14 Ministry of Business, Innovation and Employment Review of KiwiSaver Default Provider Agreements (Discussion Paper, August 2019) at 7–12. Subjects judged the latter to have a greater chance, even though it is a subset of the former.
III NEW ZEALAND'S CONSUMER CREDIT MARKET, LAWS AND REGULATIONS
However, despite increased disclosure of interest rates and fees, the harms associated with high-cost loans continued, as they continued to be linked to, and a driver of, poverty. Evidence from numerous sources paints a frightening picture.111 The Commerce Commission found that 25 percent of loans made by the 10 high-cost lenders surveyed resulted in at least one missed or rescheduled payment, and for one borrower, 63 per cent of loans were not fully paid in accordance with the terms and conditions.112 This incidence of non-repayment is much higher than for loans from first-tier lenders. In addition, missed payments on high-cost loans are more problematic than for other loans because of high interest rates that cause a debt spiral.
In parliamentary debates, the Minister for Trade and Consumer Affairs was clear that the 2014 amendments did not sufficiently protect vulnerable consumers and that the caps on costs, interest rates and fees in the 2019 amendments were needed to address credit harm high cost. In summary, over the past 15 years, Parliament has tried, with varying success, to reduce harm from high-cost lending by first mandating increased disclosure of product features and then limiting available products through limiting costs, interest rates and fees. To better analyze the impact and efficiency of government actions, it is necessary to first understand the basis of high-cost loans.
IV EXPLANATIONS OF THE NATURE OF HIGH-COST LOANS
This bias causes borrowers to overestimate their ability to repay the loan based on their current income, as well as something as mundane as their ability to remember to pay it back.145 People also tend to underestimate the likelihood of an income or expense shock, such as is e.g. the possibility of an accident, developing health problems or being "fired from work."146 Submissions to the 2019 Parliamentary Finance and Expenditure Reform Committee (FEC) showed that such events cause problem loans.147 Furthermore, some of the most vulnerable are people who are in at the time of taking out a loan without a job. 147 See generally Christchurch Budget Services Inc. "Oral Submission to the Parliamentary Committee on Finance and Expenditure on the Credit Agreements Amendment Bill" at 2; Christians Against Poverty New Zealand "Submission of Credit Agreements Legislation Amendment Bill to Finance and Expenditure Committee" at 8; Citizens Advice Bureau "Submission of Credit Contracts Amendment Bill to Select Committee on Finance and Expenditure" at 2; and Sarah Newham "Submission to the Finance and Expenditure Committee on the proposal to amend the law on credit agreements" at 2. Borrowers faced with complex mathematics around interest rates and the likelihood of contingent or late fees take mental shortcuts to simplify matters; they expect the total amount to be repaid to be closely related to the principal amount borrowed.
153 Christchurch Budget Services Inc. "Oral Presentation to the Finance and Expenditure Committee on Credit Contracts (NZ Working Class) Bill Amendment Bill" at 4.2. 154 CARE Waitakere Trust “Submission to Finance and Expenditure Committee on Credit Contracts Act Amendment Bill” at 5; Christchurch Budget Services Inc, above n 153, at 4.2; and Presbyterian Support Otago "Submission to the Finance and Expenditure Select Committee on the Credit Contracts Legislation Amendment Bill" at 5. 34; persistence of a market failure opens the door to consider the potential role of legal intervention."159 There are two interventions applicable to the New Zealand prime loan market.
V INTERVENTION BY INSULATION
As the 2019 changes are currently being phased in, it is difficult to predict the impact on New Zealand, but an analysis of the UK experience may be instructive.169 Many of the New Zealand changes, including the cap on shared costs, are similar to those in the United States. (FCA) in 2014, although the latter focused narrowly on lenders.170 As part of its regulatory role, the FCA examined the effect of these changes on consumers and found that between 2013 and 2016 the number of people taking out payday loans increased decreased by 55 percent, while the value fell by 60 percent.171 Among borrowers who had previously stopped using payday loans, 89 percent stopped using them because they did not want or need the product, while only four percent were turned down .172 This suggests that changes in the UK. In addition, the FCA found that several lenders were in the process of going out of business.178 The FCA also reported a 51% drop in revenue among payday firms and that few, if any, were profitable.179 According to this report, the largest UK payday lender Wonga collapsed,180 and the second largest, Quickquid, closed (although both continued to operate in other countries).181 The UK government encouraged traditional banks to "provide short-term affordable lending" to would fill the market gap, but banks were "reluctant to enter the market of expensive loans."182. Overall, UK isolation appears to have mixed results: the biggest impact appears to be a decimated lending industry, while the effects on the consumer are less clear, apart from increased household borrowing.
While the UK data are illuminating, they should be treated with some caution in the New Zealand context. Zealand has similar cap levels and the UK rules were more narrowly focused on loans above 100 per cent interest and under one year terms.183 The New Zealand changes, which involve a lower interest rate and no time limits, are likely to affect more Products. Therefore, while the 2019 changes may reduce harm, they may also have a greater market-distorting impact on the lending industry and consumers compared to the UK.
VI INTERVENTION BY DEBIASING
First, it reduces market distortions, since efficient markets depend on consumers accurately pricing products.190 By eliminating bias, it is also possible to avoid the apparent decimation of an entire industry, as witnessed in the UK payday loan industry, or to indiscriminately influence to the full range of available products.191 Consumers unencumbered by optimism bias would have a full range of products from which to choose rationally, and lenders would not have to cross-subsidize the losses of high-risk borrowers with the income of other customers. 192. Jolls and Sunstein point to the problem of heterogeneous actors that "not all individuals are likely to be boundedly rational, at least not to the same extent".193 Disruption strategies could lead to "exaggeration", which would make some consumers irrationally pessimistic where they were. previously irrationally optimistic, or even instilling pessimism among those previously not inclined to be optimistic.194 Alternatively, the bias-elimination strategy may not work well enough, with somewhat less optimistic consumers still making inefficient decisions and undermining government policy goals .
VII EXPERIMENTAL DESIGN 195
In the second condition, participants were shown an ad informing them of the applicable law. This consisted of the basic ad in the control above followed by a description of. 208 The exact wording of the conditions is included in Appendix B. 209 The advertisement consisted of the following: "Need money.
This cost cap was chosen because of its importance to the government.212 It was also frequently cited in submissions to the FEC and is one of the broadest and easiest to understand restrictions in the 2019 amendments.213. A useful proxy, given the push nature of advertising, is to show the proportion of the lender's current customers who incur late fines. The last part of the ad lists possible consequences for non-payment: loss of the borrower's house, car and other possessions.
VIII RESULTS
Third, the data were used to test whether increasing the lender's percentage of missed payments in the deteriorating conditions (informing borrowers that a lender has a higher percentage of customers who miss payments) increases the effect of the deterioration. In the Necessity scenario, there was no difference (p =.977) in the probability of borrowing between the Control (mean = 3.10) and the Current Law (mean = 3.02) conditions. Participants in the family obligation scenario were more likely to borrow when told of the total limit on repayments, compared to the control condition.
228 The ANOVA results (F-statistic, P-values) were generated by Rana Asgarova, a senior tutor at the VUW psychology department. 229 The ANOVA results (F-statistic, P-values) were generated by Rana Asgarova, a senior tutor at the VUW psychology department. 230 The ANOVA results (F-statistic, P-values) were generated by Rana Asgarova, a senior tutor at the VUW psychology department.
IX POLICY IMPLICATIONS
As such, requiring New Zealand high-cost lenders to make such disclosures will drive borrowers away from borrowers with poor affordability and suitability assessments and towards more responsible ones. The experiment conducted for this article is a proof of concept, albeit on a small scale, that bias can reduce the likelihood, and thus harm, of high-cost loans. Because a sharp reduction in harm was Parliament's intention, isolation was widely accepted by Parliament and is now part of the New Zealand legal landscape.
In this regard, humiliation could potentially be used in conjunction with isolation to mitigate or replace some of the more onerous isolation strategies of the 2019 amendments. For example, the most controversial part of the 2019 amendments is the daily interest rate limit.235 Providers of short-term credit emphasize that the cost structure of short-term credit, with high fixed costs and few days to collect interest, makes short-term loans uneconomical under the daily limit.236 Some has already left the market. 236 The maximum amount a lender can charge on $100 borrowed for five days will be $4 to cover all the lender's fixed and origination costs.
Appendix A
You don't have the money to pay for the trip, and in the past you've had trouble borrowing money from regular banks because of your poor credit score.
Appendix B
