New consumer credit laws create climate change for borrowing in New Zealand
The Credit Contract and Consumer Finance Amendment Act 2014 introduced key changes that apply to consumer loans entered into after 6 June 2015.
While the unamended Credit Contract and Consumer Finance Act 2003 (CCCFA) applies to credit already in place, new rules apply to variations, hardship applications and disclosures that occur after this date.
Lenders impacted by the new rules include banks, finance companies, insurers providing credit related insurance, payday lenders, retailers and car dealers offering consumer credit, as well as repossession agents and debt collectors.
Lenders should note the following things with which they need to comply or of which they should now be aware.
Lender Responsibility Principles
Lenders must now comply with the following Lender Responsibility Principles:
- Principle 1: The lender must exercise the care, diligence and skill of a responsible lender in all dealings with borrowers and guarantors.
- Principle 2: The lender must comply with specific responsibilities to:
- make reasonable enquiries before making loans or taking guarantees to ensure the credit meets the borrowers’ needs and obligations and that the borrower and guarantor can meet their obligations without suffering substantial hardship;
- help borrowers and guarantors make informed decisions by ensuring all advertising material and information provided is clear and concise, in plain language and is in no way misleading, deceptive or confusing;
- act reasonably and ethically throughout the term of the credit;
- ensure loans are not oppressive, harsh, unjustly burdensome, unconscionable or in breach of reasonable commercial standards; and
- meet all other legal obligations under the Fair Trading Act and Consumer Guarantees Act.
A non-binding “Lending Code” has been issued as guidance to lenders. Compliance with this Code will be treated as evidence of compliance with the Lender Responsibility Principles.
New repossession rules
The Credit (Repossession) Act 1997 has been repealed and significant changes made to repossession processes. Only registered lenders or their agents (which must be licenced or hold certificates of approval) can repossess consumer goods.
Security over essential goods
Certain restrictions now apply to a lender’s ability to take security over essential goods.
Standard form contract terms and the cost of borrowing (including fees and interest rates) must be made publicly available or provided on request free of charge.
• Initial Disclosure: Certain key information must be provided before loans are signed (rather than up to five days after the loan as previously required).
• Continuous Disclosure: Six-monthly statements must be provided regardless of whether repayments are fixed and known to borrowers.
Borrowers now have five working days to cancel a loan. This is an extension of the three working day period previously permitted under the CCCFA.
Borrowers may make hardship applications while in default and up to two weeks after receiving a repossession notice. While a hardship application is being considered, lenders may not repossess consumer goods or charge credit fees.
Courts and the Disputes Tribunal are entitled to re-open loans and take more factors into account when deciding whether the loan is oppressive and the lender not complied with the Lender Responsibility Principles.
The Commerce Commission may issue infringement notices for minor disclosure offences to encourage compliance.
Registration of lenders
Lenders must be registered on the Financial Service Providers Register and be a member of a dispute resolution scheme. Lenders which are required to be registered but are not cannot charge borrowers fees or interest. All lenders (even those not required to be registered) must comply with the CCCFA.
Exemption for pawnbrokers
Most pawn broking transactions are no longer subject to CCCFA.
The courts can make a wide range of orders for non-compliance including requiring lenders to pay compensation to borrowers and in some cases even prohibiting lenders from further lending.
Lenders which provide consumer credit or which are assignees of credit contracts should be advised on how these changes impact them.
They should be encouraged to implement revised policies, procedures and staff training to ensure that their advertising and lending practices comply with the Lending Responsibility Principles to avoid potentially draconian penalties for non-compliance.