Discussion Paper

This Topic Includes:
Purpose of Model Disclosure Statements
Model disclosure statements are examples of compliance
Instructions for use
Electronic disclosure
Educational material
Model forms

8 April 2004

This discussion document outlines the form of Model Disclosure Statements proposed to be made in regulations under the Credit Contracts and Consumer Finance Act 2003 (the "Act"). This discussion document also outlines proposed instructions for use of the model disclosure statements which will also be provided for in the regulations.

The discussion document raises some specific questions, but submissions are also welcome on any aspect of the proposed model disclosure statements, including the instructions for their use.

Written submissions close Friday, 30 April 2004 and should be addressed to:

Geoffrey Leveritt
Ministry of Consumer Affairs
PO Box 1473
Wellington

Ph: 04 462 4282
Fax: 04 473 9400
Email: geoffrey.leveritt@mca.govt.nz

Enquiries may be directed to Geoffrey Leveritt or Nick McBride (ph 04 474 2818; email nick.mcbride@med.govt.nz)

In providing your submission, please advise us if you have any objections to the release of your submission, and, if you do object, the parts of your submission that you wish withheld and the grounds for withholding. When preparing and releasing any summary and when considering any formal Official Information Act requests, the Ministry will carefully review any representations you make in this regard.

Any personal information that you supply to the Ministry in the course of making a submission will be used only by the Ministry when considering matters covered by this discussion paper.

When preparing any summary of submissions on Ministry discussion papers, it is the Ministry’s normal practice to set out the names of parties making submissions. Your name will be included in any such summary unless you inform the Ministry that you do not wish your name to be included. To indicate your wishes, or to view personal information held about you in relation to matters covered by this discussion paper, or to request correction of that information, please contact the Ministry of Consumer Affairs, telephone 04 474 2750.

Schedule 1 of the Act sets out what information must be disclosed to a consumer under a credit contract. The Act allows creditors considerable flexibility in the form of disclosure. For example, disclosure may be in a single document or in a series of related documents, or disclosure may be by electronic communication.

However, it is a requirement that disclosure express the required information clearly, concisely and in a manner likely to bring the information to the attention of a reasonable person.

The purpose of the model disclosure statements is to provide assistance to creditors in complying with the Act.

The Act provides that a person who uses a model disclosure statement prescribed by regulations in the manner required by those regulations is to be treated as having complied with the disclosure standards under the Act.

Disclosure is required in respect of credit contracts, consumer leases and buy back transactions. However, due to the specialised nature of consumer leases and buy back transactions, it is proposed only to prescribe model disclosure statements for credit contracts.

Two model disclosure statements are proposed – for fixed-instalment credit contracts and for revolving credit contracts. This recognises that there are significant differences between the two types of credit product.

The model disclosure statements are not compulsory and creditors are free to choose a different form of disclosure. A decision by a creditor not to use the model disclosure statements does not in itself have a bearing on whether the performance standard for disclosure has been met.

Creditors may choose not to use a model disclosure statement in its entirety but adapt particular items or clauses from the statement. In this case, a creditor could not be said to be using the model disclosure statement, but adaptation in this way may assist in establishing compliance with the Act.

Any changes to the model disclosure statements must be in accordance with the instructions for use set out in the regulations in order to take advantage of the deemed compliance with the Act.

The attached model disclosure statements represent the Ministry of Consumer Affairs’ interpretation of good practice in terms of clarity, conciseness and bringing the information to the attention of a reasonable person.

The model disclosure statements, once finalised, will provide a specific example of compliance with the Act. Ultimately, if there is a departure from the model disclosure statements, a court may be asked to decide whether or not the particular form of disclosure adopted by a creditor complies with the Act.

The information in the model disclosure statements has been ordered in such a manner as to provide a consumer with a clear description of the key information about the credit contract. The information is grouped into logical clusters.

While the model disclosure statements have been designed so that it will be possible for creditors to simply fill in the boxes, the Ministry anticipates that creditors will generally adapt the statements as a template for designing their own disclosure statements.

Along with the model disclosure statements, the regulations will also prescribe the manner in which the statements are to be used. Compliance with these instructions will be essential if a creditor wishes to take advantage of the deemed compliance with the Act that flows from the use of the model disclosure statements.

Instructions for use are proposed along the following lines:

1. A creditor can add information to the model disclosure statement identifying the consumer and/or provide further identifying details of the creditor (eg a logo).
2. A creditor may use a different font or colours, provided the size and readability remains such that the disclosure statement is clear. [Your views are invited on whether this instruction sufficiently elucidates a creditor’s ability to adjust the formatting while remaining compliant with the model disclosure statement, or whether the regulations should spell out specific details, eg minimum 10 point font size].
3. Where the model disclosure statement indicates a range of options which may be applicable (eg with regard to disclosure of the method of calculating interest charges), the creditor must only disclose to the consumer the option applying to the particular credit contract.
4. Where the model disclosure statement provides a box or an item containing information which is not relevant to the particular credit contract, the creditor must either remove it from the statement or strike through the box.
5. Where Schedule 1 of the Act prescribes other information applicable to a credit contract in question, which is not provided for in the model disclosure statement (eg the statement of the debtor’s right to cancel), the creditor must disclose such information in the manner required by the Act.
6. The model disclosure statement may be incorporated as part of the contract document. Items disclosed on the model disclosure statement which are also terms of the contract would not have to be disclosed in both the statement and the body of the contract.

The model disclosure statements have been designed to be used as hard copy documents. As the Act contemplates disclosure may be made by electronic means, submissions are invited on whether the model disclosure statements are suitable for electronic disclosure, and whether any particular conditions should be attached to electronic use of the model disclosure statements.

The Ministry proposes to produce educational material outlining creditors’ and consumers’ rights and responsibilities under the Act. This material will include an explanation of the purpose and use of the model disclosure statements.

To provide further assistance for consumers and creditors, it is proposed that the model disclosure statement will translated into other languages. Submissions are invited as to which languages would be useful.

Model forms

Two model disclosure forms (available in pdf) have been developed for fixed-instalment credit contracts and for revolving credit contracts.

 Available as: Credit Contracts and Consumer Finance Act 2003: Proposed Model Form for fixed instalment credit contracts [172KB PDF]

Available as: Credit Contracts and Consumer Finance Act 2003: Proposed Model Form for revolving credit contracts [171KB PDF]
(instructions for obtaining the viewer)