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Credit Contracts and Financial Services Law Reform Bill (Consistent) (Sections 14, 21, 25(c)) [2013] NZBORARp 9 (12 April 2013)

Last Updated: 1 April 2019

12 April 2013 ATTORNEY-GENERAL

LEGAL ADVICE

CONSISTENCY WITH THE NEW ZEALAND BILL OF RIGHTS ACT 1990: CREDIT CONTRACTS AND FINANCIAL SERVICES LAW REFORM BILL

1. We have considered whether the Credit Contracts and Financial Services Law Reform Bill (PCO 15644/14.0) (‘the Bill’) is consistent with the rights and freedoms affirmed in the New Zealand Bill of Rights Act 1990 (‘the Bill of Rights Act’). We understand that the Bill was considered by the Cabinet Legislation Committee at its meeting on Thursday, 11 April 2013.
2. We have concluded that the Bill appears to be consistent with the rights and freedoms affirmed in the Bill of Rights Act. In reaching that conclusion, we have considered possible inconsistencies with ss 14 (freedom of expression), 21 (right to be secure against unreasonable search and seizure) and 25(c) (right to be presumed innocent). Our analysis under those sections is set out below.

THE BILL

3. The Bill reforms the entire suite of legislation that governs consumer credit contracts (the Credit Contracts and Consumer Finance Act 2003, Credit (Repossession) Act 1997, Private Security Personnel and Private Investigators Act 2010, Financial Service Providers (Registration and Dispute Resolution) Act 2008 and Personal Property Securities Act 1999). The policy objective of the Bill is to revise and update the law that governs consumer credit and broader financial markets so that it:
   • ensures creditors lend to consumers and manage consumer credit contracts responsibly
   • provides improved protection for vulnerable consumers, including from unscrupulous lenders
   • provides for consumer credit law to be dealt with holistically in one Act, and is consistent with other financial sector legislation, and
   • promotes and facilitates the development of fair, efficient, and transparent financial markets.

CONSISTENCY WITH THE BILL OF RIGHTS ACT

Section 14 – Freedom of Expression

4. Section 14 of the Bill of Rights Act affirms the right to freedom of expression, which includes the freedom to seek, receive, and impart information and opinions of any kind and in any form. The right has been interpreted as including the right not to be compelled to say certain things or to provide certain information.1
5. Several clauses in the Bill require lenders to disclose certain information to ensure borrowers are not misled, deceived, or confused about the terms of their agreement (see, for example, new s 9B as inserted by cl 8). The Bill also requires creditors to publish standard agreement terms online, and provide other information to the public (cl 8, inserting new ss 9H and 9I).
   

1 RJR MacDonald v Attorney-General of Canada (1995) 127 DLR (4th) 1.

6. The purpose of the provisions is to ensure consumers make informed decisions when entering into loan agreements. If better information is provided to the market, then this will enable borrowers to shop around more effectively than they can at present. These policy objectives are important to protect consumers, and could not be easily achieved without requiring disclosure of information.
7. Whether any of these provisions amount to limits on the right to freedom of expression is arguable as, generally, they either compel the provision of factual information (ie, interest rates charged) or prohibit the disclosure of misleading, deceptive or confusing information. Although some of this information may be commercially sensitive, the information is not of significant expressive value. Therefore, we consider that the imposition on the right to freedom of expression is minimal.
8. To the extent that the Bill could be considered to engage the right to freedom of expression, in light of the purpose of the provisions and the limited extent to which the requirements engage s 14, we consider the limitation is rationally connected with and proportionate to an important objective and therefore justified under s 5 of the Bill of Rights Act.

Section 21 – Right to be Secure against Unreasonable Search and Seizure

9. Section 21 of the Bill of Rights Act affirms the right to be secure against unreasonable search or seizure, whether of the person, property, correspondence or otherwise.
10. The Bill expands existing search powers for the Registrar of Financial Service Providers under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. Clause 86 expands these powers so that the Registrar has the power to ascertain whether a person is ordinarily resident in New Zealand, has a place of business in New Zealand, or is in the business of providing a financial service.
11. We consider that cl 88 is likely to constitute a search for the purposes of s 21 of the Bill of Rights Act. However, we do not consider the search power unreasonable in terms of s 21 for the following reasons:
    • The search power does not involve a physical search to a person or of property, so the intrusion into a person’s privacy is at the lower end of the scale.
    • There are clearly defined limits to the search. In particular, the search only relates to documentation, and the provisions clearly specify the nature of the information for which the Registrar can search.
    • The purpose of the search is so that the Registrar can obtain information relevant to the person’s activity in providing financial services. This will enable the Registrar to assess whether a financial service provider should be declined for registration or deregistered.

Section 25(c) – Right to be Presumed Innocent

12. Section 25(c) of the Bill of Rights Act affirms the right to be presumed innocent until proved guilty according to law. This means an individual must not be convicted where reasonable doubt as to his or her guilt exists. The prosecution in criminal proceedings must therefore prove, beyond reasonable doubt, that the accused is guilty.
13. A defence carrying a reverse onus gives rise to issues of inconsistency with s 25(c) because the accused is required to prove (on the balance of probabilities) a defence to escape liability; whereas, in other criminal proceedings an accused must merely raise a defence in an effort to create reasonable doubt. Where an accused is unable to prove the defence, he or she could be convicted even though reasonable doubt exists as to his or her guilt.
14. We generally consider the following factors in assessing whether a reverse onus can be justified under s 5 of the Bill of Rights Act:

• the nature and context of the conduct to be regulated
• the ability of the defendant to exonerate themselves and the risk of conviction of an innocent person
• the penalty level.

Clause 43

15. Clause 43 of the Bill inserts a reverse onus provision (new s 83C(4)) into the CCCFA. New s 84C sets out the only circumstances in which a creditor or creditor’s agent may repossess consumer goods. One of these circumstances is if the goods are at risk. The goods are at risk if the creditor or creditor’s agent believes, on reasonable grounds, that the goods have been, or will be at risk. The creditor or creditor’s agent has the onus of proving that the grounds relied on were, or are, reasonable.
16. Clause 58 amends section 103 of the CCCFA so that it is an offence for a creditor or creditor’s agent to breach the requirements in new s 83C.
17. Clause 43 engages s 25(c) of the Bill of Rights Act because the defendant is required to prove that the grounds on which they relied were reasonable to escape liability, instead of merely raising a defence in an effort to create reasonable doubt.
18. The policy intention of the Bill is consumer-focussed. The provision appears to have been designed to protect consumers from having consumer goods repossessed without good reason. Reverse onus provisions are more readily justifiable in such a regulatory context.
19. The reasonableness test is an objective standard, so either the prosecution or the defence are both in a position to show evidence about whether this standard was met. On the other hand, the penalty for the offence is a fine not exceeding $30,000. The offence is not punishable by imprisonment. This penalty is at the lower end of the scale, so we consider it proportionate to the policy objective.
20. The potential of a reverse onus applying will ensure creditors and creditor’s agents carefully consider whether they have reasonable grounds to commence repossession of consumer goods, and is therefore consistent with the policy objective.
21. On balance, we consider this limitation justified under s 5 of the Bill of Rights Act.

Clause 58

22. Clause 58 of the Bill expands s 103 of the CCCFA so that it is an offence for a creditor or creditor’s agent (in relation to a consumer credit contract), or lessor (in relation to a consumer lease) to breach s 70 and new ss 83C, 83D, 83J, 83M, 83N and 83X.
23. Section 106 of the CCCFA provides a statutory defence to an offence under s 103. The statutory defence provision contains a reverse onus. Under s 106, the accused must prove, on the balance of probabilities that:
    • the breach of the relevant CCCFA provision was due to a reasonable mistake outside their control, and
    • they remedied the breach as soon as practicable after the breach was discovered or brought to the person’s notice, and
    • the person has compensated or offered to compensate any person who has suffered loss or damage by the breach.
24. Clause 58 engages section 25(c) of the Bill of Rights Act because it expands the list of offences to which the reverse onus defence in s 106 applies.

Is the limit engaged by clause 58 of the Bill justified?

25. We have considered the factors set out in paragraph 14 in assessing whether a departure from s 25(c) can be justified under s 5 of the Bill of Rights Act.

26. Section 70 will be breached if a creditor or lessor fails to disclose certain information. New ss 83C, 83D, 83J, 83M, 83N and 83X will be breached if the creditor or creditor’s agent fails to meet requirements in relation to the repossession of consumer goods. In these situations, the accused, rather than the prosecution, is in the best position to provide the evidence required to prove the defence, because the elements that need to be proved are matters peculiarly within the accused’s knowledge.
27. A reverse onus of proof is generally considered to be more easily justifiable for regulatory offences. The CCCFA s 103 offence is regulatory in nature. In addition, creditors and creditor’s agents knowingly participate in the lending industry, so should be expected to accept the enhanced standards of behaviour expected of them.
28. The policy objectives of the Bill include ensuring creditors lend to consumers and manage consumer credit contracts responsibly. The Bill also aims to provide improved protection for vulnerable consumers, including protection from unscrupulous lenders.
29. The penalty for an offence under s 103 of the CCCFA is a fine not exceeding $30,000. The penalty is at the lower end of the scale, and the offence is not punishable by imprisonment. We consider the limitation on section 25(c) is justified within this particular context, as it is broadly proportionate to the potential harm suffered through failing to meet CCCFA requirements.

CONCLUSION

30. We have concluded that the Bill appears to be consistent with the rights and freedoms affirmed in the Bill of Rights Act.
    

Jeff Orr

Chief Legal Counsel Office of Legal Counsel

In addition to the general disclaimer for all documents on this website, please note the following: This advice was prepared to assist the Attorney-General to determine whether a report should be made to Parliament under s 7 of the New Zealand Bill of Rights Act 1990 in relation to the Credit Contracts and Financial Services Law Reform Bill. It should not be used or acted upon for any other purpose. The advice does no more than assess whether the Bill complies with the minimum guarantees contained in the New Zealand Bill of Rights Act. The release of this advice should not be taken to indicate that the Attorney-General agrees with all aspects of it, nor does its release constitute a general waiver of legal professional privilege in respect of this or any other matter. Whilst care has been taken to ensure that this document is an accurate reproduction of the advice provided to the Attorney-General, neither the Ministry of Justice nor the Crown Law Office accepts any liability for any errors or omissions.