Overhaul of Consumer credit law - Anderton Speech
8 August 2001
Overhaul of Consumer credit law
Launch of the Consumer Credit law reform review
It's my pleasure to be here tonight as the Acting Minister of Consumer Affairs.
Some months ago the Ministry of Consumer Affairs came to me with examples of some appalling practises where loan sharks were taking advantage of New Zealanders.
One particular practice was companies taking their customers ATM cards and pin numbers from them as a condition of making loans.
Today we have details of two companies who are also targeting low income people, and remind us all again why we need to take action to improve our credit laws.
Financial Options, a loan company in Manukau, have not been disclosing any financial information or providing contracts.
Their rates are high and their fees extraordinarily high. For instance a client sought a loan of $4,200. Financial Options told them the maximum loan was $2,100 and documented two loans for that amount, each with an establishment fee of $500.
The company was also requiring excessive security such as all personal property or collateral mortgages over people's houses.
This company charged one customer 82 per cent but said they were charging 54 per cent. On another contract they charged a $1,000 as a loan administration and research fee on a loan of $4,000.
In my home city of Christchurch Jackson Investments are a car hire purchase financier supposedly helping people to buy vehicles.
The Ministry of Consumer Affairs has received 25 complaints about this company, of which 22 involved breaches of current legislation.
The company has added unauthorised charges to contracts, inflated the purchase prices of vehicles in the contracts and sold beneficiaries useless payment protection insurance of use to people only in case where they are made redundant.
Jackson Investments have been penalising people for repaying their contracts early by keeping 20 per cent of the interest that was pre calculated at the beginning of the contract.
Although the current law has offered some protections there are a number of practises used by these companies and others which will not be allowed to continue.
The Ministry of Consumer Affairs was already undertaking a review of Credit Law, this was due to be reported late this year.
This was fast-tracked so that a paper could go to Cabinet by the middle of this year, with the intention of having legislation passed as soon as possible.
I have said many times that the test of a civilised community is how well it looks after people who are unable to look after themselves, such as the elderly, the young and those who are sick.
It is clear that there are people who will take advantage of others if they can and we need to have laws and protections in place to protect all New Zealanders.
Responsible credit and lending institutions such as reputable finance companies and banks have nothing to fear.
Evidence from the Ministry of Consumer Affairs shows that marginal lenders and lenders of last resort regularly breach the law.
Very few people take credit cases to a Court or Disputes Tribunal because the law is too complex, it costs too much, or they feel intimidated.
The law is currently clearly complicated and compared to other nations like Canada, difficult to understand.
As practises change, the way we do things and the laws need to change. Credit law is one area where this is clearly needed.
I am sending a clear message today. This Labour Alliance Coalition Government is going to change the law to protect consumers against loan sharks and unfair credit practices.
It is not acceptable to have companies failing to disclose excessively high interest rates and to have oppressive practices which restrict people's lives and wellbeing.
To achieve this we will replace the Credit Contracts Act 1981 and the Hire Purchase Act 1971 with a single tougher Consumer Credit Bill.
The new bill will modernise the law and will be designed to cater for existing credit practices, including the growing computerisation of banking and loan services.
We will also be creating flexibility to cater for future credit products.
The starting point is empowering consumers.
People need to have more information so that they know what is fair and what is not.
The new bill will specify what information has to be included in loan documents and how it should be presented. There will be draft forms for lenders.
Loan documents will need to include full disclosure of penalties for early or late repayment.
There will be limitations on how interest can be charged and what sort of fees can be used.
Lenders will not be able to charge interest in advance.
Lack of enforcement is a key problem with the current legislation, as it relies on consumers taking action themselves against lenders.
So the next major change is the creation of a public enforcement agency. This will be where borrowers can take their concerns.
I will be seeking funding to give the Commerce Commission authority and resources to investigate the activities of lenders and take action if necessary.
This will allow stronger monitoring of lenders.
It will also mean that an agency is able to pursue action on behalf of consumers where it might otherwise have been left.
For example where a number of smaller consumers have a need to seek redress but currently wouldn't because of the costs.
Finally there needs to be greater penalties and stronger powers for the courts where lenders are found to be breaking the new law.
The new bill will give courts the power to award compensatory damages for any loss to the borrower as well as penalty payments for unlawful practices.
Businesses will continue to be covered by the Fair Trading Act 1986, the Personal Property Securities Act 1999 as well as protections such as the Banking Ombudsman.
If there is any gap the Ministry of Economic Development will look at any specific small business credit requirements.
The Bill is being drafted with the aim of introducing it to Parliament in the first half of next year.
I want to congratulate the officials at the Ministry of Consumer Affairs. Keith Manch. Rob Bowie, Nick McBride and all the staff have proved they are committed to helping consumers, and work tirelessly to ensure that Government has a consumer perspective in all its activities.
When I talked to Keith about fast tracking the review that was not due until late this year, he didn't bat an eyelid.
Today, only five months later, we are able to make these announcements.
We need to also thank those who took time to send in submissions to the review. As well as consumer submissions there were some from responsible lenders calling for change to protect consumers.
The information provided has been highly valuable in helping the Government determine its approach.
I want to close by saying that being in Government is highly frustrating on some days and highly rewarding on others. On some days you can have both in the space of a matter of minutes.
For years I have had constituents and others come through my office with problems created by credit rip-offs. In opposition you do what you can. You raise issues and try and get agencies and companies to do what they can within the rules.
Finally after many years, today is the day where I can announce again this Government is changing the rules to make them fairer.