Credit review

Responsible lending

On 31 October 2011 Cabinet agreed to a package of reforms to the consumer credit law. You can read here the Cabinet paper, Regulatory Impact Statement and Cabinet minute. The reforms will introduce responsible lending requirements for consumer credit providers. The agreed changes include:

• Strengthening the Consumer Contracts and Consumer Finance Act (CCCFA) by adding new responsible lending requirements including that:
• The borrower must be reasonably expected to repay the loan without substantial hardship.
• The lender must be honest and transparent in dealing with the borrower.
• Creating a Code of Responsible Lending that sets out the types of practices accepted as meeting the principles of responsible lending.
• Giving the Financial Markets Authority (FMA) the power to issue formal warnings and cancel a person’s financial service provider registration if they fail to comply with the code and other relevant legislation.
• Providing that borrowers are not liable for the costs of interest or fees if their lender is not registered, as required, on the Financial Service Providers Register.
• Amending the CCCFA to stipulate that advertising must not be misleading, deceptive, or confusing and must comply with the code, and allow the regulator to prohibit advertisements that fail to do so.
• Protecting important goods, such as tools of trade, necessary household items, and motor vehicles with a value of up to $5000, from being used as security against a loan (except if the credit contract is for the purchase of such an item).
• Extending the 'cooling-off period', where a consumer has the right to cancel a credit contract, from three to five working days.
• Improving disclosure requirements, including that disclosure of key information and full terms and conditions must occur before the contract is made (presently this can happen up to five days after).
• Changing the rules around oppressive credit contract provisions and hardship applications to provide increased consumer protection.

Next stages

A Credit Law Amendment Bill will be drafted. It is intended to consult on an exposure draft of the Bill, likely in late February 2012.

At the same time it is proposed that there will be consultation on matters to be covered by the Code of Responsible Lending. The intention of the Code is to provide guidance to lenders and borrowers about the sorts of behaviours that will be considered to meet the broad principle of responsible lending. The Code will be developed in consultation with consumer and industry representatives.

Background

The package of reforms was shaped by the Financial Summit hosted by Hon Simon Power, Minister of Consumer Affairs. This was held on 11 August 2011 in Auckland and was chaired by Sir John Anderson. The summit brought together 250 people from community groups, budgeting services, NGOs, banks, financial regulators, and credit providers to look at ways of tackling irresponsible lending. Financial summit participants called for legislation to require responsible lending and for greater penalties for lenders who are not registered on the Financial Service Providers Register.

Read more about the Financial Summit.

The reforms were also influenced by a review of the Credit Contracts and Consumer Finance Act carried out by the Ministry of Consumer Affairs in 2009 and by various research which has been carried out by the Ministry of Consumer Affairs and others on consumer credit in New Zealand.

Related Documents

Discussion documents

• Discussion Document: Review of the operation of the Credit Contracts and Consumer Finance Act 2003 (September 2009) [HTML version]
• Discussion Document: Review of the operation of the Credit Contracts and Consumer Finance Act 2003 (September 2009) [PDF version, 1.3MB]
• Summary of Submissions: Brief Summary of Submissions on the Review of the operation of the Credit Contracts and Consumer Finance Act 2003 (January 2010)

Research on consumer credit

• Using a third tier lender: experiences of NZ borrowers (2011) [PDF format, 7.5MB]
• Third-tier Lender Desk-based Research (2011) [PDF format, 240KB]
• Background Statistics for Considering Credit Issues (2011) [PDF format, 1.7MB]
• Pacific Consumers' Behaviour and Experience in Credit Markets, with Particular Reference to the "Fringe Lending" Market: Government Response Strategy (August 2007)
• Pacific Consumers' Behaviour and Experience in Credit Markets, with Particular Reference to the "Fringe Lending" Market: Research Findings (July 2007)
• Fringe Lenders in New Zealand: Desk Research Project (July 2006)
• ANZ-Retirement Commission Financial Knowledge Survey (March 2006)

Media releases

• Government to Target Loan Sharks – Hon Simon Power
• Sir John Anderson to Chair Financial Summit – Hon Simon Power
• Minister announces more details of Financial Summit – Hon Simon Power
• Worrying research highlights issues facing Financial Summit – Hon Simon Power
• Speech to Financial Summit – Hon Simon Power
• Tougher consumer credit laws target loan sharks – Hon Bill English

Current legislation

• The Credit Contracts and Consumer Finance Act 2003
• Credit (Reposession) Act 1997
• Credit and debt (information for consumers)
• Credit Contracts and Consumer Finance Act (compliance advice for businesses)
• Credit (Repossession) Act (compliance advice for businesses)