps put in place when they should be. It is certainly something that Labour has a policy in favour of doing, and we would do it because we do not think that those interest rates are fair. We do not think that it is right that the most vulnerable—the families that are struggling the most—should pay excessive interest rates, and pay them at the cost to their own families and to the cost of their own children, often, in terms of other things that they cannot spend that money on.

This is a very serious matter and I think that perhaps this legislation should be called something different. Maybe this bill should be the “Credit Contracts (Opposition to Interest Rates) Reform Bill”, or the “Credit Contracts (Ideologically Opposed to Interest Rate Caps) Bill”, or the “Credit Contracts (New Zealand Obviously Does Not Have a Problem Compared With the Rest of the World) Law Reform Bill”. Why is it—and we have not had this answered, and the Minister has not even attempted to address the question—that elsewhere countries have recognised this need and have put in place provisions for interest rates caps, but here we say: “No, we will do all these other things, but that’s the thing we’re not going to touch.”? What is different about our markets? Why is it that the Government is so totally opposed to this question? It still does not make any sense to me. It would have been a sensible thing to align all of those different tools, in fact, and to actually address the various concerns at the same time.

I ask the Minister to get up and answer those questions. What is different in this market from overseas jurisdictions? If it had been so bad, and if it had become the target rather than a cap, why is it that Canada has not repealed its legislation in over 8 years? Why is it that a Tory Government in the UK vehemently opposed to interest rate caps has accepted that it is the only option that it has got to control interest rates? What is different here? I urge the Minister to get up and answer that question. I also remind him of the question I asked in Part 2 around actually taking some baseline measures and effectively putting the Government’s money where its mouth is in terms of actually seeing whether all of the other provisions of this legislation do have the effect that the Government is saying, which is that the bill will drive down interest rates through things like the responsible lending provisions. I urge the Minister to get up and address those questions. Thank you.

I apologise for the interruption to this debate, but I have just become aware of an email that was sent late in the dinner adjournment, as a result of which I seek leave for all the votes that I have cast since the dinner adjournment on behalf of the Māori Party to be adjusted from three to two.

💬 Mr DEPUTY SPEAKER: Leave is sought for that purpose. Is there anyone opposed to that course of action? There appears not. Leave is granted. The record will show that.

There is no doubt that the majority of this debate has focused on what is missing in this bill, the Credit Contracts and Financial Services Law Reform Bill. Mark my words, and my prediction tonight to everyone in this House is that we will be back in this House within a short time in the next Parliament revising this bill to include caps on interest rates.

There is well-documented evidence of the importance of an interest rate cap in legislation such as this. There is well-documented evidence of the extent of the issue in New Zealand. I would just like to quote some research tonight that revealed that between 2006 and 2011 there had been a 60 percent growth in the number of third-tier lending outlets, up to 40 percent of them were flouting the law by not registering as financial service providers, and 127 new lenders had entered the market. In July 2013, which was just last year, a new law took effect in Australia that capped interest rates at a maximum of 48 percent. The lending sums in the US of between $100 and $4,000 for short terms at high interest rates have been regulated in 37 American States.

This is not us making it up. This is a real issue. My fear is that this otherwise pretty reasonable piece of law will be flawed—deeply flawed—without that extra important control and extra important lever. I think we are doing a disservice tonight to the people of New Zealand by not including it. I also feel, I guess, disheartened really, given the extent of the work that has been done in the Commerce Committee on this, and the work that has been done by the officials, who should be acknowledged again tonight, and all the members on that select committee, which was chaired by Jonathan Young over there. But yet, where is the debate? Where is the discussion? Where are the explanations? Where is the argument that is the counterargument, which is to put the other point of view, rather than to have speaker after speaker on this side of the Chamber getting up and saying what is wrong with the bill and what it is missing out? Instead we just have this deathly silence. I think we do a disservice to the people of New Zealand by not having that discussion and by not having that debate, so that people can actually hear what the counterargument is. Instead it is just deathly silence.

All too often in this House this is what happens. Through really important pieces of legislation, where there has been a big point of contention, instead of having an actual debate, and a discussion of ideas—which is what I thought this Parliament was supposed to be about—we end up having a string of speakers putting a point of view and a deathly silence from the Government, which can pass the legislation because it has got the numbers. Well, that is not good governance. It is not good governance and it is not what I came to Parliament to be part of, and I doubt that many other people on this side of the Chamber, particularly, came to be part of that, either.

There are some very good parts to this legislation. I do want to mention some of them because there has been so much work put in to try to get good law coming before this Committee tonight. The introduction of the Responsible Lending Code, I know, is going to take some months to be developed, and that will be done through regulations. I have already mentioned tonight that we hope that it can be done as quickly as possible, but in order for that to be done as quickly as possible, the ministry needs to be well resourced to do it. In order for that to be enacted so that there can be a good communication of such a code out to the community—because it is all very well developing a Responsible Lending Code, but if it is actually not being communicated and if there is not that interface for people who are looking for ways to get access to extra money and who also need the good advice about how they could be borrowing in a more responsible way and how they could ensure that they can pay the money back.

That exchange of information before the lending takes place is incredibly important. We have heard in debates on other legislation that has come before the House around investment and around mum and dad investors about the importance of being fully informed about the investments that you are making, so it is sort of looking at it from the other perspective. The key to it is good financial literacy and the ability that is being put in place for that financial literacy to take place. So the mark of good governance around the implementation of the bill that we are discussing tonight in its Committee stage will be how it is communicated to people; how the codes are developed, how they are communicated, and how they are enacted; whether the Commerce Commission is actually going to be able to do the monitoring and enforcement that is required and that is needed across the whole of New Zealand—not just in Auckland, with one extra staff member, but across the whole of New Zealand—and how that monitoring will be reported; whether there will be a review done within a shortish period of time, or certainly within the next couple of years, I would assume, it would be needed to see whether it is actually making any difference; and whether or not the Ministry of Business, Innovation and Employment is adequately resourced to develop what is needed to be done to make sure that this law comes into practice responsibly.

Once again, and I just reiterate, I predict that we will be back in this House within 2 years introducing interest rate caps. Would that not have been a good thing to include in this bill tonight? Would there not have been the ability for all the budget advisory centres across New Zealand, all the citizens advice bureaux, and all those other small organisations staffed by those really dedicated people—many of whom are actually doing voluntary work—to actually see that there is a whole suite of levers that are going to be used to stop this irresponsible loan shark behaviour, which is causing a cancer throughout our low-income communities? So we will support this bill, but we reiterate how important it is for those interest rate caps to be introduced.

This will be the final time that I rise in the Committee stage on this bill, the Credit Contracts and Financial Services Law Reform Bill. Members have asked a few questions. I think it is important to note that in addition to the National Government targeting dodgy behaviour and targeting loan sharks, as we are in this bill and in other consumer affairs bills, actually, just in the last couple of weeks we have announced microfinancing under the Hon Paula Bennett’s portfolio. That is about bringing in good shepherds—the Bank of New Zealand—to offer very, very, very low-interest loans to those who are stuck in a spiral of debt and whom the Ministry of Social Development is working very hard with to assist them out of those circumstances.

Members have also asked about the resources for budgetary services around the country in addition to those in Auckland. That is a fair question, and I am sure that they will be pleased to know that Minister Bennett recently announced that an increase from $13 million per annum to $22 million per annum will be going in to assist those same budgetary services.

Interest rate caps have been mentioned a few times in this last part, and I will address those, because something demonstrates how hard and complex they can be. No one has actually talked about the total cost of finance caps; they have talked about interest rate caps. Yes, there were two Supplementary Order Papers in that space. Well, one of them would have given the humble Minister of Consumer Affairs more power than the Minister of Finance, and it would probably be up there with Dr Bollard, essentially setting interest rates. Another one actually had the totally unintended consequence, I am sure, of totally contradicting itself and basically giving second-hand dealers and pawnbrokers absolutely unlimited fees, charges, interest rates—you name it. So that was the consequence of that Supplementary Order Paper.

But I really want to talk to those who are voting against this bill. I do thank and acknowledge members across the House for their acknowledgment of what has been going on in dire situations across this country in many, many tragic circumstances. However, those who are voting against this bill and against this protection are voting for uninformed borrowers and uninformed lenders. They are voting for irresponsible behaviour from lenders—predatory behaviour. They are voting for a continuation of some in our community carrying out exploitative behaviour towards some of the most vulnerable in our community, because that is what has been going on, and that is what those members are voting for if they, in fact, vote for the status quo. If those members are voting against this bill, they are voting for having no principles of responsible lending, no consideration of the circumstances of the borrower, no Responsible Lending Code, no pre-checking, and no understanding of what the obligations are that a guarantor might be taking on if English was their second language and if they did not actually know what was going on.

I have had members in this House come to me about issues that, in fact, this bill would fix, and they are now voting against this bill. I cannot understand it. If they vote against this bill, they will be voting for the status quo of arbitrage and whole exploitation in rules and regulation across this land. That is not right. That is not fair. That is not the Kiwi way. If those members are voting against this bill, they will be voting for embedded fees, ratcheting costs, and selling insurance to beneficiaries who are taking on loans that they cannot afford to pay back in the first place. That is what they are voting for if they vote against this bill. They, if they are voting against this bill, will be voting for unlicensed repossession and predatory behaviour carried out by some in our country. They will be voting for people to go into other people’s houses and take possession of things that have not been borrowed against and have not been listed, and they will be voting for them to use leverage, extortion, and even blackmail—even running down the road with a machete to chase down some of our vulnerable New Zealanders.

I do not for the life of me understand why some members in this House are doing that. They can make their political point, but they are putting New Zealanders at risk. They will be exposed, and I think that they will be judged accordingly. Those who are voting against this bill will take no allowance of the hardship, they will take no allowance of the oppression clauses in the bill, and they will take no allowance of the changes to the dispute resolution services. As is evidenced by those good members across the Chamber who are voting for vulnerable New Zealanders and for fair play, yes, some members are putting New Zealand first, but some other members in this House are not. I think that that will play back very badly for them because they are allowing a continuation of bad, dodgy, predatory, and exploitative behaviour within our community. I am proud to stand with the other MPs in this Chamber to address that exact matter. Thank you.

Well, finally—finally someone from that side of the Chamber has shown some passion about this issue. Congratulations to you, Minister Foss, on getting up and having some passion, but where was that 4½ years ago, when this process started? Where was that passion when you started out on this whole process to make sure that the people whom you are talking about, those vulnerable borrowers out in our communities, were getting protected? This was such a priority when it started in 2009, and here we are in May 2014 and, finally, we are getting something done about it. So thank you for getting passionate about it, but on this side of the Chamber we are not quite believing how much of a priority you have made this piece of legislation, the Credit Contracts and Financial Services Law Reform Bill, for all those vulnerable people you claim you want to protect.

If you did want to protect them, you would have done something about this a long, long time ago. This is a debate on the title and commencement date. This piece of legislation could have commenced 2½ to 3 years ago if this Government really prioritised the needs of the vulnerable people whom the Minister was just a little bit passionate about before. This process started in 2009. Then Simon Power had a summit in 2011, and then a Cabinet paper was presented to Cabinet and came out in October 2011. It has been sitting and doing nothing—nothing—until now. So I say to the Minister that he should not get up and puff his chest out as though this has been a priority for him. It has not been, Minister. It has not been a priority for this Government, at all.

If it were a priority, you would have looked with a bit more passion at the Supplementary Order Papers regarding interest rate caps, too, but you have not done that. The Minister in the chair, the Minister of Consumer Affairs, put his arms up and said it was all too hard. Well, it was not too hard for the UK, it was not too hard for the US, and it was not too hard for Canada, but here in New Zealand it is all too hard. The Government says: “Oh, we can’t do that. It’s impossible.” Listen to what the Minister said when he spoke up: “We can’t do it. It’s too hard.” Well, why can other countries do it and we cannot? Why can Australia do it and we cannot? If you are really serious about protecting the people whom this bill pertains to, Minister, you would have done something about this a long, long time ago, and you would have looked at those interest rate caps.

That Minister can get up there and all of a sudden get passionate because one party is not supporting the Government all of a sudden, but that just does not wash with us, because 3½ years ago you guys could have got off your chuffs and actually done something. In those 3½ years a whole lot more vulnerable families have been affected by loan sharks, and you guys sat on your chuffs doing nothing about it. We started this process at the end of the last Labour Government because we knew it was becoming an issue, but you guys sat on it and you did nothing. Then all of a sudden it became a bit more of an issue. Simon Bridges made a few noises and then it went quiet again. Then it comes back, and all of a sudden this is the best thing since sliced bread, 4 months out from an election. Well, it does not wash with us. You could have done something much, much sooner.

We have talked about different titles for this bill. I think we should change it to the “Credit Contracts and Financial Services (Blame Peter Dunne) Bill” because Peter Dunne had the one vote that could have changed this bill to make sure there was a protection for those vulnerable families we were talking about, by introducing those interest rate caps. But he turned again, and now that measure has not gone through, just like with the asset sales legislation. Peter Dunne had the vote that changed that. Here we have a piece of legislation that would have protected vulnerable families from those loan sharks, who are charging up to 700 percent interest—not 30, not 35, not 40, but in some cases 700 percent, we are led to believe. But that is OK with Peter Dunne. That is OK with the National Party: “We don’t need to do anything there. That is fine.” Well, it is not fine with us on this side of the Chamber.

If you thought about it and listened to a lot of the people who came and made submissions—and I know that some people on that side of the Chamber might get up, take a call, and say there are reasons why they did not do it. If you listened to the submissions of the people working at the grassroots, you would have looked at it a lot more seriously than you have. It would have been a real protection in this bill for those vulnerable families. It would have sent a pretty good message to those third-tier lenders that we do not like what they are doing, that they have been ripping off people for too long, and that we are cracking down on them. But this Government did not do that. It did not make it a priority. It did not make this bill a priority, and then all of a sudden we get a passionate speech from the Minister in the last reading of the Committee stage. Well, thank you very much, Minister, but it is all too late. It is all too late. It is 3 years too late.

Again, I want to say about Peter Dunne that he turned on this big time. Carol Beaumont introduced a piece of legislation in the last term of Parliament that would have essentially introduced interest rate caps. Peter Dunne sent a letter to someone who was behind the scenes helping with that bill and he said: “I was happy to support this bill and was very sorry that it did not proceed past first reading. I hope that further progress will be made on this issue in the future.” That bill that Peter Dunne was talking about essentially would have introduced interest rate caps. So on 28 July 2010 Peter Dunne was all good with interest rate caps: “Sign me up.” He was ready to go. He knew that the interest rates were unfair. But all of a sudden he has changed his mind. And why? Does he think all of a sudden that it is OK to have 500, 600, or 700 percent interest rates for the most vulnerable people in our communities, for those who cannot afford that? Is he OK with that? Is the Government OK with that? Something changed between 28 July 2010 and when this piece of legislation came into the House. He did a complete U-turn, and all of a sudden it is OK for those third-tier lenders, those loan sharks, to charge exorbitant interest rates.

So if you are looking for an alternative title, add “(Blame Peter Dunne)”. “(Blame Peter Dunne)” should be added to whatever is the name of the bill that we are debating. He was the one who made sure that something that would have been a massive protection for those families out there was not included in this bill. So I say to Peter Dunne that he has a lot to answer for: asset sales and also making sure that these families are not protected from exorbitant interest rates.

We have also heard from the Minister about extra resourcing for the Commerce Commission. He mentioned some extra resourcing that the Minister for Social Development may have announced earlier around budgeting services. That is good, but he did not actually answer the question about the resourcing for the Commerce Commission. As I said in an earlier speech in this Committee stage, we want to make sure that the Commerce Commission has resources on the ground, right around New Zealand, to make sure that what we are putting in this bill is effective. He may have skirted around that and some other funding for budgeting services.

We want to make sure that the Commerce Commission, which has not really made this a priority in the past, is on the ground and has got people in there who understand these communities and are doing work to make sure that they understand who is still acting badly, who are the loan sharks who are still doing dodgy deals, who are those affected, and who is being educated about this new code of responsible lending. That is what we want. We want a commitment on that to make sure that the Commerce Commission does not just have someone who is well meaning, who is based in Māngere, and who is the only poor sod doing this. There need to be people right around the country working with that one person to make sure that the communities in Invercargill, in Dunedin, in Christchurch, in Wellington, and in my area of Porirua—which is affected quite a lot by loan sharks and those truck shops that we are talking about—are getting the information and the help they need. I know that the Minister in the chair said that his previous speech was his last contribution to the debate, but maybe he could make one more and specifically talk on that issue of the Commerce Commission getting the right resources and changing its attitude from being a high-level regulatory body to getting down there and getting stuck in the weeds with people to find out what is going on with these truck shops, with these third-tier lenders, in order to make sure that it is making a difference to the people on the ground.

This is a good piece of legislation, but it is a missed opportunity. It is a missed opportunity because we could have supported Carol Beaumont’s Supplementary Order Paper 430 to bring in interest rate caps. That side of the Chamber is OK with interest rates of 50 and 100 percent and beyond. We are not OK with that. That is why we introduced this Supplementary Order Paper. We thought the Government might have given it a lot more thought than it did, but it did not. It is a lost opportunity. I think we should blame Peter Dunne for that because he was OK with it 4 years ago, and all of a sudden he is not.

I move, That the question be now put.

I take this opportunity to rise to speak to the Minister’s statement previously around parties that are opposing the bill. New Zealand First is opposing the bill; the Minister in the chair, the Minister of Consumer Affairs, is quite right. He is, however, quite wrong in everything else he had to say at that time. New Zealand First is opposing the bill because New Zealand First does not do half jobs.

Although there are many positive reforms inside this bill, there are practicalities and realities of the people who have come to talk to us—the people actually affected; the people whom the Minister stood up and passionately professed to care about. They have come to see us and talk to us about the fact that although all those other protections are there and they can use them in a legal sense, they still have to take somebody through that legal process. They still have to make sure that that person follows the rules, as opposed to a very, very simple mechanism, which is to place a cap on interest rates. That is all that those people asked for.

So if we were going to rename this bill, possibly what we should rename it to is—actually, National members do not really like getting their hands inside business, and this is business as far as they can see it. So although they put in all these other supposed safeguards, the poor consumer—poor consumer in the fact that they are borrowing money from unscrupulous people who have no conscience whatsoever about the way that they prey on these families—and those families will still have to go and see an agency. Those families will still actually have to fight to make sure that if the rules are not followed, they then have to go through that process. It still puts a burden on the borrower.

How much better would it have been for this Committee to truly stand up for the borrower and say: “Over this percentage of interest rate is exorbitant.” If the Government had been able to truly participate in a practical way to support those families and to support Ms Beaumont’s Supplementary Order Paper 430, New Zealand First would be voting for the bill. But New Zealand First will not do a half-pie job. New Zealand First will not put through legislation merely because it upsets the Minister, when it does not truly address the issue and truly help the people at the bottom of this bill.

So if the Minister wants to know—actually, we are not at all interested in what the Minister wants to know. If New Zealanders out there want to know why New Zealand First will oppose this bill in the same way we opposed the Kaipara District Council (Validation of Rates and Other Matters) Bill, it is because we actually listened to the people it would have an effect on. We represent them here in this Parliament. This bill does not go far enough, and we will not just tick it off for the pleasure of the National Government.

I move, That the question be now put.