Credit Contracts Legislation Amendment Bill

I move, That the Credit Contracts Legislation Amendment Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

For vulnerable consumers, this is a significant piece of legislation that amends the law which regulates the provision of credit or lending in New Zealand. This bill represents the Government’s commitment to protecting vulnerable consumers and stopping families being trapped in debt spirals and hardship that result from unaffordable debt. It is estimated that more than 200,000 New Zealanders use high-cost credit. A large proportion of these New Zealanders are subject to excessive interest rates and fees that trap them in debt spirals with long-term detrimental impacts. Sadly, such conduct disproportionately harms our most vulnerable communities.

This bill will change the law to better protect consumers from irresponsible and predatory lending by introducing an interest and fees cap on high-cost loans of 100 percent of the principal. It also introduces clear minimum standards for responsible lending, it strengthens penalties for irresponsible lending, it makes enforcement easier by requiring lenders to demonstrate that their loans are affordable and suitable and that their fees are reasonable, it raises the bar to becoming a lender by introducing a fit and proper person test for lenders and shopping trucks, and finally, it improves transparency and access to redress during debt collection.

New Zealand’s credit legislation, the Credit Contracts and Consumer Finance Act 2003, or CCCFA, was last amended under the previous Government in 2015. But their amendments did not address some fundamental issues, and harm has continued. Last year, the coalition Government reviewed these amendments and the CCCFA and found that, across the country, consumers are still experiencing harm from non-compliance of the law and predatory lending practices and credit terms and continuing to get into trouble with debt spiralling out of control.

One of the biggest harms identified through the review was when small loans of, say, $500 spiralled to $5,000 or $6,000 worth of debt. And this often becomes an intergenerational problem and leads to significant hardship. I’ve seen this first-hand as a member of Parliament for Mana. For many years, I’ve had constituents come into my office who have become victims of egregious conduct from high-cost lenders and are now facing crippling debt.

Given that 40 percent of adult New Zealanders don’t have a credit card and may not be able to get an overdraft from the bank, a small, short-term loan can sometimes be the only option in times of need, and I acknowledge that, sometimes, access to credit is necessary. However, when that credit is irresponsible lending, it can lead to vicious and debilitating debt spirals, and this is why this bill puts strict limits on the total interest and fees that can be charged on high-cost loans. The 100 percent cap on the total fees and interest will go a long way to preventing the debt spiral problem. Importantly, this cap continues to apply even if the borrower refinances the loan or takes out further loans with the same lender. The cap means that interest and fees on loans with an annual interest rate over 50 percent will be limited to 100 percent of the amount borrowed. For example, if someone takes out a loan of $500, they will never have to repay more than $1,000.

But the 100 percent repayment cap is only one part of this package of reforms. We’ve heard from regulators and community groups that there continues to be non-compliance with the law around how lenders assess whether a loan is affordable or suitable. Unaffordable or unsuitable loans are the biggest source of harm to borrowers. To address this, the bill includes three measures designed to clarify affordability and suitability requirements, streamline enforcement, and create stronger incentives for compliance. First, the bill includes a regulation-making power to prescribe minimum requirements for affordability and suitability tests. Second, there will be an increased onus on lenders to verify details of those applying for loans. For example, lenders will need to obtain verification of primary income and fixed financial commitments like rent and other debts, given that this is among the most important information a borrower can hand over. Third, lenders will also be required to keep records that demonstrate their loans are affordable and suitable and that their fees are reasonable and cost-based.

In order for these reforms to be effective, we have strengthened the penalties where the law is breached. Stakeholders throughout the review commented that both stronger enforcement and penalties were needed in the lending industry for serious breaches of the law. We have listened to that feedback by including new and tougher financial penalties, statutory damages, and improving banning orders for breaches of the law.

The bill raises the bar for lenders entering into the industry as well. To lift professionalism in the industry and reduce the presence and operation of irresponsible individuals in the lending sector, directors and executives of consumer credit lenders will be required to meet a “fit and proper person” test. Directors and executives of lending companies and truck shops will need to satisfy this test before the creditor can be registered on the financial services provider register and lend.

Debt collection has also been identified as a problem, and there have been too many accounts of false and misleading claims being made by debt collection agencies. These include pursuing people for non-existent debts, misleading claims about the size of debt or the debt collectors’ powers, and using unnecessarily aggressive tactics. The bill addresses the lack of transparency and access to redress during debt collection. It requires key information to be shared with borrowers at the start of debt collection activity. The details of the information required will be contained in regulations but may include information about the original debt, the fees added by the debt collector, and contact details for the services that can help.

In conclusion, this bill will go a long way to protecting consumers from irresponsible and predatory lending and improve the well-being of many New Zealanders and their families. The Government is proud to be introducing this bill to the House, and I would like to thank all those stakeholders, during their review of the Credit Contracts and Consumer Finance Act, that have got us here to this stage.

Thank you, Madam Deputy Speaker. I rise to support this bill to first reading, and I acknowledge the Minister responsible, Kris Faafoi, for his comments about the intentions behind this piece of legislation. While there is so much pragmatic, practical, solid, and sound lending that occurs across our economy, we can all acknowledge—and probably most, if not all, of us have seen instances in our offices in the communities we serve of situations where vulnerable New Zealanders are taken advantage of through the needs they have to access credit but are placed in situations which make it very difficult for them to escape a revolving or recurring—

💬 Darroch Ball: Spiral.

—spiral—thank you very much—of debt and obligations which they struggle to lift themselves out of.

Now, as the Minister pointed out, the previous Government did quite something in the amendment of this principal Act to address that in 2015, particularly around requirements on disclosure and on helping to educate potential borrowers as to what they might potentially get themselves into. There is much in this legislation that we support. For instance, bringing in to the scope of the principal Act new forms of lay-by, which include but are not limited to the instance of after-pay—very much different to forms of lay-by than I remember from my youth, but, certainly, instances today where people have deferred payment arrangements that don’t currently fall under the Credit Contracts and Consumer Finance Act. We support that explicit change.

We also support—and while Parliament is rightfully concerned about regulation-making powers in primary legislation, we support the instance of regulation-making power in this bill to permit the deeming of arrangements to be consumer credit contracts in the future where people may seek to vary sorts of lending to otherwise obviate the protections that are offered under this principal Act and as it may be amended through the process of this bill. We actually think that’s a sound idea. It’s a sound idea to make sure that people can’t just change a little bit here and there and, suddenly, no longer fall under the obligations of the principal Act.

We think the fit and proper person test for directors and executives is a good move, but there are a couple of areas where we counsel some caution, and this is principally the reason why we do want to support this to select committee; we believe that select committee is the right place to really flesh this out. They are the areas in the potential unintended consequences of having a total loan cap, or repayment cap, and also the element about removing the presumption that lenders can rely on information provided by borrowers.

Now, the first comment I’d make on interest rate caps or the effect thereof—which is what the total maximum payable regime puts in place—is that we need to be careful not to set a target where some borrowers today may not be subject to certain effective interest rates, but a lender suddenly decides that across their loan book, they’ve got risk where defaulters or bad payers might increase their loss as a lender somewhere, so they lift the effective interest rates paid by other good-payer borrowers to help offset that risk. So I’d be very keen to talk with officials to understand their thinking and the way the legislation, if not completely removing that risk, will at least allow officials at Parliament in the future to both monitor and, therefore, potentially manage that. We see that as a very real risk.

But I do note that in regard to the consultation documents that preceded this legislation some months ago, my maths skills from my schooldays, which are perhaps a little bit rusty, suggested very strongly to me that officials looked at what the effective interest rates were for various categories of high lending today, and they were, broadly speaking, in categories which have a typical repayment time within six weeks, a typical repayment time in a few short months, and a typical repayment time in, say, 12 months. They looked at what they felt was a generally prevalent market rate and they used the formula, if you will, to use the effect of that general market rate to equal what the maximum payable would be under this legislation.

So, without wanting to scare consumers too much, in using that consultation document exercise or example, they used an equivalent interest rate, it appears, of 800 percent per annum for an incredibly short-term loan, because in six weeks at an 800 percent per annum effective interest rate, it equals the amount of the principal, so you’ve reached that 100 percent level. Now, at one level that could sound troublesome for potential borrowers or current borrowers, but on the other flip side of that it also lessens the risk, I would argue. One, it reflects what is common practice in the market today for both good lenders and others. It reflects the common market practice but it helps to remove that risk that if they, effectively, look to shift the interest rates down, we would create targets that every lender would absolutely make sure they use.

Secondly, the other issue that we have that we want to deal with is the availability of credit, because if lenders feel that they can’t cover their risk adequately under this regime, the other consequence will be that they will simply remove those products from the market, which will constrain lending to people that need the money. If there’s one thing that I think became clear when both talking to various lobby groups but also by reading a document from officials, it was there is an acknowledgment that most people, if not all people, that seek this borrowing need it. There is an absolute need for the money that they borrow. So we don’t actually want to put in a regime that will have the unintended consequence of driving them away from regulated lending options, because the alternative there is a completely unregulated and quite possibly criminal-led lending to those people, which could worsen outcomes and not improve them.

On the second area—the area about removing the presumption that lenders can rely on the information provided by borrowers—we don’t inherently have an issue with the idea that lenders should have confidence in what they’re given. What we’re concerned about is understanding how, in very pragmatic terms, that will be able to be proven and tested outside of courts, because the most obvious thing is that one can test the “make reasonable inquiries” requirement in court, which isn’t really a good option in general circumstances for either the lender or the borrower.

But we would like to tease out with officials just how in the real world that test could be practically given effect to so as to not increase compliance and so as not to increase risk on borrowers or lenders. Again, the potential unintended consequence is if the cost of compliance is increased or the risk is introduced because the lender might be found to have not made those reasonable inquiries, then the lender’s obviously going to seek to obviate that risk through their charges—through their interest rates. If they can’t do that to good effect and if they can’t feel confident that their risk is covered, they simply won’t lend, and, again, we could have that very unwanted, unintended consequence of people in need of borrowing not being able to get that through legitimate channels and ending up in very unregulated and potentially criminal markets.

But, overall, we’ve acknowledged that the intentions behind the bill are very good. There is a great deal in it that is very good. There are these two areas which we look forward to exploring in select committee—after all, it’s what select committee is for—and, at the moment, we’ll reserve our future position until we’ve gone through that work, but we look forward to doing just that. We commend this bill to the House.

This is an excellent piece of legislation. Like Brett Hudson, the previous speaker, I am looking forward to working on it and improving it in select committee. But the need for this legislation is real and it is, I would hope, a piece of legislation that all sides of this House will be able to support all the way through, particularly once we’ve gone through that select committee process.

I think it’s important for people to understand why we need this legislation. Most people in this House perhaps have not had much to do with the shop trucks that ply their trade in some of the poorest suburbs in our country. Those shop trucks, they prey on our lower socio-economic groups. They prey on people with little money and few resources. We refer to them in this bill as mobile traders, but the common term for them is a shop truck. So what happens is these shop trucks drive into poorer suburbs—suburbs which often don’t have many supermarkets or shops—and they sell products and give credit for people who want to buy from them. Now, that might sound quite innocuous but, in reading about this bill, I found some information about the sorts of prices that these shop trucks charge, and they’re reprehensible. A can of milk powder: $35. A packet of biscuits: $24. A packet of cereal: $40. A pack of rubbish bags: $50—utterly absurd prices that would never pass muster in a supermarket.

So I guess many people think, “Why on earth would anyone purchase from these shop trucks?” Well, they offer credit. So there someone is, in her home, trying to feed her kids, desperately in need of some cereal. Along comes the shop truck, offers the box of cereal—at an outrageous price—and offers credit at the same time. That credit is attached to usurious interest rates. From the point of view of the trader, of course they charge a high interest rate, because there is a fairly high risk associated with it. But in fact, if the product wasn’t outrageously priced in the first place and if the credit contracts were more clearly understood and if the traders took more responsibility with entering into those credit contracts, perhaps our poorest citizens would not end up even poorer through the operation of these shop trucks.

So the objective of this bill is to prevent this kind of predatory lending on top of what, frankly, is predatory pricing as well. The shop trucks—the mobile traders—will still be able to operate. We are not intending to shut down these operations. All that we hope, all that we are working towards is ensuring that they trade fairly and reasonably, and that they act as responsible lenders. Mr Hudson made some excellent points about the need to ensure that we do have credit available, but at a reasonable price.

So what does this bill do? Well, it introduces some regulations, some rules for lenders, that all lenders must comply with. One of the first things it does is it ensures that these so-called mobile traders—or shop trucks—have to register as lenders. They have to be registered under the Financial Service Providers (Registration and Dispute Resolution) Act. But they actually can’t just offer credit; they have to do it properly. Then once we’ve done that we can start to put some rules in place as to how they must behave, and some of the rules are quite straightforward, but they speak to what has been going on in that market. So first of all, the mobile traders and others are brought in under some fit and proper person requirements. Now, some of those rules are already sitting in there in the Credit Contracts and Consumer Finance Act—the various bits of legislation that surround credit contracts—but it’s providing for a process of certification by the Commerce Commission so that anyone who is offering consumer credit must be a fit and proper person, and there are various rules as to what that fit and proper person should be.

So that’s the first step. But then another step is requiring lenders—mobile traders—to make reasonable inquiries as to whether or not a person can actually afford the credit that’s being offered. Now, Mr Hudson raised some reasonable queries about that as to what sorts of reliance a shop trader can put on what a potential borrower says. That’s a good point; we’ll look at it in select committees. But in addition to making those inquiries, and I think this might reassure Mr Hudson a bit, the shop trader—the mobile trader—must keep records of what the inquiries are. Now, that might seem like an obvious thing to do, but often people don’t even keep the records. Now, if the mobile trader, if the lender keeps a record of what’s going on, then they can show that they have, in fact, made proper inquiries, that those inquiries were reasonable, and that they did establish that the person wanting to borrow money could actually afford to borrow it in the first place. So that’s a really simple sort of measure that is contained within this bill.

The next one I thought perhaps speaks a little too of what’s going on is to do with what language must be used for these contracts. So sitting in clause 14 of the bill—and it introduces new section 17A to the Credit Contracts and Consumer Finance Act—is that if you’re advertising in one language, you then have to be sure that the person taking up the opportunity actually has a reasonable grasp with that language themselves; the lender can’t just use one language and assume it’s going to be understood. Now, that’s critically important. We know we have large communities of migrants who often come to New Zealand, and while they may speak a little English, they may not speak it well, or they may not have had the opportunity to learn to speak it well yet, and yet they enter into these contracts. So by ensuring that lenders must communicate in a language that is understood by the person who’s doing the borrowing, that matches up with the advertising—it seems completely fair and reasonable to me. That’s the sort of change that is going to be brought in by this bill, and, again, it will protect some of our most vulnerable consumers.

So there are all these sorts of ideas sitting in this bill as to what we can do in order to protect our most vulnerable consumers, to protect people who might get caught by onerous lending. For that reason, I think this is an excellent bill. I am looking forward to the process of examining it in the select committee to make sure that we get the balance right. But may I suggest that in this case, getting the balance right means absolutely ensuring that we protect the poorest in our communities. I commend this bill to the House.

Thank you, Madam Deputy Speaker. It is my pleasure to speak on this bill, which the National Party will support to select committee in order to have a full discussion and inquiry about elements of this legislation. I think everybody can understand the impetus for it. We’ve had, actually, a number of bills in this House over recent years trying to deal with the issue of, particularly, truck shops, and the opportunities that are there for people to be exploited through credit contract arrangements and to end up paying colossal sums for items and, basically, paying a lot of money for short-term borrowing in particular, which has grown out of control—very high interest rates and high fees so that a cycle of debt is got into and the difficulties of vulnerable New Zealanders are added to considerably.

Everybody understands the issue and the concern. The question is: what is the best remedy, and whether the remedy might actually end up causing more problems than it solves—that’s the real trick. What we can see here, and some of the elements in this bill seem to make sense in terms of applying a fit and proper person test to directors and executives who are working in this kind of field in order to make sure that those people are people of good character—and that makes sense. What we’re a little bit more concerned about though is some of the expectations of lenders that are listed in this bill.

In one area, the bill is suggesting that it strengthens the principle that lenders must make reasonable inquiries before entering into an agreement with the borrower so as to be satisfied that the credit will meet the borrower’s requirements. We’ve already brought in legislation to do that—to ask them to make reasonable inquiries—and now we’re lifting the barrier higher. So that question of what is a reasonable inquiry—how far do you have to go into somebody’s private life and into their circumstances and how much they are earning and how much they are spending, whether they’ve got Sky or Netflix or whether they’re smoking or whether they’re doing this, that, and the other thing in order to get a realistic assumption about whether or not they can afford to do this—there is a limit to how far you can go on that before people don’t lend the money.

The reality that we have to face when we’re dealing with this legislation is that you’re dealing with the realities of life where some people need access to cash, particularly short term. They need to borrow $500 for something, and it may only be a month that they need it for until they get some money from somewhere else. So they’re going to get the money from somewhere, and the concern that we have is that if you make it impractical for a regulated part of the economy to provide that money, then the alternatives are worse, and that could be the outcome.

The area that is of particular concern is that the legislation removes the current rule in section 9C(7) that the lender may rely on information provided by the borrower. So maybe I should just make that plain for everybody. What we’re saying here in this bill is that if somebody comes to you and says “I want to borrow $50 or $5,000. This is my income and these are my expenses.”—if they lie through their teeth about those two things, the person that lends them the money is somehow still at fault because you can no longer rely on what people say.

Now, that is quite a dramatic thing to be introducing into the law. It is a very substantial step. There is a real prospect that, given that, people will just say “Well, we’re not going to lend to that particular group.” If the consequence of that is that you move people from the regulated area of borrowing into the unregulated area—because the regulated people can’t do it because they can no longer rely on what is being said—then the outcome might actually be worse.

That’s not an excuse for doing nothing, but that is something that we definitely want to tease out in the select committee process. In these complicated areas of financial market reform and regulation, there is always a very high chance that any legislation or regulation Government brings in achieves the exact opposite of what it sets out to achieve over time, because the marketplace is much more complicated than regulators and politicians give it credit for. So we have to be very careful about how we go about it.

On that basis, we will support it to the select committee to have that discussion, but we do have some serious concerns. Thank you very much.

Thanks, Madam Deputy Speaker. I take this opportunity to rise on behalf of New Zealand First to add our contribution to this debate, and I take great pleasure from it. I actually, begrudgingly I suppose—because the nature of my relationship with Mr Hudson and Mr Goldsmith is such that I much prefer to have an argument with them—congratulate them on their constructive contribution to this debate, and thank them for the detail with which they have approached this House, and actually acknowledge their concerns. Although I do suggest to Mr Hudson that he be careful with the wording that he uses in his contribution, because this legislation does not actually set interest rates. Mr Hudson kept talking about the setting of interest rates and the concerns that National had with that. Actually, what the legislation does—and apparently there was some debate about that this morning in the public fora—is set an interest and fees cap at 100 percent of that original loan.

So I reflect on my time in Parliament, because I sought to write legislation, as a private member to bring to the House, on this very issue—a usury bill based on the legislation that the Australians have used in their interest rate cap of 40 percent. But that was in the time of National in Government. So I knew that that wasn’t going to get very far. Although that seems unfair now, and perhaps a conversation with Mr Goldsmith might have achieved more than I initially thought—but I doubt it very much.

However, in conversations with Minister Faafoi, New Zealand First has been incredibly pleased to support his efforts—not only he as the Minister but his officials—because what we have here is an attempt to address an incredibly serious problem. With your patience, I suppose, Madam Deputy Speaker, I think it is worth repeating, and I acknowledge those who have stood up in this House and highlighted what those issues are.

I come from a place in New Zealand that has some of the highest deprivation statistics in the country, and so I have seen, not only in my office but first-hand out in the community, what it means when these mobile trucks go out into our communities, particularly these mobile trucks. We know we have predatory lenders who aren’t driving to the victims but, particularly with these trucks, we have not only a predatory pricing regime but a predatory interest rate regime where there are people who initially think a box of cereal is going to cost them 30c over six months, say, even though they know paying the original amount of $40 doesn’t make sense. They know that, but in that instance they’re convinced by these people that “Well, don’t worry about the actual price. What this is going to cost you is a dollar a week for the next six months.” So if you’re sitting there and your baby is crying—because this is still what we’re dealing with in our communities—then what are you going to do? Unfortunately, good people make decisions because of circumstances thrust upon them. What makes me incredibly angry is that we have to have a debate about this in the House to stop people from preying on those in our community who are at their weakest and most vulnerable.

So it is with that anger that I say congratulations to all of us here, because it sounds like the contributions from the Opposition members means that we should be able to get to a constructive solution in select committee. I actually agree with them on one of those points around what it is that we set that cap at so that it is still a profitable business for lenders—because we need lenders in our society—but how do we make it such that good people are not attacked and preyed upon?

I put it to the members opposite—and this will come out in the debate in select committee, which is fantastic—that this was exactly the question asked by officials around what is that number. How do we strike a balance? So it will be interesting to see what that discourse and where that 100 percent figure reaches after a debate in committee.

This legislation actually follows on from the work, again, of the good Minister. I was with him in Māngere—I think it was in October last year—on behalf of New Zealand First, again, because this was exactly the work and the issue that we were trying to address. The Prime Minister was there, Minister Aupito William Sio was there, as were the Minister himself and myself, and we made these first moves in this space. New Zealand First is proud to be part of that—proud to be part of a solution that looks after our most vulnerable in our community.

What we are doing is ensuring that we have—I’ve already said it—that cap of 100 percent of the principal and introduce clear minimum standards for responsible lending. So that actually means establishing a criteria and engaging with those who would seek to be lenders and asking them: are you up to standard? My vision is—and certainly it’s my hope—that there are many operators out there who simply will not meet that standard, because we don’t need them preying on our most vulnerable.

It also strengthens the penalties for irresponsible lending. And the former Minister, the honourable member Goldsmith, spoke about requirements for record-keeping. I think it is fair to say that we do need more information so that we can clearly establish that if a person’s income weighed against their existing debt and their obligations to service that debt means they cannot afford to take another loan, then lenders should be stopped from issuing another loan. It sounds simple doesn’t it? That is exactly more of what we’re trying to do here. It makes enforcement easier and it raises the bar to becoming a lender, as I said, and it improves the transparency of access to redress debt collection itself.

My vision, New Zealand First’s vision, and this Government’s vision is about getting rid of irresponsible and predatory lenders. It is about consumers taking out loans that they can afford to pay, it is about consumers being protected, it is about—and I’m grateful for this—those truck shops, and it is about empowerment of our Commerce Commission to make sure that lending is responsible.

So with all of that in mind, with that in our consideration and in our thoughts, together as parliamentarians we can reach that goal. It may take some rewriting—and I respect that that may be the case—but I am very proud to stand on behalf of New Zealand First to support this legislation at the first reading. Thank you very much.

Thank you very much for the opportunity to stand and speak on the Credit Contracts Legislation Amendment Bill.

I recall back in 2014—probably the last time this bill was amended—addressing some issues that once again were focusing on dealing with issues that made vulnerable lenders become entrapped in issues around their finance and the application for it. At that point in time, I remember seeing an invoice for a motor vehicle; the vehicle was $13,000 and there was a line charge in this invoice that said contingency was $2,000. We asked the person, at that point in time: “What is this for?” That charge of $2,000 was in case they ever defaulted on the loan. It was a charge upfront—and that is predatory lending. So we addressed those issues then, and I’m glad to see that further issues are being addressed as they come to light.

That’s why we support legislation that is going to protect vulnerable parts of our community: people who may struggle with financial literacy and people who may not have the ability to save but have necessities that they then have to get credit for. In the end that credit can become part of the trap—I wouldn’t say a credit trap—it becomes a poverty trap, because you end up paying excess money, huge amounts of money, well beyond the value of the goods or services that you procure. It’s tremendously unfair and it takes away the ability for those families and those people to be able to spend the money that they have on genuine articles that they need—whether that’s clothing, whether that’s food, whether that’s transport, whether that’s medicines. So it’s important that we follow through on these elements. We are very pleased to support this bill through to the Finance and Expenditure Committee to begin to look at all the issues that this bill is going to address, and to ascertain whether they are striking the right issues at the right levels.

I just want to, at this point in time, give a shout-out to the Electricity Retailers’ Association of New Zealand, who yesterday launched the EnergyMate. This work that they’re doing is very similar to what this bill is doing. They are educating and helping vulnerable people to be able to make savings and to be able to get good value out of electricity. And there is a part, I believe, that’s needed not only in just having legislation that protects people and also brings to account those predatory lenders, but we must always continue to understand and promote financial literacy for those people who need to access credit for whatever reason, or goods that come with a credit component to it. I believe that this bill will address some of those issues.

So we do see some value in the work that’s being done here—such as the fact that there is going to be regulation-making power to deem arrangements to also be consumer credit contracts that fall under the Credit Contracts and Consumer Finance Act, so bringing that legislative accountability into some of the practices that happen. Access to credit is important for New Zealanders. There are many New Zealanders who can’t access cheap credit, who then have to go on to access credit that costs a huge amount. Obviously, looking at financial literacy and helping those people manage their finances through all the different NGOs and agencies that stand by them is very important for them to be able to build their own credit rating. But it’s important that in the meantime, and while they are on that journey of learning and, I guess, adjustment in their own lives, that we do have very robust and strong legislation that will protect them as they go through applications and use of credit finance.

So there are some elements that we are going to question in the select committee process, and I believe Hon Paul Goldsmith raised one of those, and those are the risks that in setting interest rates at a cap, they can easily become not the cap but the target, and those lenders who then see a certain level believe that that is an acceptable level even though it’s excessively high. So we need to make sure that those elements of this bill are well-understood and nuanced if they need to be.

So we’re very happy to support this bill through to the Finance and Expenditure Committee, and we do anticipate a good, clear, and a robust process. Thank you.

Thank you, Madam Deputy Speaker. I rise very happily in support of this bill. It seeks to strengthen the safeguards in legislation around lending practices that we’ve come to know as being particularly predatory as inequality has been on the rise in New Zealand and has now become a tragic and significant contributor to widening the gaps in our communities and contributing to suffering and inequality that was already there at record highs. So we welcome the move to further regulate these kinds of practices.

We know that this kind of debt creates cycles of poverty that can be lifelong and, in fact, intergenerational for those in our communities who are struggling to pay for basics and so are forced into a situation where they will borrow money on any terms. When you are faced with an unexpected health expense or schooling expense for the kids and food was already something that you were struggling to provide for your family, then it is a case of, well, you will borrow at any cost, with any interest level, from anyone. So it is a matter of the Government stepping in and regulating the standards on which that lending can happen, both in terms of the cost and in terms of the kinds of companies and persons that can engage in it, because we know that increasingly, they’ve become a source of predation on our communities.

This bill comes to the House in the context of record inequality—in the context of child poverty that, according to Child Poverty Action Group’s latest report, was at just under 300,000 children in New Zealand living in what’s defined as poverty, which is under the 60 percent income bracket, and in terms of material hardship is at, I think, just over 100,000 children, so an incredibly high number. That’s not to say that poverty only affects children, but just to put that into context—the struggle that it has become in New Zealand for people to raise families. In the context of Auckland, where I live, that has meant that large numbers of families are now living in garages and cars. So it is very clear that in those circumstances, expenses are not able to be met easily and will lead to borrowing—and have led to borrowing—at extortionate rates of interest which contribute to that inability to survive for those out there.

So this bill is certainly timely. What it proposes to do is to limit the total accumulation of interest and fees on what’s defined as high-cost loans to 100 percent of the original loan. So a $500 loan would never cost the borrower more than $1,000, which is a huge change and will contribute to stopping that kind of lifelong, years-long indebtedness that actually means people do struggle far more than they initially did when they desperately took out the loan. It will require all directors and senior managers of lenders who are offering these loans to meet a fit and proper person standard, which is a long time coming, and it is the hope that it will help prevent what are called phoenix lenders, who pop up and can disappear again without accountability. It will strengthen the enforcement provisions of the Act, including higher penalties. We know these are businesses with a business model, so they will take into account the cost benefit of breaching the law, and so hopefully that will incentivise them now not to do that even more than before. So raising the bar on who can become a lender, improving transparency and thereby access to redress for those who’ve been harmed, is a package that will increase our ability to regulate for those who are vulnerable, as is the responsibility of Government to do.

One thing that the Green Party will look forward to in the select committee process is to see if—and I note that FinCap, which is a community organisation that supports the financial capability, education, and so forth in the communities, actually has spoken out and said that they’re disappointed that there wasn’t an interest rate cap included in this bill. This is something that the Green Party will look forward to exploring at that select committee stage, and we support FinCap’s recommendation that, as has been instituted in the UK and in Australia, this legislation also introduce an interest rate cap beyond what’s already included in the bill so that lenders can’t lend on any interest rate, as it is today, which is actually what causes that vulnerability. So it is an issue that we look forward to engaging with at select committee stage, and we hope that will improve the bill. But I’m very happy to support what is now a much-needed further regulation of lending practices that will alleviate poverty and inequality in New Zealand.

Thank you, Madam Deputy Speaker, for the opportunity to take a brief call this afternoon on the first reading of the Credit Contracts Legislation Amendment Bill. I’m really pleased to, actually, because I think the last contribution I made in this Parliament a couple of weeks ago before the Easter break was on the wheel clamping bill, which was another piece of very worthy legislation by that up-and-coming commerce Minister Kris Faafoi. So I congratulate him on both that piece of legislation and the one that we’re discussing this afternoon.

The roots of this bill, though, do go back to about 2014, when the last Government passed the Credit Contracts and Financial Services Law Reform Bill, which was a very substantial overhaul of the legislation. Subsequent to that, the current Government have reviewed the arrangements that were put in place and have come forward now with some new considerations that we’re debating today. A number of those are quite positive, and I just want to run through a few of those very briefly. The first one is to bring lay-by arrangements under the provisions. Also, bring in a fit and proper test for directors and also for executives, and due diligence obligations on directors and senior managers.

But two of the more substantial arrangements are ones that are being talked about a bit this afternoon. The first one of those is around better regulation of mobile traders, and, unfortunately, mobile traders are a scourge on many communities across New Zealand. Deborah Russell spoke passionately about them this afternoon, and I agree with pretty much everything that she said. They are a scourge. They are predatory on the most vulnerable in our communities and, unfortunately, do perpetuate that cycle of poverty. So I’m pleased that this bill will bring better regulation on to some of those mobile traders.

The other aspect of the bill which I’m broadly supportive of is bringing in or imposing a limit on the accumulation of interest and fees on high-cost loans to 100 percent of the value of the original loan. Now, as has been pointed out this afternoon, particularly by my colleagues Jonathan Young and Paul Goldsmith, there are some risks in that, in that that doesn’t become just a limit; it becomes a target. So that’s something that we’ll be talking about, I’m sure, in select committee. The other aspect that we’ll be talking about, I’m sure, in select committee is the effect of limiting or capping the level of interest, and the availability of people to then access that credit or indeed those goods they would otherwise buy. So those are two really important aspects that we’ll be discussing at select committee. I’m pleased to hear that it will be, I think, coming to the Economic Development, Science and Innovation Committee that I sit on, and I look forward to engaging with members from across the House. Thank you.

This is a split call, and I call Jo Luxton.

Thanks very much, Madam Deputy Speaker, for the opportunity to speak on this piece of legislation, the Credit Contracts Legislation Amendment Bill. It’s this type of legislation that makes me really proud to be a parliamentarian and have the ability, as a member of the coalition Government and also, actually, just a member of Parliament, to make changes to legislation that’s actually going to better the lives of people in New Zealand, and particularly some of those that are the most vulnerable people here in New Zealand. So I am really proud to stand in support of this amendment, and I commend Minister Faafoi for bringing this piece of legislation to the House.

So we know that the Credit Contracts and Consumer Finance Act was last amended in 2015. Some of what was put in place then didn’t quite go far enough, and we understand that people within our society are still being harmed by credit providers and these mobile truck shops that we’ve been talking about this afternoon. So this piece of legislation goes even further to bring in harsher penalties and, actually, better rules and regulations about these people and what they can do. This piece of legislation also complements a suite of other pieces of legislation that the coalition Government has been bringing in which, all in all, leads to enabling the people of New Zealand to have better lives—such as things like lifting the minimum wage, winter energy payments, and so on and so forth.

Ultimately, though, this bill protects consumers, and often our most vulnerable consumers. We know that a lot of people in New Zealand don’t have access to credit cards. Some people, potentially, have poor credit, and obtaining credit finance from credit providers is often the only way that they are going to be able to meet certain bills that come in—for example, there might be a family who are struggling financially and they have an unexpected cost. They’re not going to be able to go to their bank for a loan so they’ll go to a credit provider and borrow the money—quite easily, at this current point in time—and end up owing a lot more money. So, for example, something that might only cost a few hundred dollars initially can spiral into a debt of thousands and thousands of dollars that that family, potentially, can never ever escape from. What we do know is that things like this end up being inter-generational.

We have parents who, at the beginning of a school year, struggle to pay for their children’s school uniforms, and, again, this could be the type of situation where people look to these types of lenders for credit. What we do know though is that whilst we see there is a legitimate business need for people who provide these sorts of services, they must do it in a way that is appropriate—that ensures that the money that people are borrowing from them that they are able to afford to pay it back. We just don’t want to see some of our most vulnerable people continue to spiral deeper and deeper into debt that they will not be able to escape from.

What I do think is really important is that, within this piece of legislation, mobile traders and private sector lending practices are going to be brought more into line with other financial service providers, such as banks. So we know that the directors and senior managers are going to have to pass a fit and proper test before they can be registered on the Financial Service Providers Register and be able to lend money, or provide credit to people. We are going to have an interest and fees cap of 100 percent of the principal loan, which I think is essential so that it stops people having to pay penalties or pay additional costs when they need to continue to re-borrow, perhaps, to pay that existing debt. So I think that’s a huge step in the right direction.

Again, I’m very, very pleased to stand here and take a call on this piece of legislation—a piece of legislation that is going to enable people to make better financial decisions, I think, in the long run and put some responsibility, also, back on to our mobile truck shops and credit lenders.

It’s my pleasure to take a short call to support this bill, the Credit Contracts Legislation Amendment Bill. In doing so, I wish to thank the Hon Kris Faafoi, again, for bringing a piece of legislation to the House and, again, this side of the House is happy to support most of it.

I come from a community that has had a variety of issues but also faces a variety of poverty. In parts of my community, I completely regard these trucks that are selling things as a major scourge on people’s ability to get ahead, so I am happy to stand here today and support any change to the legislation. We hope, through the select committee process, that we can find some ground to address the concerns that have been raised, including by my friend, the Hon Paul Goldsmith.

You see, what happens is people at their most vulnerable end up getting into lending decisions that actually make them more vulnerable than they were when they started. The phrase that has been used, which I concur with: when somebody has a crying baby and can’t find food it doesn’t actually matter what the interest rate cost is, or, in fact, what the cost of setting up the loan is. They just need the money.

Recently I was granted some leave from Parliament to attend a meeting of budget advisers in Hastings, and they came from Hastings, Napier, Wairoa, and Central Hawke’s Bay. I told them that I supported this bill and I encouraged them to participate at the appropriate time in a select committee. Minister Faafoi, I’m not sure whether it’s going to the Finance and Expenditure Committee or the Economic Development, Science and Innovation Committee—probably my preference is if it went to the Economic Development, Science and Innovation Committee because that’s what I’m on—that needs to be determined. But there will be submissions from a number of members of the public, and people that try to help our most vulnerable. So what I was told at that meeting, and what I’ve heard subsequently—and, actually, previously, when I spent a day in Gisborne—was that there are big, big issues about payday lending. In Gisborne, an employer was telling me that as soon as somebody was signed up for a job, even if it was short-term, certain organisations would lend up to $1,000, before they’d earned a cent, on the fact that they were going to earn income and they would go out and buy televisions, and food, and other things.

Equally, I’ve been told in my own community about what I call “interest rate rorts”. We are supportive of the 100 percent cap regime, which includes interest and fees. However, I was reading an article that was in the media today where they talked about the risk of people taking out a loan, that being paid back, and then taking out another loan and another loan as a way of rorting the system. I think a challenge for the select committee and this Parliament—and it was alluded to by the Hon Paul Goldsmith—is that when we get to select committee and when we get to the next reading of this bill we make sure that we’re not, in some way, making things worse for some people, because what I’ve observed is we can set legislation in this Parliament but some people go out of their way to try and find ways around every single thing we try to do.

So I stand here as a National MP, with the support of my other colleagues who have agreed to support this, on the basis that there is a real issue in my community with this type of lending and any effort that is made to improve it should be supported. We do want to make some suggestions in the select committee process, because if we get this wrong we do run the risk of driving some of this lending underground—which can end up in an even worse situation than the one many of these people are currently in. So in supporting this bill, this side of the House understands the credit and poverty trap issue. We may not have always agreed as to how it’s been resolved, but we’d like it to go to select committee. We would like it—Minister Faafoi—to go to a committee that’s got some time to resolve this. Then we’d like it to be reported back and for people to have their say in the proper way, because it’s my view that we can make a real difference to our most vulnerable.

Thank you, Madam Assistant Speaker. I am really happy to take a short call on the first reading of this bill. I want to commend the Minister and this Government for undertaking a review and introducing new legislation to address some of those issues that we’ve heard spoken about by speakers prior to me today that have been unresolved, even though this legislation went through an amendment just a few years prior. It has come out, as part of the review, that further work needs to be done.

I am all too familiar with these shop trucks. I’m from Northland, where it is a familiar sight in the streets of Moerewa and Kaikohe to see these trucks often selling things like labelled clothing, you know, to people—on my own street, growing up in Leaity Street, I saw the truck down that street. We couldn’t afford it in our household, I knew they couldn’t afford it in their households, but these trucks were there selling labelled clothing to families who just simply could not have afforded that clothing. Northland has one of the lowest average incomes in the country and, like I said, it was an all too familiar sight, these mobile trucks, but also some of the financing companies on the main streets of Kaikohe and Kaitāia.

I am really pleased about the cap that is being introduced, but probably more importantly it is about the tests and measures that are going to be put in place around whether the loan is affordable or suitable. I know of examples from my community, young people who got into debt and spent the next 10 years of their lives paying off cars that they could not have afforded. Now, if they were to go to the bank and they went through their lending criteria, they simply would not have been given the money. They would not have spent the next 10 years trapped, paying off the debt and the huge amount of interest that had been charged on a car that really they could not afford and should not have been able to get the money to buy it in the first place at such a young age. So the measures that are being proposed here, I believe, will make a real difference to situations like that that I have witnessed firsthand.

So to address that, there are three measures. One is the minimum requirements for affordability and suitability tests. And, second, the bill will remove the presumption that a lender can rely on what the borrower is telling them unless they have reasonable grounds to believe the information is not reliable. In this case they’re going to have to obtain verification of primary income and fixed financial commitments like rent or other debts. And, thirdly, the lenders will be required to keep records that demonstrate their loans are affordable and suitable and their fees are reasonable and cost-based.

This is actually the biggest issue that we have around the affordability of the loans. Unaffordable or unsuitable loans are the biggest source of harm to borrowers. So I really commend the Minister for introducing this legislation. I am a member of the Finance and Expenditure Committee, so I look forward to this bill coming before us and to hearing submissions from a wide range of views, with a view to making this the best legislation possible. Thank you.

Thank you, Madam Assistant Speaker. It’s a pleasure to rise to support this Credit Contracts Legislation Amendment Bill. As the last speaker from this side of the House, I’d like to echo my colleagues’ congratulations to the Hon Kris Faafoi, who seems to have had great success bringing bills to this House that have had wide support throughout this House.

Earlier speakers have talked about the issues in terms of the loans that people get into and get into trouble and aren’t able to pay, which becomes a problem debt. I do actually know that in the ethnic communities—for example, in my own Korean community, it has actually had issues with people who can’t find banks to give them loans for emergency situations, whether it is family members who are suffering from cancer and need treatment urgently and they can’t go to the bank and actually get loans specifically because it takes too long, or they have a particular desire. Earlier the Government member just talked about young people who are wanting cars, saying that they probably should not be able to afford, and could not afford, them but they managed to get these kinds of loans. Some of these lenders could only be classed as loan sharks, because these community lenders often provide exorbitant interest rates which are more than the 100 percent target that the Minister has actually put in this bill. I am a little bit worried that it will become a target, but compared to what is actually existing within the community for these informal loans that exist, it is a much better outcome, I think, and hopefully that is something that the select committee process might even look at.

We’ve had situations where bad debt has become a conflict situation between the lender and the borrower, where there have been physical fights. Quite a few years ago, while I was a journalist, there was even a murder that actually resulted because of a debt that was not paid back and the interest that grew so much that they were unable to pay it back.

I particularly like the idea of bringing lay-by into this bill. I have a fond memory of lay-by when I was a young student, when I was in Australia—going into a shop and hoping that maybe I could actually afford that pair of shoes. I would put some money down and go back and actually pay again. So I think all of these things that the Minister has actually put in place are in a good space.

The fit and proper person test for directors and executives is one that I always support. But putting more responsibility on lenders, I think, is one that we should be very clear on, in terms of how they advertise, and also the criteria. I think what we need to do is—you know, often people do not go to these loan sharks or go to these mobile trucks for purchases when they are able to afford them. Often it is the people who are the most vulnerable who actually go to these people for loans, who go to these mobile vendors for purchases, and they are the most vulnerable in our community and we should be protecting them.

I look forward to the debates in the select committee and the submissions from the community. I commend this bill to the House.

Thank you, Madam Assistant Speaker. It’s a real pleasure to speak on this excellent updating of the Credit Contracts and Consumer Finance Act—an Act that’s been with us in one form or another since the 1970s. It’s been continually updated to take account of things like buy-back transactions in the 1990s, and irresponsible lending a little bit in the 2000s as well; I saw some updates there. But we’ve got to recognise, I think, not only that some debt is really problematic and causes huge harm and difficulties in our community, but also that other debt is good and really important so that people can look after their families, grow their businesses, and those kinds of things.

It strikes me that this piece of legislation strikes a great balance in ensuring that borrowers have the appropriate degrees of knowledge, there’s some basic fairness around the transactions, there’s appropriate remedies for borrowers as well, and penalties when they step well out of line. Obviously, the centre piece and the most significant innovation in this bill is found in clause 22, which inserts a new section which caps the amount that a high-cost consumer credit lender can recover. I want to make it very clear that this is an excellent balance that’s been struck whereby the lender can only recover 100 percent more than the amount advanced.

Now, there’s been some talk about a further restriction in terms of interest rate caps, but that’s a blunt tool. Here we have something which makes sure that the additional fees, the additional interest, and any collection costs will all be restrained and capped at 100 percent—a huge amount, nevertheless—of the amount advanced. But we know that there is a section of the community that needs money, often short term and in small amounts, so it is appropriate that those costs are high to reflect the risk and the transaction costs there. But it’s important to make sure that we have a cap there, and the Minister’s done well in striking that balance.

The other thing I would briefly touch on is the disclosure rules. One of the very useful innovations is that where lenders advertise in a particular language, and we know that lenders, particularly at this smaller end of the market, advertise in particular ethnic communities—whether it be the Asian Chinese community or the Pacific Island community—and they do it by using the appropriate language. It’s no good then to present them with a contract that’s in English and all of the disclosure documents that are in English, which they really have very limited ability to look at. So here, if you’re going to advertise in, say, Tongan, disclosure must be in Tongan—a great innovation, if I may say so. Here we have a balance struck—good—making sure that the borrower has knowledge, making sure that the terms are fair even in those high-interest cases, and also the Act tweaks some of the remedies and introduces some somewhat sterner penalties.

So, again, this really is mainly an updating bill, keeping this Act fit for purpose in the 21st century—an absolutely needed piece of legislation, with a couple of great innovations to make sure we look after the most vulnerable here. Thank you, Madam Assistant Speaker.

Bill read a first time.

Bill referred to the Finance and Expenditure Committee.