Matters raised by FEC
(Matter raised by the Committee)
Clause 8 of the bill inserts section 162B(2) which allows the court to make a range of orders when a liable person is brought before the court. Section 162B(2)(d) includes that the court may make “any other order the court thinks fit”.
The Committee raised concerns about the scope of this provision and the lack of clarity around what orders could potentially be made.
Section 162B(2)(d) was intended to give the court discretion to deal with situations that the other orders in the bill may not adequately address and to deal with unforeseen circumstances.
The main two orders that we foresee being made under this provision are:
- An order that the borrower provide information to the court. This information could include the borrower’s contact details, assets, income or employment status.
- An order that the borrower pays Inland Revenue the amount in default or enters an arrangement with Inland Revenue to pay the amount in default.
To address the Committee’s concerns around the scope of the provision, officials propose to remove clause 162B(2)(d) from the bill and replace it with two additional clauses describing the situations outlined above. This would make it clear what orders the court can make.
That the clause be removed and replaced with two additional clauses as set out above.
(Matter raised by the Committee)
The court must be satisfied that the borrower meets the criteria set out in section 162B of the bill before the court may grant an arrest warrant.
The criteria in section 162B are that:
- the borrower is in default of their overseas-based repayment obligation;
- after being notified that they are in default, the borrower knowingly fails, or refuses, to make reasonable efforts to pay, or enter an arrangement to pay; and
- the borrower is about to leave New Zealand.
The Committee raised concerns that Inland Revenue had too much discretion in the decision of which borrowers are identified for an arrest warrant to be applied. It wanted to know about the specific criteria Inland Revenue would use to determine which borrowers would be selected.
If a borrower has any amount of default on their student loan, they face the risk of an arrest warrant being sought if they do not contact Inland Revenue to address their overdue repayments. If borrowers in default are concerned that they may face arrest, they should contact Inland Revenue to discuss their situation.
In practice, Inland Revenue would not request a warrant for all loan defaulters. Inland Revenue would balance the costs of applying for an arrest warrant against the benefits of additional compliance. The worst offenders would be targeted when deciding who to request an arrest warrant for and Inland Revenue would consider the following criteria:
- the size of the defaulter’s loan;
- the amount of their overdue payments, including penalties;
- the time since they last made a payment;
- how often they return to New Zealand; and
- their history of non-compliance.
Inland Revenue intends to maintain the confidentiality of the specifics of the criteria it will apply to decide which borrowers will be targeted for an arrest warrant. To publicise specific criteria would undermine the effectiveness of the border sanctions policy by:
- Enabling borrowers to circumvent the criteria. For example, if the criteria for the level of default were publicly known, borrowers could repay to the threshold in order to disqualify them from the target group.
- Weakening the deterrent effect of the policy. If non-compliant borrowers know they do not meet the criteria for requesting an arrest warrant, there is little incentive for them to contact Inland Revenue to address their overdue repayments.
That the submission be declined.