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Tuesday, April 22, 2025

Damien Grant: Law changes would let big banks off refunding thousands of customers, if legal case lost


We do not have a written constitution. We rely on precedent, embedded legislation and convention to provide the guardrails of our democratic infrastructure. This ad-hoc regime has evolved over a millennia of cartas, ordinances, one monarchial beheading and revolutions, both glorious and inglorious.

We are governed by the rule of law. Not that of man. Yet there is nothing in the formal arrangements to prevent power being abused, civil and property rights usurped and legal protections stripped away.

It would be an error to assume that a written constitution would provide better protection than these customs. China is one of many nations boasting a constitution with admirable rights for individuals enshrined on paper. Our liberties are maintained because those who rise to political office respect self-imposed limits on parliaments’ authority and understand that any attempt to act outside the norms would result in a collapse of political support.

It is against this stage that we need to talk about the changes proposed to the Credit Contracts and Consumer Finance Act.

Under the leadership of Sir John Key, parliament created a set of mandatory disclosure requirements for those lending money to consumers. And imposed severe consequences for the lenders if these disclosure guidelines were breached.

Small Business Minister Craig Foss in Invercargill on 
4 July, 2016.John Hawkins / John Hawkins

Parliament knew what it was doing. Minister Craig Foss, who shepherded the bill through parliament, spoke that one of the central aspects of the 2014 bill was; “…strengthened provisions around disclosure and fees…” and his colleague, Dr Jian Yang is recorded in Hansard saying: “Under this legislation, lenders must act responsibly and consumers must have the information they need to make informed decisions, and there are serious consequences for those who breach the law.”

If the lender breached the disclosure rules they lost the right to charge interest and fees.

Now. Look. This was a bad law imposed by a minister whose career highlight was bungling the introduction of Novopay, and now serves as a councillor from the Hawke’s Bay.

But that is of no consequence. The law was on the books and two banks, ASB and ANZ, failed to adhere to the disclosure rules. There isn’t any evidence they acted dishonestly but someone noticed they broke the law and as a consequence there is a legal claim on behalf of 173,000 customers against the two banks.

If the banks did break the disclosure rules the law gives the court little discretion; all the interest and fees would need to be refunded. This was harsh, and in 2019 the act was amended to give the court wide latitude on the consequences of a lender creating a breach. The court case is only for disclosure breaches from 2015 to 2019.

In its Regulative Impact Statement the Ministry of Business, Innovative and selected Businesses conceded that, “Full forfeiture of the costs of borrowing to all affected borrowers could be grossly disproportionate to the nature and circumstances of a disclosure failure.”

So this Government, discarding centuries of legislative restraint, has elected to backdate a law change to protect the banks. In a remarkable precedent, the bill mentions the case, by name; Simons & Ors v ANZ Bank New Zealand Limited and ASB Bank Limited. If the bill passes, the courts will be able to impose the same lenient remedy for pre 2019 breaches that the law allows for post 2019 breaches.

But to achieve this, parliament must pass retrospective legislation. MBIE did consider the consequences; “On the other hand, providing that discretion retrospectively would appear to conflict with the presumption against retrospectivity and relevant legal principles.”

Bad laws with unintended consequences are the price we pay for certainty. Even when we removed homosexuality from the Crimes Act in 1986 we didn’t invoke retrospectivity.

The banks, who presumably have been active in lobbying to get this law change, may want to reconsider their stance. They, more than any other institution, rely on the enforcement of property rights, including their right to evict grandma from her family home if she can’t pay the mortgage.

We collectively accept this perceived unfairness. We understand the foundations of our economic system rely on property rights being respected and the law being certain, predictable, and not open to being purchased by vested interests with the capital and connections to drive a law change to suit their interests.

Whenever the law ends, tyranny begins, wrote John Locke in 1689, and it is an insight that remains as powerful today as it was three centuries past. Our single legislative chamber has complete sovereignty and this provides the executive who controls the House great power; but with such authority must come equivalent restraint. Retrospective legislation is both a powerful and dangerous tool that prudence demands be used in exceptional circumstances.

Preventing two banks from suffering a brief decline in annual profitability over one reporting season is not an exceptional circumstance......The full article is published HERE

Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective

2 comments:

Anonymous said...

I can't see the problem with the disclosure requirements for professional lenders. If you are in the business of lending money, you should know what your legal obligations are, in the same way that any other business does. Customers should be aware of what they're buying. Companies that sell food or appliances have to disclose the details of what they're selling, with severe penalties if they fsil to fo so. so why should lending institutions be exempt from disclosing all their hidden costs?

Anonymous said...

It used to be that retroactive law was seen as undermining our legal system, inherently unjust and incompatible with rights and freedoms. However since the courts decided Herr Ardern’s illegal lockdowns are now retroactively all g, we just make things up as we go along. Retroactive law? Why not?! There’s no rules anymore - we are a country of sheep following a pack of wolves.