Credit Contracts Legislation Amendment Bill

When we were last discussing this bill, Deborah Russell had the call, and if she really wants it she has seven minutes and 30 seconds remaining.

Thank you, Mr Speaker. I do very much want those seven minutes and 39 seconds, because there are voices that have not yet been heard in this debate and I want to report them. In my earlier part of this speech, I talked about the collaborative work we had done in the Finance and Expenditure Committee and some of the authors of this bill, Mr Andrew Shann, a lawyer who worked on earlier versions of this legislation; of course the Minister, Kris Faafoi; and the very cooperative work done by Mr Brett Hudson, Mr Andrew Bayly, Mr Greg O’Connor, Dr Duncan Webb, and others in the select committee.

But from here, I want to turn to the voices of the submissions as to why this legislation is necessary. Minister Faafoi and Mr Brett Hudson have taken the House through some of the technicalities of the bill. Here are the voices of the people who we are legislating for.

When I last spoke, I referred to Mr David Seymour—unusually, taking one for the team and contacting a pay-day lender, one of these lenders that we are trying to regulate a little better. Just one contact, but from there he was badgered with texts and with messages urging him to take out one of these high-cost loans. I don’t believe he did. Nevertheless, that process of being badgered is something that all people who take out high-cost loans are subjected to.

We had many organisations speak to us, but just one person who had taken out a high-cost loan. Sarah Newham very bravely came and spoke to us about her own experience of what it had been like. She took out a pay-day loan in 2018. She’s a sole mum and she had kids’ birthdays coming up and she needed some cash and she thought she could manage. So she took out a high-cost loan, borrowed just $400. She said it was really easy. She went online, answered a few questions, and the money appeared in her bank account just like that—too easy.

She’d budgeted terribly carefully to make sure that she could manage the repayments, and she did really well for the first few weeks. She made the first couple of payments—nearly a quarter of her income—but then she missed the next one. She contacted the lender. She tried to arrange matters but she ended up getting penalties and getting higher interest. She got slammed with extra costs for this loan because she was late with one payment and things got worse and worse. She said there were weeks when she had to choose between paying electricity and paying for food. And it got to the point where she was begging them to send the debt to a debt collector because then at least it would be finalised, at least there would be no penalties. But they wouldn’t.

Eventually, she got the local budgeting service involved and they got the lender to send it to a debt collector, and from there, she was able to manage the debt. So she said it was terrible, and it was really hard to make the repayments. This was a woman who was trying to do the right thing. Eventually, she got it sorted. But here’s the kicker: on her birthday, she got an email from that high-cost lender who said, “Happy Birthday, Sarah. How about you treat yourself with a loan?” That’s appalling. That is appalling. A loan is not a treat. So that is a story from someone who actually experienced what it was like to be subject to the whims of a high-cost lender.

We heard a wonderful submission from Komiti Pasefika of the New Zealand Council of Trade Unions, a group of wonderful Pasefika men and women who came in to talk to us about what it was like in the Pacific community. There are some real cultural obligations in the Pacific communities: funerals, weddings, being a chief. People in that community can often be subject to the pressures of needing to get cash and get it fast, and then they end up subject to high-cost loans. What they begged us to do was to make sure that loan sharks were properly regulated—that if people did take out loans, it was done in a responsible fashion and their capacity to repay was properly assessed. So they asked us for regulation of high-cost lenders, similar regulation of retail truck shops, much more effective enforcement, and much stronger regulation of debt collection. Why? To protect members of that community.

We heard—and this is, I think, one of the most enjoyable submissions in a way—from the Josephite Justice Network, the Sisters of St Joseph of the Sacred Heart. I was a convent schoolgirl and I remember the nuns. I tell you, these nuns were the most radical ladies I’ve ever met. They were just wonderful. And so to Sisters Carmel, Adrienne, and Marie, thank you for coming in and speaking to us. They came from Gisborne and they talked of the difficulties that people were faced with in their communities when they had to manage these short-term, high-cost loans. Again, they talked to the people they worked with on a day-by-day basis in budgeting services, when people turned up just asking for assistance just to manage what to many of us is only a small amount of money. But if you are impoverished and caught with a high-cost loan, it becomes the end of the world, really. So they wanted a ban on retail truck shops. They wanted more effective enforcement. They wanted stronger regulation of debt collection. This legislation does keep faith with those radical ladies who came in to talk to us.

Finally, I wish to speak of FinCap and, in particular, of Tim Barnett, who is actually a former member of this House, who’s the chief executive of FinCap, and one of the people who works with him, Soraiya Daud. They came in and made a whole series of technical arguments, but the argument they made most strongly was that there should be a cap on the interest rates that can be charged by high-cost lenders. Now, that was not in the original legislation. Originally, we had a cap which was a cap of the total amount of interest that could be charged, but not a cap on the actual rate. But FinCap, which represents all sorts of budget services, argued strongly for this cap.

Mr Brett Hudson mentioned that it was not included in the original legislation, but as a select committee, we listened to what people in the sector actually wanted, what they felt was needed to ensure that some of our poorest and most vulnerable are protected, and that is why in the final version of this legislation that has come back to the House from the Finance and Expenditure Committee we do have a cap on interest rates. So now, if you have a high-cost loan, if a lender issues high-cost loans, the maximum interest rate that can be charged is 0.8 percent a day. Now, that’s still 230-something-or-other percent interest per year. I’d have to do the maths again. It’s still a very high interest rate, but nevertheless it limits it. It sets a cap on it. We are doing that because of the work of FinCap, and so they too are some of the authors of this bill.

National supports this bill because we want to see more informed borrowers, we want to see more responsible lenders, and we believe that changes are going to be helpful to further both of those goals.

I want to talk, first, about the concept of more informed borrowers, because the lending of finance in the economy works within a market. But a market can only work effectively in this case if the borrowers are informed effectively, because if they are not informed, then the potential for unscrupulous practice is too great and the risk to individual consumers is there. So when we talk about more informed borrowers, we’ve had the previous speaker talk about the example of people who take loans, not knowing necessarily the way in which they will accumulate interest and that they will grow over time. I want to acknowledge here that while this bill does some useful things to help inform borrowers better, the other aspect of this that I think the bill really does rely on is increasing efforts to increase the financial literacy of New Zealanders, and I want to acknowledge the role the private sector, our banks, and financial institutions are actually playing in furthering financial literacy within our communities.

But the second thing, of course, that’s vital is that even if we have informed borrowers, we still need to guard against the possibility of irresponsible lenders, and the bill takes a number of measures in that regard—for example, around being far more prescriptive about what a lender must do when they’re assessing the affordability and suitability of a loan. I want to again take a particular example here, which is that of the mobile traders, which have been spoken about in this debate, and this is this practice that’s emerged of people taking trading entities around communities where there is deprivation or there is vulnerability and providing them access to household goods when they know that they’ve run out of cash at the end of the week, but doing so in very high interest arrangements that further get families into debt and can become a terrible burden for them.

While this bill will do some important things to reduce the possibility of that by increasing the requirement on lenders to assess whether or not people can take on that loan, I also want to acknowledge the role of other entities here—for example, the Salvation Army, who have said, “Well, obviously, there is a need here in the community for the availability of mobile goods. People are prepared to take out these excessive loans in order to access household goods at certain times in their pay cycle. How can we step into this breach? How can we step into this space to make sure that if lending dries up in this area, there is an alternative for these families?” I do want to take this opportunity to commend the Salvation Army on that action.

But the third thing, that I know the Finance and Expenditure Committee considered carefully in examining this bill, was the balance between regulating appropriately but then the possibility that over-regulation actually creates a black market that is completely unregulated. It’s for that reason that previous speakers have noted concerns about the introduction of the interest rate cap, which officials had advised against. The questions, I understand, that were asked at the select committee were simply: would that push some forms of lending underground? I think it’s important that the House notes the need to watch that carefully, because the potential there, of course, is that there are a group of consumers, a group of borrowers, who end up in worse situations, more pernicious situations, because the availability of credit on the regulated market is so constricted.

So, as I said at the outset, National wants to have more informed borrowers. We want more responsible lenders. This bill furthers a number of small steps forward that further those goals, and, for that reason, we support it.

Thank you, sir. It’s a pleasure to rise on behalf of New Zealand First to speak to the Credit Contracts Legislation Amendment Bill. I just want to acknowledge, firstly, the constructive approach from the Opposition in select committee. I think it has been mentioned by previous speakers, but it’s worth noting again because in the Finance and Expenditure Committee, there is often heated debate, but, actually, that heated debate is, in my opinion and observation thus far, always constructive and seeks to come to an agreed outcome where all of those members on that committee see the best interest of New Zealanders at the forefront of the efforts of their endeavours in that committee.

When I say that, this legislation has been about a Government, but I say a Parliament. Efforts were made previously, actually, by the previous Government—I think in 2015, if memory serves—to take legislation down this track. I think those on the other side have acknowledged that there was a genuine attempt made but the effort didn’t go far enough, and so here we are. That’s not to disparage those on the other side of the House. Here we are, though, together, looking at how we can do this better in a way that is beneficial to New Zealand consumers who have need of these short-term loans and credit. But how is it that we look after their best interests and have consumers’ interests at heart?

The context in which we come to the House is that, as others have said, we have unfortunately experienced—I think all of us—firsthand, in the respective electorates, those people who have suffered at the hands of loan sharks or short-term debt collectors, short-term loan providers, and have come into our offices and told—you don’t want to say stories, because that implies that it’s fiction. This is not fiction. This is real people suffering through incredible hardship because they have been restricted in their access to money.

I suppose there’s one way to put that in context: 40 percent of New Zealanders do not have access to credit cards. What that illustrates to those in the House and those listening is they’d likely not have access to short-term loans from the banks either. So where do they go? There has been and is a service provided to New Zealanders that meets a need.

But what I want to say—and perhaps it’s time to get into the specifics of some of those conversations that we had in the committee—is that we have said, yes, there is an opportunity and there is, unfortunately, a need for access to credit, but what does that look like? One of the things that we spoke about in the first reading—not because of submissions but from conversations that we’d had around the country; all of us have had them—was this conversation about the fact that the bill didn’t come to the House with the interest rate cap. That immediately generated lots of public discussion, and I myself pondered on that in the first reading, and I know others did too. So, subsequently, you can picture the contributions in select committee. They were robust, and they were fulsome, and, actually, what they were able to do is provide examples from around the world of interest rate caps being applied.

The select committee and all members asked the question, “Well, what is that going to do to people who need these short-term loans? If you put on an interest rate cap, doesn’t that make it prohibitive for providers to lend out money?” Actually, what we learnt from the cases provided to us from Britain was that, post analysis of the implementation of an equivalent cap in Britain, the conversations with those people who used to use those short-term loans, unfortunately, on a frequent basis—post analysis, they themselves realised that they were actually a lot better off for not having access to those loans.

I put that in context. This debate needs to focus on the wording around debt spiral. A debt spiral is all about people having access to money and then needing more money to pay for that previous access to money, and maybe even needing more money again to pay for the access to that previous money. Actually, what the select committee did, by way of example, was have a conversation around that debt spiral and access to money, and what the committee recommended to the Minister and to the House and what we see here in this legislation is that, actually, one of the triggers, or one of the issues that needs to be part of this legislation—and, as I said, it is—is that we must make sure that those people who have used short-term loans cannot access more and compound the problem and, variably, drive themselves into that debt spiral.

That has been just one of the many constructive contributions from the select committee in terms of—I’m going to say—improving the legislation. I think all of those in the House would agree that it has come out of select committee. We have listened to the hundreds of submitters who made the effort and took the time to put themselves in front of the select committee to have their say and to talk in great detail about the fine differentiations between what is an effective interest rate cap and what is not and what is the definition of a short-term loan and what is a long one.

I think it’s appropriate to end my contribution on that note. Not only do I commend those who took the time out on submission to the select committee, but again, as I started, I commend the select committee as a whole—not only the Opposition, of course, but the work of the Government members. It was an example of collaborative and positive constructive work. On that note, I commend this bill to the House. Thank you very much.

Thank you, Mr Speaker. I’ll take a brief call on the Credit Contracts Legislation Amendment Bill. It’s a very interesting piece of legislation, this, because, on the face of it, it looks like it’s dealing with some terrible problem we’ve got—and, to some extent, it is—but, also, what really interests me about the submission process was it’s not necessarily all bad. Some of the short-term loans that this deals with are actually very necessary for families to deal with issues that, in fact, are very short term—nonetheless, quite expensive.

I also had this view of, I suppose, what we’d call the trucks that go around New Zealand, or vans that go around New Zealand, hawking stuff off. When I was a young fella living down a no-exit metal road, we used to have the same thing, but it was the butcher bringing a bit of bacon down the road and the milkman bringing the bread and the milk and the whatever down the road, and they sent a bill at the end of the month generally, and they got paid.

It’s a very different environment we live in today, and that’s an issue that this bill sought to deal with. Frankly, I think there certainly are some interesting practices with respect to the way that these loans are put out there, and this bill, I think, has managed that through a cap that we don’t necessarily support, although I think there’s some merit in it, and also through regulating and managing the fees that are able to be charged on these loans. So that’s pretty good.

Just getting back to the direct sales people, you don’t see them going down the no-exit metal roads any more; you see them going down the streets in town where people can ill afford to use the services they provide at extortionate rates. This bill has moved to get some influence in that area and to put some controls on it, and I think it’s a very worthwhile piece of legislation from that perspective.

The select committee process was quite interesting because, as our chair mentioned, David Seymour decided to get a loan halfway through the select committee process, and by the end of the first select committee meeting I think he had about 300 or 400 offers. So it’s pretty easy to get a loan out there, and that was the point that was made. And it’s also pretty easy to get a loan without any proof of the fact that you can repay it, and I think that one of the challenges we face in New Zealand, one of the challenges we face in the world, is that not everyone is born or has the ability to attain equal financial literacy. So some of these things become very challenging, and that’s what causes Governments to need to legislate and regulate in those fields.

So I’m not going to say much more about this bill. I think it is a good piece of legislation. As I said, we were challenged to some extent by the cap, not so much because we don’t like the idea of a cap but because one or two of the submitters pointed out that the cap can then have an impact on the ability of people who desperately need some short-term money. It might only be for a month to get that money and move on. I don’t necessarily agree with that, because I do think that there’s the ability for them to do that under this bill’s current situation. So I commend it to the House. I think it’s a very good piece of legislation.

Kia ora, Mr Speaker. Ngā mihi nui ki a koutou. Kia ora. I rise on behalf of the Green Party to support this legislation, this very good legislation which is going to make a real difference to people’s lives. Now, I hear the comments of the previous speaker, Ian McKelvie, and I think it’s important to acknowledge this is a relatively modern phenomenon, these third-tier market lenders, pay-day lenders. New Zealand’s first one only emerged in the year 2000. This is something new and is having a huge impact on New Zealand.

I acknowledge there’s a small market for short-term, high-interest loans—maybe, you know, a business example—but the vast bulk of people receiving these pay-day loans, or these short-term, high-interest loans, aren’t business people. They’re not trying to carry over. It’s disadvantaged families, in many cases being taken advantage of by predatory lenders. We just have to say that, because that’s the actual truth, and what we know is the latest figures show there’s $120 million being taken out of some of our poorest and most disadvantaged families—many of these families with children—as a result of these high-cost, predatory loans. We’ve seen annualised interest rates of 600 percent, 1,000 percent, 2,000 percent. We saw evidence in the Finance and Expenditure Committee of interest rates at an annualised basis of 2,600 percent. That is simply outrageous, simply unacceptable, and I’m glad this legislation is doing something about it.

I’d like to acknowledge the committee because they have improved the legislation. Often, committees can improve legislation with technical fixes, transitional provisions. This has been fundamentally transformed by including an interest rate cap. Now, the original legislation was around capping the total cost of borrowing. That was worthy. That was a very positive step forward. But there was a chorus of experts and those who work at the coalface of the high-cost lending sector that it wasn’t going to be enough, that you would actually still see low-income families paying way too much, being taken advantage of, if the total cost of borrowing wasn’t also supported with the other wall, the other protection, which was an interest rate cap. So I’d like to acknowledge the committee. They’ve fundamentally improved it.

I’d like to acknowledge those people who have played a role advocating for this for an awful long time. I’m thinking of Andrew Shann, who I’ve met with, who’s previously drafted legislation to this effect, I understand with Carol Beaumont, a former member who’s no longer here, who was at the forefront of this campaign. But most of all I would like to acknowledge FinCap and the Salvation Army, who tenaciously and very assertively campaigned for an interest rate cap. I’d like to acknowledge their campaign. They presented evidence such as this that pointed out how many other countries had the protections of an interest rate cap: Australia, the United Kingdom, United States, Canada—in fact, they referenced 76 other countries that had interest rate caps.

This wasn’t something new, something novel where we were going out on a limb into an experimental environment. This was something which is the norm overseas, and I’m glad that New Zealand is taking a step towards joining the rest of the modern world that has said there are social ills and huge economic problems when you refuse to cap interest rates. So I’d like to acknowledge FinCap and the Salvation Army. Of course, they did a huge amount of work, including working with Business and Economic Research Ltd (BERL) and contracting BERL to publish the substantive report, which made the economic case for what a huge impact high-cost, high-interest loans was having on New Zealand.

Now, this issue was something the Green Party has been raising consistently; it’s something we’d previously voted for when it was before the House in previous Parliaments. It’s something we lobbied the Minister on. It’s something we used our ability to speak in the media to advocate for. While I wasn’t privileged to sit on the select committee, I was still reading the submissions, meeting with the submitters, working out how we could support the Government to do the right thing, and I’m so glad that the Government parties, including the National Party, are supporting it today.

Now, I think 0.8 percent is still too high. On an annualised basis, that’s still quite a large figure. I guess, because this is a new regime, there is the ability to review it in the future, which I think is great. I wouldn’t be surprised, in fact, if we find 0.8 is too high, but this is a great first step. I really want to acknowledge the Minister, Kris Faafoi, who’s been wonderful to engage with, who’s been constructive, who’s listened to the evidence and acted. This is something that I drafted a Supplementary Order Paper on, and I’m glad that there is no need for that any more because the select committee has improved this legislation by including it.

So while I’d like to thank everyone who’s been involved, I just want to reiterate that this is a concrete example of how this House today is helping people who are facing these horror stories, which the committee heard, where kids are going without presents at Christmas, where people are having their weekly pay cheques mostly eaten up by these high-cost loans, where capping the total cost of borrowing would simply see these predatory lenders increase the number of loans. It would rapidly increase the size of the initial loan to get around this. So this prediction is making a real difference.

Now, when FinCap talked to me, they talked about the 70,000 people that they work with every year and the $700 million in debt that hangs like a millstone around those New Zealanders’ shoulders. This is a great, positive, concrete step to make a real difference. This Government often talks about wellbeing, and I think here is a concrete, tangible example of how the wellbeing of everyday New Zealanders who work hard—I note the previous comment around financial literacy, and I acknowledge there is more we could be doing to encourage financial literacy in New Zealand, but make no mistake: these people are using very sophisticated marketing techniques. They are making the most of psychological research on how to encourage their business, and they’re in the business of trying to get as much money out of some of the poorest New Zealanders as they possibly can. They’ve been stunningly successful, but that has gone on for too long, and this Government is acting.

I believe the Government in the future can actually do more, because while I thought the risks of a black-market, third-tier lending scenario arising were overblown, and we haven’t seen that occur overseas, we still know that there are people out there trying to take advantage of some of our most vulnerable New Zealanders. Perhaps there’s a role, I think, for the Government to in future consider how they can support responsible lending and access to capital tools for those families who need it. So thank you once again to all the members on the committee. This is a very proud day for our Parliament. Kia ora koutou.

Much of this legislation is way overdue, and I’m very happy to support it. I want to reflect on comments from previous speakers and members of the Finance and Expenditure Committee, and Fletcher Tabuteau, I think, summed it up pretty well for me. There has been a lot of conversations in the committee. There has been a couple of chairs while I have served on it, and I want to acknowledge Deborah Russell for her work, because I think we all acknowledge across the Parliament and across the select committee that there has been a problem and it needs to be sorted.

Now, while this particular side of the House may have some issues with an interest rate cap, I think that is sort of, in many ways, around the edges. What I found and what we found, and even before I came into this place, is there is a lot of what I call predatory lending going on, and all it is doing is further causing people misery and harm. And in certain parts of my electorate, those trucks are simply a curse.

So we have looked at options to try and really protect the more vulnerable people in our society. I think it’s a great day when this legislation can get to this point. I think the select committee has done a great job. I have talked to a number of budget advisers in my own electorate who have shared with me, even now, how people are trying to find ways around what’s being proposed. I think most of those loopholes have been sorted. When I went to a place in Gisborne recently and I talked to some employers, they said that as soon as they have a job, even if they haven’t started work, the loan is made available. They go and buy a TV. They go and buy a whole lot of other things without any money actually physically going into their account, but, based on pre-emption of pay-day lending, they are lent a whole lot of money.

So I think this bill seeks a really good balance, and personally I’m very supportive. I’m pleased that our party is supporting it, because it will make a difference to a number of people who, quite frankly, are being ripped off. There are some people that need help from time to time—short-term help—but for many cases, that turns into long-term misery. A role of this Parliament and the legislature is to find a solution for that. For that reason, I’m very happy to support this bill.

Can I just say it’s a real delight to be able to follow on from the member Lawrence Yule on the opposite side. He articulately, I think, stated what many of us felt who sit on the select committee and heard the submissions from those many advocates who work in budget advisory services, right through to those, as my colleague Dr Deborah Russell mentioned earlier before, who had been people that were subject to the predatory loans and found themselves in quite a rough time. I think we all collectively shared—around the Finance and Expenditure Committee over the several months that we did consider this bill. I think there were some really clear lines that you could see: that there are specific people within our communities that are vulnerable, and that our job as legislators is to find that balance that the member Lawrence Yule just spoke to prior, and exercise our collective will. So it’s quite nice when you get to get up at the end of the week and agree with all of your colleagues across both sides of the aisle when we’re acting to protect some of those most vulnerable people within our communities.

From my own perspective, and coming from the East Coast, we had a number of really persuasive submitters from Gisborne—in particular, the fierce women, and they are mostly women, from the budget advisory service who not just in the select committee process, but they did participate in that, but on several occasions called me into their office to lament or really share their frustrations and concerns, as have been shared in this House this afternoon, about just how hard some of these pay-day lenders pursue vulnerable clients. They then took the time to walk me through what they did as advisers working alongside those families that were stuck in those cycles of debt. These are people from a whole range of walks of lives. I’m talking about the advisers who volunteer at the budget advisory service—but just the real pain that they shared on behalf of just family after family after family. So I really want to take my time this afternoon to acknowledge those volunteers up and down the country who work alongside some of our community members that really are having a rough time, and, yeah, they give so much.

So too we heard earlier about some of the sisters, the nuns, from Gisborne that came down to share their experiences. Gosh, they were quite radical. I didn’t grow up with nuns as a big part of my life—my experience was through that movie Sister Act, so I knew that they’re a little bit radical, but geez, they were. But they really sort of set us on the map, and made us really think about families in all sorts of walks of life. It’s not just those that are continuously at the lower end of the socio-economic rungs. For example, in our communities at the moment, we’ve got a lot of agricultural families that are in immense financial strife. On the wrong day, at the wrong time, with a little bit of persuasion—an act of persuasion by some of these predatory loan companies—they were being pursued. So they spoke on behalf of those families as well, as did the rural women’s association.

I think too though, for me, as we were engaging in this process and trying to strike the right balance, I want to acknowledge the Hon Kris Faafoi. We worked really closely with him and his whole team of advisers around the interest rate cap. So I can only commend Tim Barnett, the former member of this House, his team, Soraiya Daud, and their whole crew that they brought together and the campaign that they ran to, I guess, really walk us through how we could implement an interest rate cap that struck that balance that still enabled financiers to be able to provide short-term loans as appropriate, but to be able to limit those interest rates to a state that was manageable. So I commend him. But as we were considering this legislation, another change that was made through the committee process was bringing mobile traders into the Act and made them be—anyway, I want to acknowledge Carol Beaumont, because she came to mind. I commend this bill to the House.

Thank you, Mr Speaker, for an opportunity to speak at the second reading of the Credit Contracts Legislation Amendment Bill, which the National Party does support. This is a piece of legislation which I wholeheartedly support, with a couple of reservations. But it is important because this is the type of predatory loan shark behaviour that we see in our communities, where people target those who are living in poverty, those who are struggling to get by. Targeting them to charge high interest rates to make them dependent is something which I find personally incredibly abhorrent. I’m pleased that Parliament is taking further action against that type of behaviour.

I do want to acknowledge the legislation passed by the last National Government, which did make significant reforms in this area and made huge improvements. This piece of legislation will continue in that spirit, and will continue to protect consumers, and provide more support to ensure they understand the consequences of the lending that they are undertaking and to ensure that the people who are lending to them actually meet proper tests, such as the fit and proper person test, which will now also be required to be met by mobile traders. But this piece of legislation also does include a cap on interest rates, and that is something which I personally don’t support. I do think that they will, as some submitters said, become a target instead of being something which we can regulate through other mechanisms. An interest rate cap will become something which becomes the default rate. At 100 percent interest—essentially, that’s what it ends up being—that is a significant rate which will, for some people, mean they end up in a worse situation, potentially paying a higher interest rate or having to take out longer-term credit because shorter-term credit becomes less available.

The decisions we make and the intent that we have always has unintended consequences. I think that, unfortunately, one of the things we will see happen when this bill is passed into law is we will see unintended consequences, and this is an issue which this legislation will not mean goes away and I’m sure future parliaments will have to grapple with again to ensure that we do protect our most vulnerable, whilst at the same time ensuring that there is finance available to those who do need it. National does continue to support this legislation through the House.

Thank you very much, Madam Speaker, for the opportunity to speak on this important piece of legislation, the Credit Contracts Legislation Amendment Bill. The main aim of this bill is to stop private sector practices which cause or deepen hardship which already exists. It’s one of those things that, to be frank, really sticks in my craw: taking advantage of people who need some extra help and support—profiting off someone in a position where they need some assistance. There have been many examples through the select committee process where there are practices that are technically legal in New Zealand law that, quite frankly, prey on those who can’t fight back, and that really gets to me.

I’m encouraged to see that these protections complement longer-term work to really try and lift children out of poverty and increase people’s financial capability to be able to look after themselves and look after their families, and not leave people stuck in a cycle that, quite frankly, not only leaves people hungry but leaves people in situations where their mental health suffers because, every day, people don’t know how they’re going to be feeding their families. They get themselves deeper into debt, and then people prey on that vulnerability, and I do not like that.

So, in particular, I’m really happy to see that mobile traders will be brought within the scope of the Credit Contracts and Consumer Finance Act. I know those red trucks when they’re around and I know you can pay $30 for a pack of Weet-Bix and that’s just wrong—that’s just wrong. Not only do you pay $30 for your pack of Weet-Bix but you’re paying interest on that $30. So while it’s great that we have private companies like progressives, who send out trucks in some parts of New Zealand to be selling groceries at a shelf rate alongside to try and compete on these predatory practices—I commend companies for doing that—we need to do more than just rely on the private sector to fill that space.

So it was good to see at the Finance and Expenditure Committee that there was widespread support from submitters for tighter regulation of these mobile traders. They’re quite clearly creating harm in our communities and they put people in situations where they, quite simply, can’t repay debts. That contributes to New Zealand children going to school without lunches or not attending school because they don’t have a lunch or haven’t had breakfast, and that’s the kind of cycles that we want to move away from as a Government.

Debt is a major concern for New Zealanders, and we know that. We know a lot of households in New Zealand spend more money than they earn in a regular cycle, and we need to be working effectively to make sure that there are checks and balances on those short-term loans to make sure people know what they’re signing up to, people know what they are committing to, and people know what those repayments are. That’s just fair.

Some people might want a short, quick loan for certain reasons before pay day, and that’s fine—everyone has the freedom to do that. But, as part of that freedom, people need to be clearly understanding what they’re having to repay in the future and how that impacts, and it also helps families to plan for the future. When you know what the next instalment’s going to be and when you know what the penalties are, that’s a strong way of making sure that families are able to budget in a way that gives people the confidence and the reassurance that they can get back on their feet if they’re going through a tight patch.

I think it’s also important to note that there were submissions around car loans as well, because, for me, I’ve seen situations in my own area—in Hutt South—where I’ve had families who have purchased a vehicle unaware of the details of that contract, and the repayments on some of those financing areas have been, quite frankly, unfair. So it’s good to also see some improvements in that area.

I think it’s important to note that there is a debt spiral there and that having a bill that takes clear actions to try and prevent that debt spiral from kicking in is really stopping situations where we’ve seen 803 percent per annum interest rates, where people are charged fees that range between $5 and $5,000 for no apparent reason, and also, really, the failures by loan sharks to disclose what is in all the parts of that contract that someone is signing up to. So by having clear areas where we know that this package will deliver and by having these changes, it will reduce the problem, I believe. It will reduce debt and the harm it does for people.

In order for these reforms to be effective, we’ve also strengthened the penalties where the law is breached, and I think that’s incredibly important. It’s all very well having the law there, but I think those who were benefiting in this area under the previous law also need to be held accountable for when, going forward, they haven’t complied with the new legislation. Stakeholders throughout the consultation commented on both the stronger enforcement and penalties that were needed in the lending industry for serious breaches of the law. It’s great to see that the select committee have listened to that feedback by including new and tougher financial penalties and statutory damages and by improving banning orders for breaches of the law.

So I’m encouraged to see that this is an area that where New Zealanders have been preyed upon, it’s great to see a select committee that has really listened to people and made improvements to the law, and it’s an area we can continue to work on to make sure that people who earn money and who want to live a good life in New Zealand get the opportunity of getting back on their feet and that debt is not used as an opportunity for those who wish to profit from it. I commend this bill to the House.

Thank you. I take the last call for the National Party this afternoon, and although I didn’t sit on the Finance and Expenditure Committee, I did substitute in in a period of time to listen to submissions coming from community groups such as the Citizens Advice Bureau and another local group, the Wellington Community Justice Project. It took me back to the days when I practised in the criminal jurisdiction with a number of my clients, particularly in the role of duty solicitor applying for legal aid. The majority of my clients, when it came to declaring what their debt situation was, would often record some of the debts with these loan shark organisations—particularly, the red trucks that would drive around in a predatory way and park themselves up in our lower socio-economic communities.

So this bill, the Credit Contracts Legislation Amendment Bill, is about addressing those usurious lending practices. Now, I had to look up what that word meant. Here I am, as a lawyer of some years of practice, but my role wasn’t in the commercial sector; it was about helping our vulnerable people. “Usury”—the definition of that, for those who may be watching this debate and for the benefit of my colleagues in the House, is an unusually high interest rate or the lending of money at an unusually high interest rate.

An example: usury is an interest rate of 30 percent when normal rates are at 15 percent. So at the end of this debate, people who have been listening would have picked up that this was about the inflating and the inflammatory practices that go with these loan sharks and their predatory practices, prowling on the poor—how’s that for alliteration at the end of the week?

This bill, as is known, amends the Credit Contracts and Consumer Finance Act. It’s strengthening the requirements to lend responsibly, especially in relation to how affordability and suitability tests should be conducted. So as my colleague Simeon Brown alluded to, the National-led Government, back in 2014, passed the Credit Contracts and Financial Services Law Reform Bill. That was responsibly picked up and the work carried on under this Government. That’s certainly to be commended, because we are here in this House to make a difference, particularly to our communities. We talk about wellbeing, and this afternoon this is very much addressing those who are particularly vulnerable, who are the desperate, and who are the disparate.

So, in keeping this brief, just to say that in the short time that I was on the committee, the summary is that there were 173 submissions that were made to the select committee, oral evidence heard from 50 submitters, and I would have been present to hear at least seven or eight of those. That this is something that we as a House are united in: commending this bill to the House. I conclude my debate endorsing that.

Well, thank you very much, Madam Speaker, and kia ora to the last speaker, Harete Hipango, who put it really very well, I thought. I’ve really got two things I wanted to say here today. The first is that this is a really good example of when we’ve got to intervene in people’s free choice, because obviously these arrangements that are entered into, in many cases—well, in all of those cases—the people enter into them apparently freely. Both debtor and creditor come together and the creditor is happy to offer loans at a thousand percent interest, and it appears that the debtor is happy to take the money.

Now, that strange arrangement that most of us would think is absolutely, you know, nonsensical happens for a number of reasons. Probably the first one is the massive imbalance of power. At one end, there’s simply desperation that if someone can’t get their kids to school because their car is broken, and they need $300, then they put, as anyone would, getting that $300 ahead of the disaster that’s looking at them down the road in terms of how they’re going to repay that. The other thing is that we know that people, actually, in those kinds of situations, strange though it may seem, are optimistic. They think, “Oh well, I’m sure I’ll be able to work it out. I’ll sort that out later. I’ll be able to find the $600 in three weeks’ time that I have to pay back, the interest and the principal and all of the fees that have accumulated.” So what we have there is the fact that people make erroneous decisions.

As Ginny Andersen said, there are predators out there. Some of those people, the lenders, look at that knowing that things are going to go bad—knowing that a high proportion of those loans are not going to be able to be effectively repaid. Quite apart from that, to lend that money, as Harete Hipango said, is usurious. It is immoral. It is absolutely appalling to do that. So we have the Government stepping in in a number of ways to address that, to address the power imbalance, to address the poor decision-making that goes on, the information asymmetry, and all other kinds of market failures that occur in these instances. That’s the first point I want to make about the appropriateness of market intervention here.

The other real point I want to make is that this is a fantastic example of democracy. Minister Faafoi brought a great bill to the select committee—a bill that did a whole lot of good things in many, many ways—but what happened at select committee was that there was a very strong voice from pretty much across the board, from all of the consumers, all of the consumer advocates. The only people who didn’t like it were the profiteers, to say that there should be an interest rate cap. To his eternal credit, Minister Faafoi listened to that, did further work, took further advice, and came out with a much stronger bill. There have been some reservations expressed across the other side of the House, but I must say, on this side of the House, there’s absolutely none. This is absolutely the right thing to do; 0.8 percent per day is still a very, very large interest rate. I find it flabbergasting that there are lenders out there that tell us they can’t make money at 0.8 percent per day.

💬 Simeon Brown: It’s not about the money. It becomes a target.

If they can’t make money, if they can’t run their businesses in that situation, then—look, Mr Brown, I can tell you that I went to a lender. It was a great trip with the Hon David Carter. We sat down for over an hour and they told us that one aspect of their lending, their short-term lending, they would simply shut down because at these rates, they wouldn’t be able to make the money they need to make it worthwhile. Now, to me, that’s not a bad thing, because what we also heard through the evidence was that, in fact—whilst people might desperately need this money in the short term—when one stands back, the debt spiral that people get into is absolutely catastrophic. So in the wider scheme of things, prohibiting this kind of money, at absolutely usurious interest rates, is the right thing to do.

In terms of the democracy—to come back to my point—it was outstanding to see a well-organised, carefully thought-out, elegantly presented campaign marshalled by Tim Barnett, ex-MP for that fabulous electorate Christchurch Central and a very good advocate for FinCap, and a whole lot of other people, and it worked. Not some huge lobbyist, just a group of passionate people who had something relevant to say, and something to say in a well-thought-out way, turned it around, got a result that’s better—better for all of New Zealand. So with those two points, that’s really all I want to say. This is a bill that makes our finance and lending law stronger for everyone. I commend it to the House.

Amendments recommended by the Finance and Expenditure Committee by majority agreed to.

Bill read a second time.