Parliament regularly passes laws but do they achieve what was intended? The way we answer that is to measure the state of play in an area before the law comes into effect, then use that as a baseline to mark progress.
Last year the Credit Contracts and Consumer Finance Amendment Act came into effect, marking the biggest overhaul of consumer credit law in a decade.
The changes were designed to help consumers make better informed decisions when borrowing, to help reduce predatory lending practices, and to increase lender compliance with their responsibilities.
The Ministry of Business, Innovation and Employment has done the legislation's baseline evaluation report. This outlines the state of play before the credit reforms came into effect in June last year. It makes for sober reading.
Its surveys indicate that only 20 per cent of consumers felt they were highly knowledgeable about managing personal finances. The report finds consumers had a low awareness of borrowers' rights and lenders' obligations. For example it is not common knowledge that a lender does not have to offer more affordable payment options when a borrower cannot make repayments.
The good news is that all banks, credit unions and building societies were correctly registered as a financial service provider and with a dispute resolution scheme. The bad news is that 33 per cent of other lenders were not complying with the legal requirement to be registered and belong to a dispute resolution scheme.
I saw a glaring example of the sort of problems we face early last year on a visit to financial providers in the South Auckland suburb of Manurewa. I spotted an advertisement for an iPhone 5, worth around $800, advertised as $59 a week for 100 weeks.
In a free world we can't stop people paying too much for things, but we can help consumers make informed choices and protect them from irresponsible lending practices. Real social problems are caused by some unscrupulous truck shop operators and payday lenders.
So the first step is to change laws where appropriate. To meet their responsible lending obligations, provided for in the legislative changes last year, lenders are now expected to include the total amount payable under the agreement when referring to regular repayments for a particular term loan. There are many other obligations.
It is one thing to toughen the law, but it needs to be properly enforced. The Commerce Commission has been active in this area in the past year, and we've seen a number of truck shop operators taken through the courts and fined. The commission has been given extra resources to carry that battle further.
In addition to effective legislation and proper enforcement, the long-term challenge is to improve financial capability in the wider community. This involves government as well as the private and voluntary sector.
The Commission for Financial Capability is responsible for the national strategy to improve financial capability. It manages and supports programmes such as those tailored for Maori and Pasifika communities, including those through the Tamaki Regeneration Company.
Efforts are underway to redesign face-to-face budgeting services, to help build the levels of financial capability among the thousands of New Zealanders who engage with government budgeting services.
In addition, changes to the Financial Advisers Act will aim to ensure New Zealanders can access quality financial advice that will help them plan their savings and investment goals.