CCCFA - Information Disclosure

This Topic Includes:

Initial disclosure
Continuing disclosure
Variation disclosure
Request disclosure
Guarantee disclosure
Disclosure standards and methods
Model disclosure statements

The Act is based on a principle of transparency in dealings between creditors and debtors. As such, the Act requires creditors to disclose information to debtors at various stages of the consumer credit contract.

The Act requires five types of disclosure:

• initial disclosure
• continuing disclosure
• variation disclosure
• request disclosure
• guarantee disclosure.

Initial disclosure

When is initial disclosure required?

Under a consumer credit contract, you must ensure you disclose to the debtor as much of the key information (as set out in Schedule 1 of the Act) that applies to the contract – either before the contract is made or within five working days of the day it is made.

What is the key information that I must provide?

You must provide any of the following information that applies to the credit contract. You do not have to disclose information that is not applicable to the credit contract. If, for example, you are providing only a single advance you do not have to disclose any subsequent advance information and you do not have to enter subsequent advance on the disclosure statement:

• Your (the lender’s) full name and address
• Initial unpaid balance
  • The unpaid balance as at the statement’s specified “effective date”. This accounts for every payment the debtor made on or before that date.
  • The disclosure statement must separately specify the amount and a description of each advance, charge, or payment accounted for in the unpaid balance.

The initial unpaid balance refers to the amount the debtor owes when the disclosure statement is prepared. This will typically include the amount of any advance provided to the debtor, plus fees imposed at the time of entering into the contract (eg, establishment fees) and insurance contracts or warranties financed under the contract.

Do I have to disclose the cash price of goods I have sold on credit?

Yes, because the cash price of goods sold on credit is an advance. You must describe the advance in terms of the cash price of any goods bought on credit.

Do I have to disclose any trade-in paid in connection with a credit sale?

Yes, as a trade-in is regarded as a payment. You must disclose an amount and a description of any payment accounted for in the unpaid balance.

• Subsequent advance(s)

The amount, a description, and the timing of each advance, charge or payment to be made after the disclosure statement’s effective date.

• If credit will be provided in stages, eg, for a building loan, you must disclose the amount and timing of the subsequent advances.

• If the contract involves a single advance to be provided after the date you prepared the disclosure statement, you must disclose it as a subsequent advance.

A revolving credit contract usually involves a large number of subsequent advances of amounts drawn at the debtor’s choosing. As the amount and timing of these advances will not be ascertainable at the time of making disclosure, you do not have to disclose them.

• Total advances

The total of all advances made, or to be made, in connection with the contract.

• Credit limit
   
• Annual interest rate

• The annual interest rate or rates, expressed as a percentage.
• If there is more than one rate, each rate, and how it applies.
• If the rate is fixed for the term, or any part of the term of the contract, the period during which the rate is fixed.

If an annual interest rate is determined by referring to a base rate, you should describe how you determined the annual interest rate by:

- naming or describing the base rate

- stating the margin or margins (if any) above or below the base rate that are applied to determine the annual interest rate

- stating where and when the base rate is published or how the debtor may find it

- providing the current annual interest rate or rates.

• Method of charging interest

How interest charges are calculated, and how often they are debited to the debtor’s account.

• Total interest charges

The total interest charges payable, but only if the contract would be paid out within seven years of the date on which credit is first provided, on the assumption that:

• in the case of an annual interest rate, the rate disclosed will not vary over the contract term or any shorter period for which it applies
• in the case of a variable interest rate, the rate applied over a period is the same as the rate specified when the disclosure statement is prepared
• the debtor will make required payments at the times the contract requires.

• Interest-free period

  If the contract involves an interest-free period, the length of the period and when interest will begin to accrue.

  Credit fees and charges

  A description of the credit fees and charges, other than interest charges, that are, or may become, payable under the contract (unless the fees are disclosed under initial unpaid balance). Where ascertainable, this must include the amount of each fee or charge and when it is payable. If this is not ascertainable, include the method for calculating the fee or charge.

• Payments required

  If more than one payment is to be made, you must specify the payment amounts or the method of calculating them.

  Where you can – but only where the contract would be paid out within seven years of the date on which credit is first provided (based on the assumption that the debtor will make payments required by the contract at the times required) – you must include the number of payments and the total amount of the payments. You must also include when the first payment is due and the payment frequency (eg, weekly/monthly). If a different amount is required for any payment, eg, a final balloon payment, this must also be disclosed.

• Full prepayment

  If the contract allows you to recover a charge as compensation for your reasonable loss in the event of full prepayment, you must disclose how this charge is calculated.

  In order to make this disclosure understandable, you should attempt to describe in words the principle of the calculation you will use. Simply stating an actuarial formula may be difficult for the debtor to understand. You may choose to use a statutory procedure prescribed in regulations under the Act. If so, use of this procedure should be disclosed.

• Security interest

  Describe any security interest that is, or may be taken in connection with the contract. This includes any personal and real property that is subject to, or proposed to be subject to, a security interest. You must include how much of the debtor’s obligations to you are secured.

  You should also disclose whether the security interest taken in connection with the credit contract also secures any subsequent contracts the debtor may have with you.

• Default interest charges and default fees

  Describe any default interest charges and fees that may be payable under the contract, including how and when they will become payable.

• Debtor’s right to cancel

  You must include a statement of the debtor’s rights, unless the contract is a revolving credit contract. The statement must use the exact wording provided in the Act. See Statement of right to cancel for more information on how you must do this.

• Continuing disclosure statements

  Include how often you will provide continuing disclosure statements unless continuing disclosure is not required.

• Consent to electronic communications

  If the debtor consents to receive notices or other communications from you electronically, whether with an electronic communication or otherwise, you must include a statement to that effect.

  You could disclose consent to electronic communications alongside the debtor’s name and address in order to provide them with complete contact details.

• Other items

  You must include any other information or warnings prescribed by regulations as key information concerning a consumer credit contract.

Do I have to disclose anything else to the debtor at the outset of the contract?

You must give or send the debtor a copy of all the contract’s terms and conditions not disclosed under the key information (other than terms implied by law), either before the contract is made or within five working days of the day on which it is made.

For example, if you have a contract document or a booklet of standard terms and conditions you should provide this to the debtor within five days of making the contract.

You must provide this information to the debtor. It is not sufficient to leave it to the debtor to ask for it.

You must also ensure that the terms of any credit-related insurance policy taken out in connection with the credit contract are disclosed to the debtor if you arranged the insurance. This information must be disclosed within 15 days of the day on which the credit related insurance is arranged.

You will be considered to have arranged the insurance if you (or a related company):

• are the insurer
• act as an agent for the insurer
• have received a commission from the insurer
• require the debtor to take insurance from a particular insurer.

Continuing disclosure

What is continuing disclosure?

“Continuing disclosure” is your obligation to disclose information about the debtor’s account periodically during the credit contract.

Who has to make continuing disclosure?

All creditors have to make continuing disclosure unless they are exempt (see below).

This includes creditors providing non-revolving credit contracts.

Who is exempt from continuing disclosure requirements?

Under Section 21 of the Act, continuing disclosure is not required at all if:

the amount of each advance under the contract is known on the date the contract is made, and the contract specifies a schedule of payments that can not be adjusted (other than as a result of a breach of the contract by the consumer).

This means continuing disclosure is required for any contract that has a variable or floating interest rate or where you reserve the power to increase interest rates, or

• interest charges and credit fees are not payable under the contract, eg, “free” credit, or
• in connection with the contract:
  • you maintain (at all reasonable times) a website that allows debtors to access the information that would be in a continuing disclosure statement, and
  • the debtor consents to the information being disclosed in this way and to not receiving continuing disclosure statements.

Continuing disclosure is not required in relation to a particular period if:

• you cannot reasonably locate the debtor, or
• during the period that would otherwise be covered by a disclosure statement:
  • there have been no debits or credits to the debtor’s account and the unpaid balance is nil, or
  • you have written off the unpaid balance and there are no subsequent credits or debits to the debtor’s account, or
  • the debtor has breached the contract and you have started enforcement proceedings, or
  • the debtor has been declared bankrupt or died and the Official Assignee or the executor of the debtor’s estate has not asked for a continuing disclosure statement.

If you have not made continuing disclosure in relation to a particular period, the next continuing disclosure statement must cover every immediately preceding period for which a statement has not been provided.

When does continuing disclosure have to be made?

Any required continuing disclosure must be made:

• at least every 45 working days for revolving credit contracts
• at least every six months for non-revolving credit contracts.

What do I have to disclose in my continuing disclosure statements?

A continuing disclosure statement must disclose the following information to the extent that applies to the contract:

• the opening and closing dates of the period the statement covers
• the opening and closing unpaid balances
• the date, amount and a description of each advance during the statement period
• the date and amount of each interest charge debited to the debtor’s account during the statement period
• the date and amount of each payment made by the debtor, or credited to the debtor, during the statement period
• the date, amount and a description of each fee or charge debited to the debtor’s account during the statement period
• how much the next payment is and when it is due
• the annual interest rate or rates during the statement period, expressed as a percentage.

Variation disclosure

What is variation disclosure?

“Variation disclosure” is required after a contract has been changed.

There are two types:

• disclosure after a change to the contract agreed by you and the debtor (Section 22)
• disclosure after you have exercised a unilateral power under the contract (Section 23).

Disclosure of agreed changes

If you and the debtor agree to change the contract, you must disclose full particulars of the change before it takes effect.

Disclosure is not required for changes that:

• reduce other obligations the debtor would have, eg, you agree to waive a fee payable under the contract
• extend the payment time of any payment under the contract, unless the debtor has applied for changes on the grounds of unforeseen hardship
• release the whole or any part of a security interest relating to the contract
• alter the place where payments are to be made.

Disclosure of changes after making unilateral changes

Many credit contracts provide that the creditor reserves the right to make unilateral changes to the credit contract. If you exercise such a power, you must disclose it within five working days of the day the change takes effect.

Note: Section 23 does not empower creditors to make unilateral changes to contracts. This must be specifically provided in the credit contract itself.

However, disclosure is only required when you exercise power in relation to:

• the amount of an interest rate or anything else in relation to how you calculate or apply any interest charge under the contract, or
• the amount, frequency, time for payment, or method of calculation of any payment to be made, or
• the amount, frequency, time for payment, or method of calculation of any fee or charge payable, or
• any other information prescribed by regulations to be disclosed.

You must disclose full particulars of the change to the debtor, within five working days of the day it takes effect.

Disclosure is not required if you exercise a power that:

• reduces obligations the debtor would otherwise have, or
• extends the time for any payment to be made, or
• increases any credit limit under the contract.

Request disclosure

What is request disclosure?

Under a consumer credit contract, a debtor or guarantor may ask you (in writing) to disclose any or all of the following :

• the effect of a part prepayment on the debtor’s obligations under the contract
• the amount of any fee or charge payable on a part prepayment and how it is calculated
• the amount required for full prepayment at a specified date and how it is calculated
• full particulars of any changes to the contract since it was made
• the unpaid balance, including the amount of any interest charge outstanding (calculated as at the date the disclosure statement is prepared)
• payment information, such as payment amounts
• a copy of any disclosure statement that was provided or should have been provided before the date of the request.

You must comply with requests for disclosure within 15 working days of the later of these two dates – the date you receive them, or the date when you receive payment of a reasonable fee for the disclosure.

What if I have recently provided this information?

You do not have to comply with a request if you have disclosed the requested information in the past three months, or if you receive the request more than a year after the contract has ended.

Can I charge the debtor?

You may charge a fee for the cost of preparing the requested information. You do not have to provide for the fee in the credit contract, however it must reasonably reflect your costs in preparing the information.

Guarantee disclosure

When you take a guarantee for the performance of the debtor’s obligations under a consumer credit contract, you must ensure that you disclose to every guarantor as much of the key information as is required for initial disclosure to the debtor within 15 working days. You must also provide every guarantor with a copy of the terms of the guarantee.

In most cases, you can do this by providing the guarantor with the same initial disclosure statement you gave the debtor, together with a copy of the terms of the guarantee. You do not have to provide copies of the terms and conditions not covered in the initial disclosure statement (however, it would be good practice to do so).

You must disclose information on any subsequent contract that you enter with the debtor (to which the guarantee applies), within 15 days of the day when the contract is made.

Disclosing changes to guarantors

If, in relation to a credit contract to which a guarantee applies, there is a change to the contract that increases the obligations of the debtor or reduces the time for payment of any payment then you must disclose the changes to the guarantor.

Disclosure must be made to the guarantor regardless of whether the change is agreed between you and the debtor, or you exercise a unilateral power under the contract.

You must disclose changes within five working days of the day the change is agreed to by both parties, or the day on which the change takes effect after you exercise a power.

Do I have to disclose to guarantors of business loans?

No, you only need to disclose to guarantors of consumer credit contracts.

Disclosure standards and methods

The Act allows flexibility in how information is disclosed to the debtor. However, disclosure requirements are subject to the guiding standard that disclosure must be clear, concise and likely to bring the information to the attention of a reasonable person, and must not be likely to deceive or mislead a reasonable person.

What disclosure documents must I provide?

Required information should be provided to the debtor as a disclosure statement.

The following rules apply to all forms of disclosure:

• disclosure must be in writing
• a disclosure statement may be a single document or a series of related documents, and may be included as part of one or more other documents
• where you provide a debtor with a number of facilities (whether or not under the same contract), you may aggregate or separate the disclosure for each facility. For example, if you provide a home loan, a credit card and an overdraft to the same customer, you may disclose information on all three facilities either in a single statement or in separate statements.

Examples

The following would be permitted under Section 32 of the Act (Disclosure standards). You can:

• disclose the required information within a contract document
• disclose key information on a single page accompanied by a booklet of standard terms and conditions
• disclose on an internet banking site, as long as the information is always accessible by the debtor (although see below).

What are the rules for electronic disclosure?

You may disclose information electronically as long as you ensure the information is readily accessible for subsequent use.

Examples

The following are examples of types of electronic disclosure that would probably meet this test:

• an email with a printable attachment
• a word-processed document that can be saved on the debtor’s computer system
• a web page that the debtor can access when they choose.

You must ensure the debtor has consented to receiving disclosure electronically. It is also advisable to clearly inform the debtor of the exact format of the electronic disclosure.

What are the disclosure standards?

Section 32 sets out the standards for disclosing information. Disclosure statements must express the information clearly, concisely and in a way that brings the information to the debtor’s attention. The statements must not deceive or mislead a reasonable debtor.

The Act allows you considerable flexibility in how you choose to make disclosure, however you must meet the standards specified in Section 32. For example, if you disclose information across several documents or spread disclosure statements throughout a contract document, you must ensure that the key information specified in the Act is clear, concise and likely to come to the attention of a reasonable debtor. The overall effect must not be misleading.

The following practices are examples of conduct which is likely to breach the disclosure standard:

• excessive use of fine print
• unnecessary legalese
• illogically sequencing the disclosure information
• illegible copying or printing of a document, eg, providing a badly carbon-copied disclosure statement.

Model disclosure statements

The Act allows you to use model disclosure statements (prescribed by regulations). Model disclosure statements represent the Ministry of Consumer Affairs’ interpretation of compliance with the disclosure standards (ie, clarity, conciseness and bringing the information to the debtor’s attention).

The advantage of using a model disclosure statement is that a creditor can be considered to have complied with the disclosure standard required by Section 32. The model disclosure statements are not compulsory and you are free to choose a different form of disclosure. A decision by a creditor not to use a model disclosure statement does not in itself have a bearing on whether the performance standard for disclosure has been met.

You can also choose to adapt a model disclosure statement to suit your particular business, rather than use the model form in its entirety. However, if you choose to adapt particular items or clauses from the model form, you could not be said to be using the model form. If you choose to adapt the form, ensure your adaptation still complies with the disclosure requirements.

How do I ensure the debtor receives the disclosure?

Section 35 requires disclosure to be made by any of the following methods:

• giving the disclosure statement to the debtor
• sending the disclosure statement by post to the debtor’s place of residence or to an address specified by the debtor for this purpose
• in the case of electronic communication, sending the disclosure statement to the information system specified by the debtor for this purpose.

For most purposes disclosure is treated as having been made on the day on which the statement is sent.

Keep a verifiable record of having sent the disclosure.

For the purposes of Sections 27 and 99-102, disclosure is treated as being made four working days after posting the disclosure statement or two working days after being sent electronically.

If you are making disclosure under Section 23 (Disclosure of changes following exercise of power) or Section 26 (Disclosure of changes to guarantors) regulations provide alternative methods of making disclosure. In these circumstances, you do not have to comply with Section 35 if you:

• display the required information in any physical location you operate that your debtors may visit (such as retail premises), and
• display the information on a website you operate, and
• publish the notice at least once in one or more daily newspapers in Whangarei, Auckland, Hamilton, Rotorua, Hawke's Bay, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin and Invercargill.

Note: These alternative publication methods will only apply in the case of a change to the interest rate or the amount of any fee or charge payable. Any other changes to the credit contract must be disclosed by notice to the debtor.