Various parties delivered submissions to the Commerce Committee on 7 November on the Credit Contracts and Financial Services Law Reform Bill. The issues raised covered a spectrum interests, from vulnerable borrowers, to ordinary consumers, to mainstream lenders.
The Bill intends to change the current Consumer Credit Contracts regime by substantially amending the Consumer Credit Contracts and Finance Act 2003, repealing the Credit (Repossession) Act 1997, and making minor amendments to a handful of other Acts. The purpose of the change is to provide better protection for credit consumers, and to clarify the responsibilities of lenders and repossession agents.
The Bill proposes to introduce a concept of responsible lending through a set of rules, and a complementary Code, which will act like a compliance safe harbour for lenders. The Bill also aims to strengthen specific obligations, such as setting of "reasonable" fees, disclosure, and ascertaining borrowers' information. Repossession agents are to be subject to licensing requirements, and the financial dispute resolution framework is intended to be strengthened to benefit borrowers and lenders alike.
The submitters included interested individuals, the National Council of Women of New Zealand, budgeting services, the Citizens' Advice Bureau, the New Zealand Trustee Corporations Association, and the New Zealand Financial Services Association.
Lender representatives raised concerns about stricter disclosure obligations, and the need to make terms and costs publicly and freely available on internet sites. They submitted this would ultimately raise costs for borrowers, and would lead to simplification that could disorientate borrowers, leading them to believe interest rates were "one size fits all" and that they would always be eligible for the lowest rate. The new duty to disclose every transfer of a credit contract was highlighted as being an impediment to securitisation processes, which are integral to the business of lending, and do not affect the consumers' rights. New provisions relating to which personal property could and could not be subject to security were also said to risk causing confusion for lenders and restricting consumers' freedom.
The introduction of a lender responsibilities Code, issued by the Minister of Consumer Affairs, raised some concerns among submitters. Lender representatives submitted the Code would take too long to formulate and publish, and stricter requirements for consultation and timeframes were needed to ensure lenders could implement it. Consumer rights representatives said it was "curiously ambiguous" that Code compliance would be evidence of compliance with the Act, but that the Code was not itself binding. Such concerns centred on whether such a Code would be a strong enough means of enforcement, considering what was seen as "pathetic" current enforcement practice and outcomes.
The new disputes resolution scheme was also seen by some submitters to be non-user-friendly, as it would not account for the wide variety of borrowers and the still wider spectrum of needs arising in differing circumstances. On a similar note, the new provisions for applying for relief from hardship were also said to be insufficient to deal with real problems, because they were not flexible enough. Submitters cited the Australian regime, where borrowers could apply at any time, and could do so verbally. The new repossession scheme was also criticised as not being tough enough to guarantee the most vulnerable borrowers were not left destitute. One submitter was concerned about the lack of usury caps in the Bill, stating that New Zealand was almost the only country in the world without clear interest rate limits. This submitter referred to record low caps in some US states, and the UK Parliament's reconsideration of the issue.
The Bill's lending responsibility principle that lenders must ascertain information from potential borrowers to ensure the contract they enter is suitable for them also raised concerns among consumer rights representatives. They highlighted the inherent conflict present in lending situations, were borrowers were often so keen to get credit that they might fail to inform lenders to the required extent. This would often lead to a harmful ending for such borrowers, as their contracts would not be suitable to their true situations. The Bill's requirement that lenders are responsible for obtaining the relevant information would not deal adequately with this problem. Along similar lines, the Bill was criticised as not addressing the issues of deficient financial literacy and language difficulties, which affect a sizeable proportion of the borrowing market.
The Commerce Committee's report on the Bill is due on 17 March 2014.