This article was written and published by the New Zealand Law Society and is reproduced here in its entirety for the benefit of our clients.
While it supports the effort to curb loan shark behaviour, the New Zealand Law Society believes improvements are essential in the Credit Contracts and Financial Services Law Reform Bill.
In its submission to the Commerce Select Committee, the Law Society has raised the need for better definitions, clarification and consistency across several sections of the bill. Law Society spokesperson Rebecca Sellers says this is required if the bill is to achieve its intended purpose of helping responsible lenders and consumers and controlling problems like loan shark behaviour. "The Law Society supports the underlying intent of the bill but notes this legislation will impact on a very wide range of businesses including banks and first tier lenders, retailers of goods who sign customers up for finance terms at the point of sale, as well as third tier lenders, and an equally broad section of consumers,’’ she says. “The provisions therefore need to be clearer and to minimise compliance obligations, especially in those parts of the market which are already working well.” Ms Sellers says the bill in its current form often does not provide enough detail to make it really clear to lenders what is expected of them.
Law Society spokesperson Simon Haines says areas requiring clearer explanations include the definition of what a ‘responsible lender’ is, and the lack of guidance for lenders to refrain from ‘confusing’ advertising. “There is also a need to ensure some of the remedies do not have unintended effects, in particular the requirement to publish all loan costs could create unexpected outcomes,’’ Mr Haines says. “For example, if the publication of rates simply proves borrowers in the third tier are not selecting lenders on the strength of their rates, then that may give lenders confidence to raise prices further. A solution would be to ensure all disclosure obligations are monitored by the Commerce Commission and there is a mechanism in place for changes.”
The Law Society is also concerned by a proposal which gives the Financial Markets Authority powers to decline registration or to deregister a financial service provider. “This proposal is designed to address the specific issue of offshore entities looking to improve their credentials by registering as New Zealand financial service providers,’’ Ms Sellers says. “In reality those offshore entities are not providers of financial services in New Zealand and their activities are not regulated by New Zealand legislation. “The Law Society does not oppose the granting of broad power to decline registration or to deregister if there is clear evidence of a need for it. However, a very wide power should not be given to a regulator to solve a very narrow problem. That would be regulatory overreach."
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