How the changes to consumer credit law apply to existing contracts

New Zealand’s consumer credit law is changing, with most changes to take effect from 6 June 2015. This fact sheet explains when and how the new rules will affect consumer credit contracts entered into before 6 June 2015.

This information relates to contracts entered into on or after 6 June 2015. For contracts entered into before this date, see the relevant guidance.

View as PDF3New rules will come into force from 6 June 2015

The Credit Contracts and Consumer Finance Act 2003 (CCCF Act) has been amended. The changes are set out in the Credit Contracts and Consumer Finance Amendment Act 2014 (Amendment Act).

The new rules will apply to all credit contracts (including consumer credit contracts) entered into on or after 6 June 2015. All section references in this guidance are to the Amendment Act, unless otherwise specified.

The previous rules – including the CCCF Act before it was amended (CCCF Act (unamended)) and the Credit (Repossession) Act 1997 – will continue to apply to all credit contracts (including consumer credit contracts) entered into before 6 June 2015.

There are some exceptions that apply to consumer credit contracts. This fact sheet describes those exceptions, and explains when and how the new rules will affect consumer credit contracts that have been entered into before 6 June 2015.[1]

These exceptions are set out in Schedule 1 of the Amendment Act.[2]

What do we mean by “existing consumer credit contracts” in this guidance?

The CCCF Act covers a range of transactions, including certain types of loans, some credit sale transactions, consumer leases and buy-back transactions.

The rules described in this guidance apply to existing consumer credit contracts that have been entered into before 6 June 2015 where:

  • the borrower is a natural person, and
  • the borrower enters into the contract primarily for personal, domestic or household purposes, and
  • credit fees or interest are or may be charged under the contract or the lender takes or could take a security interest, and
  • the lender is in the business of providing credit.[3]

In this guidance, we refer to these as existing consumer credit contracts.

Which new rules apply to existing consumer credit contracts?

In general terms, the following rules will apply to existing consumer credit contracts. These rules are explained further throughout this fact sheet.

  • When an existing consumer credit contract is varied, and the variation takes effect on or after 6 June 2015:
    • lenders must comply with responsible lending principles when making the variation
    • lenders must provide variation disclosure containing full details of the variation to the borrower without exception.
  • New rules apply to all hardship applications made on or after 6 June 2015, including those where the contract was entered into before 6 June 2015:
    • Lenders must comply with responsible lending principles when considering these applications.
    • Borrowers may be able to make a hardship application even if they are in default.
    • There are new rules about what a lender has to do when considering a hardship application.
  • Most borrowers can request more information under request disclosure on or after 6 June 2015 for existing consumer credit contracts than they are able to under the CCCF Act (unamended).
  • For credit card contracts in place before 6 June 2015, lenders must provide minimum repayment warnings on credit card statements given or sent on or after 6 June 2015. The form of the minimum repayment warning is set out by regulation.[4]
  • If a lender transfers their rights under an existing consumer credit contract to another lender on or after 6 June 2015, the original lender must provide specified information to the borrower about the new lender. This rule applies unless the transfer happens in circumstances described in regulations relating to securitisation and covered bond arrangements.[5]

What is variation, continuing, and request disclosure?

  • Variation disclosure is specific information lenders must give borrowers if changes are made to a consumer credit contract.
  • Continuing disclosure is specific information lenders must give borrowers throughout the life of a consumer credit contract.
  • Request disclosure is specific information lenders must give borrowers if they ask for it.

The CCCF Act sets out what the specific information is in each case and sets out rules about when and how a lender must make variation, continuing, and request disclosure.

Responsible lending principles apply to existing consumer credit contracts varied on or after 6 June 2015

The lender responsibility principles apply when an existing consumer credit contract is varied and the variation takes effect on or after 6 June 2015. A lender must exercise the care, diligence and skill of a responsible lender when making the variation.[6]

Specifically, a lender must:[7]

  • help the borrower to reach informed decisions including by ensuring that:
    • any variation to that consumer credit contract is expressed in plain language in a clear, concise and intelligible manner,[8] and
    • any information provided to the borrower after the agreement has been entered into is not presented in a way that is likely to be misleading, deceptive or confusing.[9]
  • treat the borrower and their property reasonably and in an ethical manner[10]
  • ensure the agreement is not oppressive and the lender does not exercise a right or power in an oppressive way,[11] and
  • meet all other legal obligations the lender has to the borrower, such as those under the Fair Trading Act 1986 and the Consumer Guarantees Act 1993.[12]

Where a variation materially changes an existing consumer credit contract (for example by increasing a credit limit or advancing further credit) a careful, diligent and responsible lender also might need to take steps or adopt practices in addition to the specific lender responsibilities set out above. For example, this may include making inquiries about whether or not the borrower can make payments without suffering substantial hardship or whether the credit provided will meet the borrower’s requirements and objectives.

Making variation disclosure

Under the CCCF Act (unamended), lenders do not have to disclose some changes to consumer credit contracts, particularly in some specified circumstances, where the change is beneficial to the borrower, or where the borrower’s obligations are reduced.

Under the Amendment Act, lenders must disclose full details of all changes to existing consumer credit contracts that take effect on or after 6 June 2015 that:

  • are agreed between the borrower and lender,[13] or
  • the lender makes unilaterally, using a power under the contract, if the changes relate to interest rates, payments, fees or the amount of a credit limit under the contract.[14]

How and when must lenders disclose these changes?

If the variation, in some specified circumstances, is either beneficial to the borrower or results in a reduction of the borrower’s obligations, lenders must disclose full details of the variation:

  • within five working days of the day that the change takes effect, or
  • if the lender is required to make continuing disclosure, when the next continuing disclosure statement is due.[15] [16]

These obligations are in addition to the lender’s variation disclosure requirements under the CCCF Act (unamended).

Note: Where the variation is not beneficial to the borrower or the borrower’s obligations are not reduced in the circumstances specified in the CCCF Act (unamended), the lender is already required to provide full disclosure under the CCCF Act (unamended):

  • before the change takes effect where the change has been agreed,[17] or
  • within five working days if the lender has made the change unilaterally using a power under the contract.[18]

Note: For more information on variation disclosure see our updated fact sheet, to be published shortly.

Hardship applications

Responsible lending principles will apply when lenders consider hardship applications

A borrower can make a hardship application where, due to an unforeseen hardship, the borrower is facing difficulties meeting their obligations under a consumer credit contract. If approved, the lender may agree to a change to their contract.

From 6 June 2015, lenders must comply with the lender responsibility principles when considering any hardship applications from borrowers under existing consumer credit contracts.[19] This includes treating the borrower and their property (or property in their possession) reasonably and in an ethical manner.[20] The Responsible Lending Code provides useful guidance on compliance with responsible lending principles including in relation to hardship, in particular at paragraphs 12.9 to 12.11.[21] Please also refer to our earlier comments in this fact sheet on how the responsible lending principles apply to variations on existing contracts.

Borrowers can make hardship applications after 6 June 2015 even if they are in default

The Amendment Act sets out new rules about how hardship applications can be made, when they can be made and how a lender must deal with them. These rules apply to all hardship applications made on or after 6 June 2015.[22]

From 6 June 2015, the application needs to be in writing, the borrower must specify their reasons for not being able to meet their obligations, and the borrower must provide the application to the lender.

From 6 June 2015, borrowers can make hardship applications even if they are in default. But there are limitations:

  • A borrower cannot make a hardship application if they have been in default for two weeks after receiving a Property Law Act notice.[23]
  • If a borrower has failed to make four consecutive payments on or before the due date, they cannot make a hardship application.[24]
  • A borrower cannot make a hardship application if they are more than two months in default.[25]

If the borrower remedies the default (to the extent it can be remedied), they can then apply for hardship.[26]

Process for considering hardship applications

Lenders must follow certain processes and meet specified timeframes when considering hardship applications.[27] Lenders cannot charge borrowers a fee for considering a hardship application.[28] For more information, see our updated fact sheet on hardship, to be published shortly.

New disclosure obligations

Request disclosure

Under the CCCF Act, lenders must provide certain information to borrowers or guarantors if they ask for it. For more on these obligations, see our request disclosure fact sheet.

From 6 June 2015, in addition to the information lenders are already required to provide, borrowers and guarantors can ask for:

  • a copy of any continuing disclosure statement (if the lender is obliged to provide continuing disclosure) for any reasonable statement period
  • a copy of the contract between the borrower and lender.[29]

Minimum repayment warnings for credit card statements

In some circumstances lenders are required to regularly provide borrowers with specific information about credit card contracts. This is called “continuing disclosure” and it is made in continuing disclosure statements. For credit card contracts, lenders must provide minimum repayment warnings on credit card statements which are given or sent after 6 June 2015.

The form of the minimum repayment warning for credit card statements is set out by regulations and is as follows:[30]

"If you make only the minimum payment each month,* you will pay more interest and it will take you longer to pay off your balance. Visit www.sorted.org.nz/creditcards to calculate how you can pay off your credit card balance faster and pay less in interest.”

*Replace with other payment period, if applicable.

The format, font and font size of the minimum repayment warning must be easily readable. The warning must be presented reasonably close to the amount stated as the minimum payment for each payment period.

No minimum repayment warning is needed where:

  • the closing unpaid balance of the credit card is under $100, or
  • an interest free period applies to the closing unpaid balance, or
  • a payment arrangement between the lender and the borrower replaces the minimum payment that would otherwise be required.

Contracts transferred to another lender

Where a lender transfers their rights under an existing consumer credit contract to another lender on or after 6 June 2015, the lender must provide disclosure of the following information to the borrower within 10 working days of the day that the transfer takes effect:[31]

  • the name, address and other contact details of the new lender
  • the new lender’s registration number in the register of financial service providers, and the name under which the new lender is registered
  • the name and contact details of the dispute resolution scheme of which the new lender is a member (unless they are not required to be a member of a scheme)[32]
  • the date on which the rights were or will be transferred to the new lender
  • the impact (if any) of the transfer on the borrower (for example whether the borrower will need to make payments to a different bank account)
  • that the transfer does not affect the terms of the contract, other than changing the identity of the lender.

Lenders may not need to make this disclosure in some circumstances related to transfers as part of securitisation or covered bond arrangements. The details of these circumstances will be set out by regulations.[33]

 

View the footnotes.

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