Friendly Societies and Credit Unions (Regulatory Improvements) Amendment Bill

This bill is about reforming the Friendly Societies and Credit Unions Act of 1982. Friendly societies were formed some years ago, and continue to be formed, under the premise of helping out their members in times of sickness and widowhood, and they are funded by voluntary subscriptions and/or donations. On the other hand, credit unions are financial cooperatives that have been set up to encourage savings, thrift, and financial education, and to enhance the social and economic well-being of their members and society as a whole. Any surpluses that are generated by credit unions are reinvested for the benefit of the members. There are currently 13 credit unions in New Zealand, with 190,000 members. They have deposits to the value of $1.7 billion and a transactional value per annum of around $10 billion.

This bill is a continuation of the good work started by the National Government under John Key and Bill English, when they faced the global financial crisis in 2008 and the fallout from that, including South Canterbury Finance and other finance companies’ failures and other issues in the finance sector. The reforms were set out in a broad suite of reforms to simplify legislation and to ensure that consumers were at the heart of that legislation. For example, the Credit Contracts and Consumer Finance Amendment Act of 2014 was followed by the Credit Contract and Consumer Finance Regulations of 2015—and, prior to that, the Financial Markets Authority Act of 2011. So the consumer was put at the heart of that legislation to ensure that they understood the risks that were involved and their obligations.

This current bill is in line with the World Council of Credit Unions model law, and, in fact, the world credit unions’ association points out that New Zealand is an outlier when it’s compared to the other countries that are involved—particularly Canada and the UK—by not having incorporated credit unions and friendly societies. The credit unions in Australia, in particular, were often raised by submitters at the select committee stage, where they were able to incorporate—in fact, had to incorporate under the companies Act—and were able to demutualise. That is not possible under this bill, so that allays a lot of the fears raised by some of the submitters.

The key broader changes are that the bill aims to remove unnecessary operating and compliance costs, promotes greater efficiency and accountability, brings credit unions into line with other financial services providers in New Zealand, seeks to maintain the element of mutuality and common bond between members, and modernises and updates the Act to ensure that it is refreshed and suitable for modern-day credit unions.

The specific changes in the Act—a little bit more specifically—simplify the statutory objects of an association of credit unions to cover the conduct of the activities for the benefit of its members. It provides for the incorporation of credit unions, as I mentioned. It allows credit unions to be bodies corporate and to have what is known as the powers of a natural person. This takes place under the Friendly Societies and Credit Unions Act, rather than under the Companies Act, as I mentioned earlier. It introduces certain measures to reduce the minimum number of credit unions required for an association, which is in line with the changing face of the credit unions, as they amalgamate and we have less of them. And it allows friendly societies to offer securities. Friendly societies, particularly around insurance, have been constrained by their ability to raise capital and to provide other services that their members require, and so this bill will allow that. Thank you, Madam Chair.

Thank you, Madam Chair. I want to congratulate Stuart Smith again on this bill that he has brought to the House—the Friendly Societies and Credit Unions (Regulatory Improvements) Amendment Bill—and reflect back for a moment and then project forward after that.

If I reflect back to credit unions in the past, the fact that they are membership organisations there for the benefit of their members has provided a great deal of usefulness to New Zealanders on an individual basis. Obviously, there are benefits to their members, but there are also other benefits to having a structure such as a credit union. If I think of Credit Union South a number of years ago, because of the nature of their organisation, which, admittedly, is now outdated and, thanks to this bill, is being addressed—even at the time, a decade ago, there was a small rural town in Otago, similar to many small rural towns throughout New Zealand, which found itself in a position of losing banking services, and this is a process which has only sped up over the past few years and will continue as moving to the online platform progresses. But for this small rural town—in this instance, in Otago—they were facing the prospect of losing all banking services, and so what that meant to the individuals was that there was nowhere to go and cash a cheque. For older folk who 10 years ago still used a cheque book—some people still do, but fewer now—there was limited ability then to get change if you were a retailer in the town. There were issues around the security of carrying cash, of course, for extended periods of time. There were issues about how retailers got their cash to banking services. In this instance, it would have been a good hour’s drive—so time out of the day, inefficiency. So small towns facing the loss of banking services was quite significant to that town.

In this instance, Credit Union South were approached by the local authority, and a negotiation was held whereby Credit Union South put in an ATM machine and trained up local staff. This facility was put in the local community centre and library—and problem solved. Credit Union South deserve a lot of—I shouldn’t say “credit”, because it’s corny—congratulations and admiration for stepping in where the trading banks had literally walked away and stepped out. And it goes back to my point that as a credit union, the objective of the union is to look after people and return profits back into society by way of good interest rates, good pricing, good fees, and all that sort of thing—plus a good dollop of community service.

Then I just want to project forward a bit to Stuart Smith’s bill, which modernises those credit unions in New Zealand, modernises the structure and the function of those credit unions. Now, the current Act is something like—is it 38 years old? It has been around for a while. Of course, it didn’t anticipate online banking or online trading—even ATMs were very new at that time.

I think one of the aspects of this bill—which will pass—is that it will allow credit unions to lend to small and medium sized enterprises (SME) instead of what is, at the moment, a rather cumbersome process, where Credit Union South, for example, can lend to an individual who then has to on-lend to an SME. Well, this side of the House are all in favour of making doing business easier. This bill will achieve those objects, and it will achieve them very well.

As I was reviewing the notes for this contribution—one of, I hope, several, because there are a number of aspects to it—I couldn’t help noting the commentary around the bill from the financial services sector, and, in particular, I just want to note Otago Daily Times’ Dene MacKenzie, who, in fact, welcomed the credit union reforms. Well, good call, Dene MacKenzie, but also we live in a part of New Zealand which has a very good credit union: Credit Union South.

Well, thank you, Madam Chair. It’s a pleasure to speak on the Friendly Societies and Credit Unions (Regulatory Improvements) Amendment Bill. I want to commend the member in charge, Stuart Smith, for bringing this bill. Many members don’t presently have a member’s bill either in the ballot or before the House, and many that do have quite simple and, some might even uncharitably say, trivial bills before the House, but Stuart Smith has taken on a substantial and quite technical challenge in reforming a very old piece of legislation that is essential to the operation of a significant part of our financial sector—being friendly societies and credit unions. So I commend Stuart for doing so.

I just make another background observation: some people believe that a free society is one that consists only of individuals acting independently. Actually, a free society is one where individuals come together and create all manner of institutions to solve collectively problems that they cannot solve by themselves. This Parliament is one such institution that has evolved over a long period of time to solve collectively a group of problems that are difficult to solve individually. I might go further and say that the Parliament’s possibly gone a bit beyond the original brief, but nevertheless that is the intention.

When it comes to friendly societies and credit unions, they are a particular type of institution that people have come together and formed in order solve certain problems: how do people in small communities—as Jacqui Dean recently referred—access financial services that larger incorporated banks may not wish to serve; how do people break through any trust issues they may have with the financial sector, especially after some of the bank failures of last century, to have a financial institution that they feel they can trust? Indeed, friendly societies and credit unions are important institutions in our society that have solved a lot of problems for people, and I commend Stuart Smith for bringing to the House a bill that will improve the legislative framework under which they operate in this country.

I’d also like to speak to Supplementary Order Paper 40, an amendment in my name, the genesis of which is that while there are many enthusiasts for Stuart Smith’s bill—some of them actually based in the Epsom electorate, and I’ve heard from them extensively—there are also a significant number of credit unions, which, in fact, represent about half of all of the New Zealanders who subscribe to this kind of institution, and they are not in favour of being compelled to incorporate. These institutions tell us that, in actual fact, they will face costs that to some very small institutions will be greater than their annual surplus—there’ll be significant compliance costs imposed upon them that they cannot realistically bear.

I just ask, in the spirit of a free society and people being able to form institutions to solve their problems: where is the right in us, as a House of Parliament, in imposing costs that will be ruinous to institutions that are working for the people? I put it to submitters and my fellow members of the Finance and Expenditure Committee, and also to Stuart Smith when this bill was examined, that, actually, it might be possible to have it both ways.

So, with that background, I present this Supplementary Order Paper. Members may be alarmed at the considerable length. There are actually bills that come before this committee that are shorter than the Supplementary Order Paper I’m presenting to the committee tonight. Let me give some explanation as to why it is so important that we put forward a Supplementary Order Paper that modifies just about every clause of the original bill. The reason for that is that if there was simply to be an exemption saying that the requirement to incorporate does not require—[Time expired]

I seek leave to table a document. It’s a letter from the law firm of Lane Neave outlining the legal costs which would be likely incurred when incorporating a credit union.

Leave is sought for that course of action. Is there any objection? There appears to be none. It can be so tabled.

Document, by leave, laid on the Table of the House.

Thank you, Madam Chair. It’ll be interesting to see the letter that the member Duncan Webb has just sought to table. But I just put to him this: the people who operate the credit unions, they’re the ones who bear the costs, and if people in this committee want to ask themselves who to believe about what the costs are—should it be a law firm best known for setting up that member’s superannuation trust in Christchurch, or should it be the credit unions up and down the country who have had these costs of incorporation imposed upon them—I’d put it to the committee and to the people living at home that I’d listen to the people affected by the law, not the people grandstanding on the law.

Going back to this new Part 3A in the amendment that I am putting forward, it takes us through the current bill, and it tells us, section by section, how we make the changes in order that a credit union which chooses not to incorporate may be able to still operate under the law as it exists. So, for example, should a credit union want to—if you just let me get to the right page; as I said it’s quite voluminous—an unincorporated credit union may offer credit union securities. Under the current bill that’s proposed it would not be clear. A requirement for offering credit union securities would be the requirement to be incorporated. What proposed new section 146K makes clear is that a credit union that does not choose to incorporate also has that option.

Or proposed new section 146N, for instance: “Unincorporated credit union may make loans to members”. Obviously, a very important aspect of being a credit union is the ability to advance credit. In order for that to happen, you would require incorporation under the bill as it stands. What this amendment does is it allows credit unions that have not incorporated to continue doing that.

The principle underlying this amendment should be clear and should be simple. It is that if you operate a credit union—for example, if you operate First Credit Union, a very significant credit union in this country; if you are the Police Credit Union, another very significant credit union operating, both of which have supported this particular amendment being put forward—then you will have the option of remaining unincorporated, and the various sections of this proposed amendment will allow you to continue doing business as you always have, without the requirement to incorporate.

So that’s what’s on the Table, and I hope members will consider it very carefully, because the question when they decide whether or not to support my amendment is this: no matter how trivial they may think the costs are for forcing other people to incorporate, what right do they have to force any cost if it is not necessary and if there is an alternative that will allow both sides to continue operating as they would prefer? If they think that’s an obscure view, I can tell you, even the bureaucrats in this city agree with me. They have said that existing credit unions should not be required—

💬 Hon Ruth Dyson: Oh, name them. Name one.

Well, it hasn’t happened very often, but the officials who were involved in the select committee report on this particular issue—and I wouldn’t want to name a particular civil servant; you know, I’m not Winston Peters—said that existing credit unions should not be required to incorporate against their will unless there are sound public policy reasons for imposing such a requirement. Well, I have proposed an amendment that will allow them not to incorporate and that will allow those who wish to incorporate to do so.

Everybody can be happy under this bill. The challenge is: are members prepared to do the legwork—as I have, in bringing forward this Supplementary Order Paper 40—to accept that sometimes things are more complicated than they would like, and to give a choice to those institutions that people have come together and formed. Thank you, Madam Chair.

It’s with the utmost disappointment that I listened to the twaddle from the member from Epsom, because—

💬 Hon Ruth Dyson: Is that to do with twerking—“twaddle”?

That’s an actual word. But it’s very rich coming from a member whose party pleads regulatory reform and a streamlined bureaucratic framework to say, “Let’s have a two-track”—twaddle track—“for these friendly societies and credits unions.” What absolute rubbish. And as for his costs argument, it’s palpably false.

He’s quite right. I did go to my good friends in my former firm of Lane Neave and I said, “How much would this really cost? He’s saying it’s going to cost 20 grand.” Wrong—quite wrong. Let’s be clear. As we would well know, Lane Neave is an extremely high-quality, expensive law firm. Gerard Dale, partner—who is an expert in the area of credit unions, I would add—said, “Perhaps between six and, at the very top, 12.” In the letter, which I have tabled, you will see it outlines a list of tasks: updating the credit union’s rules, registering incorporation, updating the trust deed, attending the members, so on and so forth—all of the legal work needed to be done could be done at a very, very modest cost.

Here we have a member who finally deigns to turn up here at committee stage with not, it must be said, a huge amount of input on the bill. He’s off doing what he does best—and that’s saying something—and he turns up with this last-minute Supplementary Order Paper, which we haven’t seen hide nor hair of till the very day of committee stage. Well, you know, not only is it a bad idea; that’s just bad process, as well. It’s entirely unacceptable, and what we would have is another 40 sections of the Act.

Sure, we need to reform this Act, and the reason we need to reform it is because it’s outdated. So what Mr Seymour is saying is “Let’s have two tracks: one shiny and new, and one broken, rusty, outdated, and not working.” Well, you know what? I don’t want to leave credit unions in New Zealand in that situation, and Mr Stuart Smith doesn’t want to do that, either.

I congratulate him on taking the step to pull these credit unions into the 21st century, because incorporation is important. It’s important for a whole lot of reasons, not only to give a credit union corporate personality, so that it can act swiftly and decisively, but also to protect those members. I think that’s one thing which Mr Seymour is doing a disservice to whoever he’s actually acting for there, because the trustees and members of these credit unions are at risk. They take on liabilities, and the liabilities of a trustee are personal. Once we have an incorporated framework, we have a limited liability entity. That limited liability entity acts as a shield for the good-faith conduct of the officers of that credit union—

💬 David Seymour: Well, then, they can choose to incorporate.

—and that’s important. You know, that’s important, and if you’d taken a moment to think about it, Mr Seymour, you wouldn’t be doing what you’re doing now and having this half-baked idea in the House. You could’ve made your arguments in this kind of detail in another forum.

The CHAIRPERSON (Poto Williams): Order! Order! Don’t bring me into this debate, thank you.

I apologise, Madam Chair. Mr Seymour could have brought this to select committee in the kind of detail he has now, had a robust argument, and lost it there, instead of troubling this committee with it.

So this Supplementary Order Paper 40 is deeply flawed. It’s ill-conceived, it’s delivered late, and it’s entirely poorly founded. The bill itself is of great merit, and I commend it to this committee.

Madam Chair, thank you. I’m delighted to have an opportunity to speak on this bill in the committee stage. It was an excellent bill to work on, and I think I really thoroughly enjoyed working on it with colleagues from across the House in a very collegial and collaborative process. I want to speak about Supplementary Order Paper (SOP) 40, which Mr Seymour has brought to the floor this afternoon. I rise to oppose this Supplementary Order Paper because it would undercut the entire bill. It would just totally subvert the purpose of the bill.

So I want to talk about what’s going on here. Look, the credit union sector in New Zealand is very, very small. There are about 13 credit unions—about 13 entities—that are going to be affected by this bill. When this bill appeared in the House, there was a great deal of consultation about it. We got submissions from, I think, virtually all the members of the friendly societies and credit unions sector in New Zealand. The interesting thing is that those submissions were kind of split down the middle. Some of the credit unions were very strongly in favour of this legislation, and some of them were very strongly opposed to this legislation.

Now, one of the reasons that those who are opposed to it said they were opposed was because they were worried about mutuality. Now, mutuality is a very important principle of credit unions. It’s about the members helping each other, and it’s an ethos they all buy into of people helping people. They do marvellous work. Look, credit unions will open bank accounts for people leaving prison, they will open bank accounts for people who are homeless—they’re not bank accounts, they’re credit union accounts, but they function like that. They will provide financial services for people who can get them nowhere else. So they really do provide a marvellous role in our society. As far as I can tell, the people who are involved in credit unions do really look after their members. It’s what they do—it’s about mutuality.

Now, some of the credit unions who were opposed to this bill opposed it because they thought that mutuality would be taken out, and we specifically put in a clause to address that. At the select committee stage, we specifically addressed that worry. So whatever reason that credit unions now oppose this bill—some credit unions still oppose it—it cannot be because of the issue of mutuality. So perhaps it is around the issue of the cost of incorporation, but I think we’ve just heard some very powerful evidence that, actually, the costs are not a huge amount. There will be a cost, but it is not a huge amount. So I don’t think that that argument’s going to hold water, either.

So why should we introduce what would, in effect, be two separate regimes for a very small group of entities? There are only 13 entities involved in this, and instead of having one set of rules for all of them, this SOP would then end up with us having two sets of rules for just 13 entities. That seems a very odd thing to do—to introduce yet more complexity into this sector of the economy.

I think one of the things that we’ve been asked to do as a Parliament and at the select committee stage is to make a judgment—all right? We don’t just follow some sort of process of voting or of trying to weigh up preferences. As members of Parliament, we are asked to reflect, to consider, to debate, and to exercise our judgment as to what is the best position for us to end up in. Now, in this circumstance, where the credit union sector was actually—you know, some of them were in favour of this particular bill; some of them were against it. We have been called on to make a judgment, and the judgment of the Finance and Expenditure Committee—and the judgment, as far as I can tell, of all the Parliament bar one—is that in fact we should adopt a more contemporary structure for credit unions, we should have a structure for credit unions that is consistent with what the rest of the world has done, and we should in fact try to make sure that the structure that credit unions use is appropriate for the 21st century—and that’s the structure of incorporation—while retaining mutuality.

For that reason, I reject this SOP. I urge the House to reject this SOP, and I support this bill.

I seek leave for all provisions to be taken as one debate.

Leave is sought for that purpose. Is there any objection? There appears to be none.

Parts 1 and 2, schedule, and clauses 1 to 3