Doubly damned

A legislative amendment looks set to cause a market imbalance, leaving the public more disadvantaged than ever.

- Danyl McLauchlan

There are many ways for markets to fail, and New Zealand is a case study in most of them. Two of the most corrosive are information asymmetries and moral hazard.

In an information asymmetry, a seller knows more about the value of a good or service than the buyer, or vice versa, so a fair exchange is almost impossible. Moral hazard is where a company or sector takes on risks knowing they can shift the consequences of failure on to a third party, almost inevitably the public.

National's new Minister of Commerce, Scott Simpson, has found a way to deliver both of these failure modes while undermining the integrity of the legal system itself. It's only taken one horrible piece of legislation: an amendment to the Credit Contracts and Consumer Finance Act. The proposed bill introduced to Parliament on March 31 will retrospectively change the disclosure laws for banks and other financial institutions, protecting two of the nation's most profitable banks, ANZ and ASB, from a huge class action brought by Russell Legal over excess fees.

Clever companies will always find ways to bewilder customers out of our money. Did you ever wonder why supermarkets have such a constant, seemingly random series of discounts and sales on their most commonly purchased products? One effect is we never know the fixed cost of an item, so won't notice the steady, incremental price increases the grocery companies subject us to beneath those fluctuations. It makes us less likely to choose a cheaper product or shop somewhere else.