Judith Tizard: Consumer Credit Bill 2nd Reading
Hon Judith Tizard
Consumer Credit Bill Second Reading
I move, that the Consumer Credit Bill be now read a second time.
I would like to thank the Commerce Committee, in particular the Chair Mark Peck, for its thorough and timely consideration of the Bill, the submitters for their efforts in preparing thorough submissions that have led to numerous technical enhancements to the Bill, and the officials who have worked so hard in the preparation of the Bill.
The effect of the Bill
The Bill overhauls the credit law framework by replacing outdated statutes [the Credit Contracts Act 1981 and Hire Purchase Act 1971] with innovative, state-of-the-art legislation designed to protect consumers in the modern finance market.
Benefits of the new legislation
Tough enforcement against creditors who flout the law and exploit consumers, in particular through empowering the Commerce Commission to take action in response to breaches.
Better quality and more relevant information for consumers about the terms and cost of credit.
Flexible but fair rules relating to fees and interest charges on credit contracts.
Reduced compliance costs for providers of commercial credit.
Simplified law that meets the needs of both creditors and consumers.
Select Committee Report
The Commerce Select Committee has considered the Bill and submissions and reported back to this House recommending that the Bill be passed with some amendments.
I would like to acknowledge the strong support the Bill received from both creditor and consumer interests.
Buy-back schemes (Background)
I wish to draw the attention of the House to one of the key issues considered by the Select Committee that has resulted in a significant amendment to the Bill. That issue is property buy-back schemes.
The government recently placed eight companies participating in buy-backs into statutory management. A large number of consumers are affected by these schemes and have lost or may lose their homes. Without new measures in the Bill there is potential for further detriment.
Buy-backs involve a consumer selling their home to a company or individual in return for the right to occupy the home for a fixed term and the option to repurchase the home at the end of that term. The sale proceeds are often used to repay existing debts owed by the consumer.
The problems caused by buy-back schemes
These transactions are structured so that the consumer cannot usually afford to repurchase the home. They often involve exorbitant establishment fees. I am aware of schemes where consumers have paid between $20,000 and $55,000 in establishment fees.
Many consumers involved in these schemes do not realise that they have sold their home until they are notified of the commencement of mortgagee sale proceedings.
In most cases these transactions do not meet the definition of credit contract, either under the Credit Contracts Act or the Bill. This is because the consumer does not necessarily incur a debt under the transaction.
Buyback schemes have only become prevalent as a form of consumer financing since the late 1990s, which is one reason why they slip around the Credit Contracts Act and the Bill as originally drafted.
How the Bill will resolve these problems
The Select Committee recommended amendments to the Bill that will protect consumers against future losses from buy-backs, as well as providing remedies for consumers already involved in buy-backs.
The Bill will require disclosure of information about buy-backs. It will also require the provision of independent legal advice for consumers entering into buy-backs and it will require solicitors to certify that the advice has been given.
The Bill will prevent the transfer of property without the Court's permission where initial disclosure has not been made or independent legal advice has not been provided.
It will also ensure that the remedies against oppressive conduct in Part 5 apply to buy-backs.
I am confident that these measures will reduce the attractiveness of buy-backs to financiers, while enhancing the ability of consumers to understand the nature and risks of the transaction. I predict that the combination is likely to see this form of finance leave the market.
Another significant amendment made by the Select Committee is the inclusion of a "hardship provision". Submitters from voluntary welfare and consumer groups sought the inclusion of a hardship provision in the Bill equivalent to that contained in Australian legislation. The Committee wrote to all submitters for their views.
The Australian provision enables debtors to seek changes to credit contracts on specified grounds of unforeseen hardship, such as loss of employment or the end of a relationship. If the creditor does not agree to the changes sought, the debtor can apply for a court order.
Most creditor submitters argued that the provision is unnecessary because responsible creditors, following an approach from a consumer in unforeseen hardship, would make the changes contemplated by the Bill anyway. While I accept this, I believe the practice of responsible creditors should be made the standard for the whole credit market.
Less reputable creditors are too quick to promote unnecessary and expensive refinancings rather than a simple variation to a contract. The hardship provision is aimed at this sector of the market.
The Committee has ensured the hardship provision has been carefully drafted to avoid abuse by debtors seeking to frustrate legitimate enforcement proceedings. For example, debtors already in default on their payments cannot invoke the provisions to "buy time".
I am pleased that the Committee has effectively balanced the concerns of consumers and creditors in its recommendations.
I would like to again thank all the members of the Select Committee for the work they have put into this Bill. This is a very timely Bill, which represents a worthy step towards improving the effectiveness of New Zealand's core consumer legislation. I commend the Bill to the House.