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Consumer Credit Laws and Judgements

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					         Trans-Tasman credit law harmonisation:
                       are we at a crossroads?




                   Second National Consumer Credit Conference
                                                    Melbourne
                                                     Australia
                                          8-9 November 2004




                                              Liz MacPherson
                                             General Manager
                                 Ministry of Consumer Affairs



456104
                                                           Trans-Tasman credit law harmonisation:
                                                                          are we at a crossroads?
                                                      Second National Consumer Credit Conference
                                                                           Park Hyatt, Melbourne
                                                                              8-9 November 2004




Introduction
Thank you for giving me the opportunity to address you today.

Credit and its regulation has been an important topic of debate in both Australia and
New Zealand for some time now. Both countries have embarked on major and
ongoing legislative reforms aimed at providing a better regulatory framework for the
benefit of both consumers and businesses.

Over the past few years, there has been significant liaison and debate across the
Tasman on this subject – not only amongst industry parties, but also amongst
Government officials, consumer representatives and, of course, politicians.

The focus of my presentation today is on trans-Tasman harmonisation of consumer
credit law. In particular, I want to consider what we mean by “harmonisation” and the
current drivers of such. I’m also going to consider some of the challenges that
harmonisation can present and where we might be going from here.

First though, I want to briefly recap on the reform process that New Zealand has
embarked upon since 1998 and the point we have now reached. I also want to place
our credit law reforms in the broader context of current efforts towards harmonisation
of business law generally.

New Zealand’s credit law reforms
On 1 April 2005, a new regulatory regime for credit transactions will come into force
in New Zealand under the Credit Contracts and Consumer Finance Act 2003 which
was passed in October 2003.1 This regime is the culmination of an intensive six year
programme of review and reform of our credit system, led by the Ministry of
Consumer Affairs.

Although piecemeal changes took place through the 1980s and 1990s, there was no
comprehensive review of consumer credit law initiated until 1998. By that time, a
number of concerns were being expressed about New Zealand’s regulatory regime
for credit. Perceived inadequacies commonly cited included its inherent
fragmentation, unnecessary complexity and duplication, as well as elements of
inconsistency.



1
         Some aspects of the regime – namely, those relating to the regulation of buy-back
         transactions of land – are already in effect.



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                                                          Trans-Tasman credit law harmonisation:
                                                                         are we at a crossroads?
                                                     Second National Consumer Credit Conference
                                                                          Park Hyatt, Melbourne
                                                                             8-9 November 2004




In undertaking our review, we were able to draw upon the experiences of Australia –
your Uniform Consumer Credit Code 1996 (Code) having been in force prior to that.
Of course, beyond drawing upon the mere text of the final Code itself, we have had
the benefit of drawing upon the process in Australia of developing the Code, its
subsequent experience and the various debates concerning the Code. This wealth of
material has provided invaluable lessons in considering our own policy reforms.

Our new credit law regime owes much to your Code and results in alignment in many
important respects, such as:

         application to credit for personal, domestic and household uses;

         limiting the distinctions based on forms of credit; and

         the provisions for calculating interest, payments, early termination and
         establishment fees.

At the same time, there are some important differences between the Australian and
New Zealand regimes - sometimes reflecting differences in the broader market
dynamics and context against which policy judgements have been made, other times
reflecting institutional and regulatory differences.

For example, a significant policy concern in New Zealand was the lack of sufficient
incentive for compliance on the part of creditors – largely at the lower end of the
market, rather than in respect of banks and other mainstream lending institutions -
due to a reliance entirely on self-enforcement by debtors. Our research at this
marginal end of the market revealed that breaches were common and likely to be
systemic. This appears to have been a lesser problem in the Australian context.

In considering self-enforcement action, consumer borrowers faced significant
difficulties. These included not only detection of breaches, but also a range of
incentives against taking action, such as fears of repossession, impact on credit
rating and jeopardising a relationship with a creditor seen by a borrower as their only
source of credit. For New Zealand consumers, the costs of action could be
particularly high, given our lack of:

         class action rights;

         the more accessible Commercial Tribunals found in Australia, as compared
         with our Disputes Tribunal; and




456104                                                                                         3
                                                         Trans-Tasman credit law harmonisation:
                                                                        are we at a crossroads?
                                                    Second National Consumer Credit Conference
                                                                         Park Hyatt, Melbourne
                                                                            8-9 November 2004




         the network of specialist low-cost advice centres found in Australia, such as
         Consumer Credit Legal Centres.

Thus an important policy response from our perspective – given our local market
dynamics - was to establish public enforcement of consumer credit law by
empowering our Commerce Commission – the equivalent of your Australian
Competition and Consumer Commission (ACCC) – to investigate and take action in
response to breaches of the law. This is in contrast to the Australian approach of
relying on public enforcement by the various Departments of Fair Trading. Our
expectation is that enforcement by our Commerce Commission will provide a higher
profile in the market to such activities.

Other key points of departure from your Code in our policy approach to consumer
credit regulation include:

         the lack of provisions relating to the advertising of credit – in our view, the
         generally acceptable standard of advertising credit in New Zealand, coupled
         with the effective “teeth” of the enforcement of our Fair Trading Act 1986 in
         controlling misleading and deceptive advertising, made recourse to the
         general law preferable to the higher costs associated with prescriptive
         advertising guidelines; and

         the abandonment of finance (comparison) rates – in our view, the range and
         scope of variables, as well as difficulties and opportunistic behaviour in
         classifying charges, mean that such rates are rarely meaningful in terms of
         reflecting the true cost of credit and providing a sound basis for comparison.
         At worst, they could positively mislead consumers.

At this point, you may be drawing a conclusion in your own mind that trans-Tasman
harmonisation of credit law has not occurred or would never occur. Before I address
whether such a conclusion is accurate, I’d like to briefly place our credit regulation
reforms in the broader context of the trends in trans-Tasman business law
harmonisation.

Trends in trans-Tasman business law harmonisation
For more than two decades, there has been a political commitment to free trade and
a common market between Australia and New Zealand. This is most clearly
manifested by the Australia New Zealand Close Economic Relations Trade
Agreement (CER) signed by the two countries on 1 January 1983. This agreement




456104                                                                                        4
                                                        Trans-Tasman credit law harmonisation:
                                                                       are we at a crossroads?
                                                   Second National Consumer Credit Conference
                                                                        Park Hyatt, Melbourne
                                                                           8-9 November 2004




marked the beginning of a process that has brought the two economies to a level of
integration envied by many other countries.

In 1998, the commencement of the Trans-Tasman Mutual Recognition Arrangement
(TTMRA) helped consolidate this process, moving us closer to the seamless
trans-Tasman marketplace envisioned by the drafters of the CER Agreement. The
advantages of TTMRA on both sides of the Tasman include:

         wider choice of products for consumers and markets for exporters;

         greater flexibility; and

         lower business compliance costs         through     mutual     recognition      and
         harmonisation of product standards.

TTMRA has also paved the way for freer movement of people in registered
occupations across the Tasman.

Another important initiative has been the Memorandum of Understanding between
the New Zealand and Australian Governments on Coordination of Business Law
(including consumer law). Originally signed in 1988, the Memorandum reflected the
two Governments’ desire to deepen the trans-Tasman relationship within a global
market through increased coordination of business law, thereby creating a mutually
beneficial trans-Tasman commercial environment. The Memorandum was reviewed
and renewed in 2000.

An array of approaches exists to achieve the goal of increased coordination in
business law. Importantly, both Governments recognise that one single approach
would not be appropriate for every area; rather, that coordination is multi-faceted and
does not necessarily mean the adoption of identical laws.

The challenge lies in finding a way to deal with any differences so that those
differences do not create barriers to trade and investment. Thus, coordination, rather
than harmonisation, has been the essence of efforts to date.

The broad-ranging business law reforms underway in New Zealand have provided
opportunities for coordination in a number of areas. For example, recent New
Zealand reforms have brought our law closer to the Australian models in relation to
insider trading, continuous disclosure, and the monitoring and enforcement role of
our Securities Commission.




456104                                                                                       5
                                                                 Trans-Tasman credit law harmonisation:
                                                                                are we at a crossroads?
                                                            Second National Consumer Credit Conference
                                                                                 Park Hyatt, Melbourne
                                                                                    8-9 November 2004




Cooperation is also occurring between the regulatory/enforcement bodies in the
business law area, for example:

           the Australian Securities and Investments Commission and our Securities
           Commission;

           the ACCC and our Commerce Commission;

           the Takeovers Panels in each country; and

           the Australian Accounting Standards Board and our Accounting Standards
           Review Board.

These bodies share information for enforcement investigations and regulatory
approvals. For example, the ACCC and our Commerce Commission have shared
information relating to markets in the context of the recent applications for
authorisation of an alliance between Air New Zealand and Qantas.2

There are other examples of specific New Zealand attempts to adopt or harmonise
with Australian law. For instance, New Zealand’s Fair Trading Act 1986 adopted
various provisions of Australia’s Trade Practices Act 1974 (Cth) relating to misleading
and deceptive conduct and unfair trading practices. More recently, New Zealand’s
competition laws have been amended to achieve greater alignment with Australian
thresholds for mergers and acquisitions.

New Zealand is also a member of the Ministerial Council on Consumer Affairs
(MCCA) which our Minister of Consumer Affairs attends. New Zealand officials take
part in meetings of SCOCA, FTOAC, CPAC and TMAC. Liaison between politicians
and officials from both sides of the Tasman is frequent and broad-ranging.




2
         In 1994, the ACCC and the Commerce Commission entered into a Co-operation and
         Co-ordination Agreement which allows those agencies, subject to privacy and other legislative
         constraints, to share certain information. Since then, the parties have entered into further
         trilateral arrangements: for example, the Commerce Commission, the ACCC and the United
         Kingdom’s Office of Fair Trading entered into a Memorandum of Understanding in October
         2003 which recognised the advantages of cooperation arrangements and information
         exchange for enforcement liaison and treatment of confidential material among the agencies
         in relation to the competition and consumer laws they enforce. Other tripartite arrangements
         are in place with Chinese Taipei and Canadian authorities.



456104                                                                                                6
                                                                Trans-Tasman credit law harmonisation:
                                                                               are we at a crossroads?
                                                           Second National Consumer Credit Conference
                                                                                Park Hyatt, Melbourne
                                                                                   8-9 November 2004




What do we mean by “harmonisation”?
This brief outline shows that, both in the area of consumer credit law and business
law more generally, there have been significant inroads towards increased
harmonisation between New Zealand and Australia. However, in considering the
question of trans-Tasman credit law harmonisation which is my focus today, a critical
first step is to reach a common understanding of what we mean by “harmonisation”.

A key long-term political and economic goal for both our countries is to deepen the
CER relationship by working towards a single trans-Tasman economic market. Such
a market will allow both countries to capture all of the benefits of economic
integration. The importance of this goal has been emphasised in recent statements
by both Prime Ministers, the New Zealand Minister of Finance and the Australian
Treasurer.

Progress towards a single economic market will require action across a broad
agenda of economic issues. Many of you will be aware of the commissioning in June
2004 of a study by the Australian Productivity Commission to examine the potential
for greater cooperation, coordination and integration of the general competition and
consumer protection regimes in Australia and New Zealand. Our two governments
regard deeper co-ordination of the regulatory environments for business as an
essential element of a single economic market. The terms of reference for this study
call for the Productivity Commission to identify options for achieving greater
cooperation, coordination and integration, including:

          further harmonisation of competition and consumer protection laws;

          greater coordination of authorisation, administrative and enforcement
          processes;

          joint decision-making on trans-Tasman issues by competition authorities; and

          combined or coordinated institutional frameworks.

These terms of reference, and the Issues Paper released by the Productivity
Commission in July 2004,3 make it clear that the range of options on the table extend
from closer alignment of laws, practice and institutions to a single law administered
by a single enforcement agency.



3
         Available at: http://www.pc.gov.au/study/transtasman/issuespaper/transtasman.pdf



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                                                         Trans-Tasman credit law harmonisation:
                                                                        are we at a crossroads?
                                                    Second National Consumer Credit Conference
                                                                         Park Hyatt, Melbourne
                                                                            8-9 November 2004




This range of options highlights that there is, in effect, a regulatory continuum. At one
end of the continuum, two countries have no contact whatsoever regarding their
competition and consumer protection – or, indeed, consumer credit law –
environments. At the other end, two countries have identical legislation and
combined policy/enforcement institutions. Harmonisation, in our view, should not be
seen as an “endpoint”, but rather as a progressive dynamic along that regulatory
continuum.

In this sense, we can safely conclude that significant harmonisation has already
occurred with respect to trans-Tasman credit law regulation. The question remains,
will further movement along the regulatory continuum in this area be possible or
desirable?

Drivers for further movement along the regulatory continuum
Beyond the overarching driver of the long-term political and economic goal to work
towards a single trans-Tasman economic market so as to capture all of the benefits
of economic integration, there are a number of other drivers that have operated to
date, and will likely continue to operate, to encourage further movement along the
regulatory continuum in the area of credit law regulation (and broader business law
regulation).

These include market drivers, institutional drivers, bureaucratic drivers and cultural
drivers.

Market drivers

In the consumer credit area, there have been market drivers in New Zealand
promoting harmonisation with your Code.

Notably, there is a high degree of Australian ownership of New Zealand’s financial
sector. Currently, 85 percent of all banking assets in New Zealand are Australian
owned. Many identical credit products are available in both Australia and New
Zealand (such as “Flexirent” and “Creditline”). There has also been talk of banks
wanting to administer accounts for both Australia and New Zealand at a single
processing centre. For these banks, there are increasing efficiency gains to be made
through further movement along the regulatory continuum.

Trans-Tasman companies result in trans-Tasman consumers. This creates a drive for
greater coordination between regulators and enforcement on both sides of the
Tasman.



456104                                                                                        8
                                                        Trans-Tasman credit law harmonisation:
                                                                       are we at a crossroads?
                                                   Second National Consumer Credit Conference
                                                                        Park Hyatt, Melbourne
                                                                           8-9 November 2004




Institutional drivers

Of current interest also, is the work now being initiated to more closely integrate the
trans-Tasman banking regulatory frameworks. The outcome of the process to date is
that the Reserve Bank of New Zealand is working on a model of integration that
builds on current regulatory frameworks and institutions. Under this model, our
Reserve Bank will seek to harmonise regulatory rules where appropriate and to
strengthen arrangements for information sharing and coordination with the Australian
authorities. These moves will improve the capability of both Reserve Banks to
manage a crisis or failure situation.

A second working group of New Zealand officials has been set up to review the
regulation of New Zealand’s major financial institutions, particularly banking
institutions, and the contribution they make to economic growth and development. A
key question for the group is whether the provision of financial services in New
Zealand would be enhanced through a joint trans-Tasman approach to banking
regulation and crisis management, while still protecting the interests of both Australia
and New Zealand.

Bureaucratic drivers

From the viewpoint of regulators, there are particular factors that make Australian
credit law influential. For more than 30 years, Australia has been involved in a
continuous process of consumer credit reform. Policies are proposed, debated,
implemented and then reviewed and reformed. Textbooks and scholarly papers have
been published and court judgements have been reported.

The result is voluminous material against which the effectiveness of the particular
policies can be measured and evaluated. This provides a number of continuing
opportunities for New Zealand to learn from those experiences. This is particularly
important, given our relatively small bureaucracy and continual imperative to
efficiently manage our resources across a very broad spectrum of economy-wide
consumer issues.

Cultural drivers

New Zealand and Australia have many cultural similarities. Research and
observation suggests that patterns of consumer behaviour, market structures and a
host of other features bear close similarity. For example, there appear to be more
commonalities between New Zealand and Australia, than between New Zealand and
the United States.



456104                                                                                       9
                                                             Trans-Tasman credit law harmonisation:
                                                                            are we at a crossroads?
                                                        Second National Consumer Credit Conference
                                                                             Park Hyatt, Melbourne
                                                                                8-9 November 2004




As I have commented, these drivers are likely to continue to operate to encourage
further movement along the regulatory continuum in the area of consumer credit
regulation (and broader business law regulation). For example, one area that further
movement along the continuum could be useful is increased information sharing
between agencies, as well as the ability for agencies to take joint action in
appropriate cases.

Challenges for further movement along the regulatory continuum
At the same time, we must recognise that there are certain challenges to be faced in
moving further along the regulatory continuum. Some of these – such as the
challenge of seeking to further harmonise with a country that has multiple
jurisdictions – are less relevant in the area of consumer credit regulation, given the
existence of the Uniform Consumer Credit Code 1996.

However, other challenges remain.

For example, New Zealand has a different regulatory and political culture from
Australia. This is demonstrated by the fact that New Zealand has proportionately less
legislation and regulation, and the legislation we have is usually less detailed and
less lengthy than similar Australian laws. In part, this is due to institutional factors.
But it is also due to the impact of different ideas and schools of thought on the policy
making process. Certainly, there are contrasting approaches to consumer protection
issues, such as occupational regulation, which may reflect a cultural difference in the
approach to regulation. This is readily apparent in respect to regulation of many
issues that relate to “consumer credit”.

Obviously, it is appropriate when formulating policy to consider, on balance, what
currently works in the local context against regulatory reforms in other countries. The
policy goal must always be to achieve the optimal outcome given local
circumstances. For example, where existing legislation is adequate, it would not
necessarily be appropriate to adopt reforms in other countries which are optimal in
those countries given their local market and regulatory dynamics. For example, in
considering the reform of our consumer credit laws, aspects of Australia’s Code
touched on areas where we considered that our existing legislation was adequate.4




4
         For example:
                the enactment of the Personal Property Securities Act 1999 in New Zealand makes
                Australian provisions concerning mortgages irrelevant. The existence of a


456104                                                                                           10
                                                               Trans-Tasman credit law harmonisation:
                                                                              are we at a crossroads?
                                                          Second National Consumer Credit Conference
                                                                               Park Hyatt, Melbourne
                                                                                  8-9 November 2004




Faced with these drivers and challenges, then, are we at a crossroads in terms of
trans-Tasman credit law harmonisation?

Are we at a crossroads?
New Zealand’s regulatory coordination framework for advancing a single economic
market is firmly based in the following principles:

         the long-term dynamic benefits of coordination must outweigh the cost to
         New Zealand, in the context of our economic characteristics;

         coordination does not necessarily imply harmonisation in the sense of a final
         endpoint;

         coordination recognises and supports convergence towards international
         best practice;

         an objective should be to increase our joint capacity to influence those
         international norms; and

         the main benefits and advantages of a single economic market may be
         achieved short of a fully integrated regulatory regime.

These principles leave some fundamental questions to be explored in considering
further movement along the continuum in consumer credit regulation (as well as in
other areas), such as:

         how seriously are we prepared to contemplate more joint policy development;

         are we ready to pursue joint decision-making frameworks; and




              comprehensive and up to date personal property securities statute has major
              advantages – in particular, we can aim to completely separate legislation dealing with
              the “credit aspect” of credit transactions from legislation dealing with the “security
              aspect”;
              our Consumer Guarantees Act 1993 deals well with issues of “related-sales”
              contracts; and
              the existing reopening provisions in the Credit Contracts Act 1981 reduce the need to
              consider Code provisions relating to “unjust contracts”.



456104                                                                                             11
                                                       Trans-Tasman credit law harmonisation:
                                                                      are we at a crossroads?
                                                  Second National Consumer Credit Conference
                                                                       Park Hyatt, Melbourne
                                                                          8-9 November 2004




         are we prepared to support further institutional development and address the
         question of shared governance?

I do not believe that these questions are insurmountable.

What they do show, however, is that the process of harmonisation – or movement
along the regulatory continuum – is one where we must continue to engage in debate
and dialogue between our countries.

In my view, we are not at a crossroads in terms of trans-Tasman credit law
harmonisation; rather, we are continuing along a road that is signposted towards a
single economic market. We need to look for landmarks, but those landmarks are
merely developments and changing circumstances where greater coordination and
harmonisation of our consumer credit regulation can bring net benefits to both
economies – they do not alter our fundamental course.




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