Credit Contracts Legislation Amendment Bill

I move, That the Credit Contracts Legislation Amendment Bill be now read a second time.

Throughout the review which led to the changes in this bill, and again at the select committee, my colleagues and I have heard too many stories of New Zealanders ending up in financial strife as a result of irresponsible and predatory lending. This lending disproportionately harms our most vulnerable and desperate communities. The Credit Contracts Legislation Amendment Bill amends the law which regulates the provision of credit in New Zealand to better protect Kiwis from these harms.

First of all, some thankyous. First of all, thank you to those who submitted on the bill. Your feedback has been a crucial part of this process, and I appreciate the many New Zealanders who have taken their time to give their opinions and tell their stories or those of the people who come to them for help. In particular, I’d like to acknowledge those who submitted that the bill as it stood when it was referred to the select committee didn’t go far enough. You have been heard, and your concerns were acknowledged by both the Government and the Finance and Expenditure Committee, and an interest rate cap will be implemented within the bill out of the select committee.

I would like to thank the committee for their thorough consideration of the bill, including on the merits and design of the interest rate cap. In particular, I’d like to thank the chair, Dr Deborah Russell, and Dr Duncan Webb for their care and thoroughness in leading to the consideration of this bill, and I’d also like to thank Brett Hudson, the Opposition’s consumer affairs spokesperson, for his attentiveness and diligence throughout the process, as with all commerce bills which come through the House.

The bill introduces the following changes. It will put an interest and fees cap on high-cost loans of 100 percent of the principal. It will also introduce an interest and fees rate cap of 0.8 percent per day. There will also be clear minimum standards for responsible lending, and it will strengthen penalties for irresponsible lending. It will also make enforcement easier by requiring lenders to demonstrate that their loans are affordable and suitable and that their fees are reasonable. It will also raise the bar to becoming a lender by introducing a fit and proper person test for lenders and shop trucks. Finally, it will improve transparency and access to redress during debt collection.

Last year, when the Government reviewed New Zealand’s credit legislation, the Credit Contracts and Consumer Finance Act 2003, the 2015 amendments introduced lender responsibility principles and changes to the law governing repossession of consumer goods, but it is our opinion that those amendments did not go far enough.

Borrowing and lending plays an integral role in New Zealand’s economy, and, when provided responsibly, credit can help people to smooth out their income and spending. Most people who use credit won’t experience any difficulties. However, credit, when irresponsibly provided, can quickly result in vicious and debilitating debt spirals and harm. This has been no clearer than in my electorate, where I see continued examples of harm to vulnerable people from the egregious conduct of some lenders.

The review found that across the country consumers are still experiencing harm from non-compliance with the law and predatory lending practices and credit terms. Again, I would like to thank the members of the Finance and Expenditure Committee, and particularly the chair, for their diligent work on the bill, including the additional consultation with submitters to develop the design of the rate cap. The committee received 173 submissions from interested groups and individuals on the bill as a whole, and they also heard oral evidence from 50 submitters at hearings in Auckland and Wellington, and additional submissions were made on the design of an interest rate cap. And again, I’d like to thank those all who took the time to submit.

The vast majority of submitters supported the bill, but there were also suggestions for amendments, and some of those suggestions have been reflected as changes in the bill as it is reported back to the House, and I’d now like to go through some of those changes. The Finance and Expenditure Committee received many submissions saying the bill didn’t go far enough to protect consumers, and the rate cap of 0.8 percent per day will complement and strengthen the total cost of borrowing cap that was already in the bill at its introduction. Currently, some lenders have interest rates twice as high as the rates proposed, and this additional cap will ensure that high-cost lenders are incentivised to be more careful about how they lend. This rate cap will better protect against irresponsible lending for people in hardship, and, for these people, high-cost lending should already be off the table because it’s unaffordable and unsuitable.

I understand that many submitters advocated for a much lower cap, which would have, effectively, prohibited all short-term lending. However, I believe that short-term lending should still be an option for consumers who have a genuine financial need and who can afford the repayments. The rate cap and total cost of credit cap will be reviewed after they have been in place for three years, and this will include a focus on loans that charge between 30 and 50 percent of interest, so that we can evaluate the merits of the level of the cap that it is currently set at.

Many submitters noted that there are free confidential help services available to people facing hardship, and this includes the Ministry of Social Development’s MoneyTalks hotline. The committee has introduced a new requirement to provide contact details for MoneyTalks on high-cost lender websites and in payment reminders. The purpose of this would be to help encourage borrowers to seek advice from trained financial mentors at the earliest possible opportunity, including when they’re behind on any debt repayments.

There was also wide support from submitters for tighter regulation of mobile traders. I’ve seen the harm that irresponsible mobile traders or truck shops have done in their communities, and they have said that enough is enough. The bill as introduced created the ability for mobile traders to be deemed to comply with responsible lending and other requirements in the Act at a later date. However, in response to widespread calls from submitters, the bill has been amended so that they will be required to comply with the Credit Contracts and Consumer Finance Act from June 2020. This will mean that mobile trucks and mobile traders will have to ensure that any loan they provide is affordable, appropriate, and that extensive disclosure is carried out. The committee also considered when a loan is likely to be unaffordable and contribute to debt spirals, and, as a result, the bill now also includes prohibitions on high-cost lending when a borrower has a high-cost loan with another lender already or they have had two high-cost loans in the last 90 days.

Unmanageable debt is the source of ongoing mental, emotional, and financial stress for families and contributes to lasting health problems. Protecting consumers from irresponsible and predatory lending is important to this Government, especially as we go through our wellbeing frame. I’m proud to commend this bill and its changes to the House and also again thank those who submitted and the select committee. I commend this bill to the House.

Thank you, Madam Speaker. I rise to speak—

ASSISTANT SPEAKER (Hon Ruth Dyson): Oh, sorry—whatever the motion is!

“The question is something”, isn’t it?

💬 Hon Michael Woodhouse: The question is that the …

ASSISTANT SPEAKER (Hon Ruth Dyson): Ha, ha! The question is that the motion be agreed to. Sorry, I was so excited at calling the honourable member that I made an error. Thank you.

Thank you, Madam Speaker. I rise to speak on the Credit Contracts Legislation Amendment Bill in this its second reading. I too will acknowledge the work of the select committee. I substituted on to the committee for pretty much all of this business.

Heading into the first reading, when National gave its support to this bill, we did so with some reservations but also acknowledged aspects of it which we felt were very positive and would contribute to a far better landscape for borrowers in particular. For instance, while we’re not generally in favour of new regulation-making powers, we agreed that regulation-making power to deem arrangements to also be consumer credit contracts and fall under the auspices of the parent Act—including, potentially, some of those modern-day lay-by schemes that are referred to, such as Afterpay—we felt was a very good measure. We thought the further regulation of mobile traders was a good idea; the fit and proper test for directors and senior managers. But we also flagged a few concerns, not around regulation of high-cost lending as such but on what unintended consequences could come of it. We were concerned and wanted to test through the select committee stage things such as tightening up the rules around a total cost of credit, or capped cost of credit. What risk was there that borrowers might find themselves unable to get loans they need and what markets might they then be forced into, particularly, obviously, unregulated black markets?

We also expressed concern about the greater obligations being placed on all lenders, not just high-cost lenders, around affordability tests and not simply being able to take the word of borrowers at anything near face value. I would like to point out that these matters were canvassed very robustly throughout the select committee phase. We came to have some greater confidence, particularly around those greater obligations on lenders and their responsibilities, particularly because officials noted to us that their advice was it would be a very good defence, were a case to come about, that if a lender could show they had lent in accordance with the lenders’ responsibility code, then that would be a very good defence to any proceedings of that nature. That gives us quite some confidence that while there are greater responsibilities, they’re not perhaps as onerous as they may have appeared if they had been lesser defined, if you will.

The other one, of course, was around what would happen to people who wouldn’t be able to get loans under a capped scheme, and the worry there was simply that people go into these arrangements because they have a need, and the need doesn’t go away if we make it more difficult. The risk is that if they can’t get that loan through a regulated scheme, they’ll have to go elsewhere. Some submissions we received suggested that, for instance, in the UK, an alternative option that was used by close to a third of people who would otherwise be rejected from high-cost loans was family and friends, which on the face of it sounded like, OK, there is a viable alternative option for these people, particularly if some lenders exit the market or make it harder to get loans. The problem there—and I tested this with several submitters—is that those family members or friends tend to be in not terribly dissimilar circumstances to the individual that needs a loan and has been declined. So there’s a risk there that it simply shifts some of the risk and some of the pain on to other people, including fairly close family members. But on balance, at the end of those discussions, we felt we could continue to support a regime that would limit the total cost of credit, that there would be sufficient regulated options for the vast majority of cases, but, regrettably—there is a risk—not for all.

What then transpired was a little bit of a shock to the Finance and Expenditure Committee, that the Minister of Commerce and Consumer Affairs announced to the press that although submitters had said they favoured an interest rate cap, it was not part of the bill, and the official advice in the regulatory impact statement and the documentation prior to the introduction of the bill was that officials didn’t support it. They said there was some uncertainty as to what could happen with it, what the outcomes—they did not support an interest rate cap. They clearly did support a total cost-of-credit cap. So the Minister, and the Prime Minister, in fact, made the announcement to the public in what we would call the “weak” of delivery, where every day the Government had to have something to announce. They announced water reforms that could destroy farming, they announced some odd New Zealand First slush fund funding, they announced cancer drug money that wasn’t actually for cancer drugs, and they announced an interest rate cap, which came as something of a surprise.

So I asked officials what advice they had been asked for and had given following that initial advice on an interest rate cap. Their answer was pretty simple: there was none at all. They hadn’t been asked for advice counter to what they’d already been given. They hadn’t been instructed even to look into it and provide it. So it’s not quite right to say that the committee looked at the design of an interest rate cap or the merits of it. It simply looked at how it could implement a change that officials were blindsided by, as was the committee. We have some grave concerns with this, somewhat compounded by the fact that just a week—literally a week—before the announcement, several committee members reported back from a visit they made to a company called Save My Bacon in Christchurch, a high-cost lender. There was the Rt Hon David Carter, Dr Duncan Webb, and David Seymour. Dr Webb was quite illustrative with his comments, because he told us in the committee that he took them apart, he looked at what they did—

💬 Dr Duncan Webb: I raise a point of order, Madam Speaker. I just would not want the record to show that David Seymour was there when he wasn’t, so I just really wanted to let the member have the opportunity to correct that.

ASSISTANT SPEAKER (Hon Ruth Dyson): That’s not a point of order.

Thank you for the correction. I understood David Seymour was there, but if he wasn’t, Dr Webb certainly was—

ASSISTANT SPEAKER (Hon Ruth Dyson): It’s now corrected.

—and he reported back to us how he looked inside this company and what they did and how they went about it. He wasn’t endorsing the company in any way that could be considered that, but he did comment that they appeared to be somewhat above board in their practices and their processes, and his comments were that he could see how they could justify what amounts to about 1.1 to 1.2 percent of interest per day. Regrettably, the Minister not only didn’t consult with his officials; he didn’t consult with his own Government backbencher and, instead, came up with a rate which is about 30 percent lower than what his backbencher had reported to the committee a week previously. It looked to be, in those circumstances, a very justifiable rate. So we’ve ended up with a situation where we have a rate cap that’s lower than some members discovered was justifiable, on talking to actual businesses that are in the job. That came as a blind side to everyone and, quite frankly, was just an attempt by the Government to try to show people they were actually doing things.

Now, that on its own was not going to change our position, either, but I’ve got some disturbing news today—which I know the Minister will have seen as well—not only from a business that’s claiming it’s going to close up its shop, and it’s not a poor offender by any general market recognition. But one of the points they noted was that officials, apparently, are already working on the draft regulations under the bill. They’re really quite perturbed by this exposure draft they’ve seen, where, for instance, the regulations require of a lender that they don’t put forward a loan that would require the borrower to reduce discretionary expenditure, or certainly not all of the recurring discretionary expenditure.

Now, I don’t want to belittle anyone’s circumstances, but it is not completely unreasonable that someone who is in financial difficulty might have to tighten the belt on some areas at least of discretionary expenditure as part of the actions they are taking to get themselves back on their financial feet with the assistance of a lender who, admittedly, is charging quite an interest rate but who is still none the less helping them to get out of that situation. Now, I haven’t seen the details of that because no such draft exposure has come to us, but I do find the information that they have passed through to me quite concerning.

So the position we will take tonight and on the next sitting day that this comes up is that we will still continue to support this bill through its second reading, but I will want to be looking a lot deeper into the allegations and the information I have been given. We may need to see some amendments in the committee of the whole House stage to continue our support, but there is certainly some information that has come to hand which is troubling, and I would ask the Minister to have a look into that also. I am absolutely certain he’s received some of the correspondence, at least, that I have, and I don’t believe it’s actually his intention to try to undo the good work with regulations which might be of the nature that they are claimed to be. But we will continue our support for now, and will seek to continue to work constructively with the Minister and Government on the bill.

I can see this is going to get a little bit broken up by the bells, so I will begin my speech with the thankyous, just to record them first of all. Thank you, of course, to Minister Kris Faafoi, who has worked and continued to work and will continue working on this bill, and he has done a great job in getting this bill through to the House.

But the second thankyou is to someone who is not in this House. It is to Mr Andrew Shann, who worked with former members of this House to develop members’ bills that would restrict high-cost lenders, and, several times, he nearly got it over the line, but it was voted down at the last moment. So I believe he supported a bill with Charles Chauvel, which was drawn from the ballot, but was narrowly dismissed in 2010, and, in 2014, he had similar legislation drafted into a Supplementary Order Paper for a bill for Carol Beaumont, but, again, it was very narrowly defeated. So this bill we have before us today continues the work that Mr Andrew Shann started, and we owe him our thanks for doing it. I’d also like to thank Jenny Brash, a former Mayor of Porirua, for bringing this history to my attention.

Of course, I’d like to thank the members of the Finance and Expenditure Committee, who worked hard on this bill with me. In particular, on the Opposition side, I’d like to thank Mr Brett Hudson and Mr Andrew Bayly, who, as ever, worked hard on the bill, along with the other members, and, of course, all the members on the Government side—but, in particular, my colleagues Dr Duncan Webb and Greg O’Connor, who worked very hard on this bill too—and, oddly enough, I have some thanks for David Seymour.

David Seymour took one for the team. He took one for the team in a most curious way. During a select committee meeting, we were discussing how these contracts get under way and how these operators get their lenders in place, and Mr Seymour actually contacted one on his cellphone to make a query about getting one of these short-term, high-cost loans. He didn’t go through with it—that might be a metaphor—but the curious thing was that that particular high-cost lender, within 20 to 30 minutes or so, started besieging him with texts, started sending him messages, tried to get him to take out a loan—

I’m sorry to interrupt the member. The end of this story will have to come later.

Debate interrupted.

The House adjourned at 10 p.m.