Changes to credit laws

Effective 20 December 2019

Changes to the penalties for breaching Lender Responsibility Principles

Those who breach the Lender Responsibility Principles (including on contracts that are already in existence) now face penalties of up to $600,000 for a company and $200,000 for an individual and may be liable to borrowers for statutory damages. Prior to the change there were no financial penalties for breaching the Lender Responsibility Principles.

You can find out more about how to comply with the lender responsibilities in the Responsible Lending Code – Consumer Protection.

Amendments to how disclosure can be made

There are a number of amendments to the way in which disclosure can be made that apply to disclosure made after 20 December 2019 (including on existing contracts):

• You can disclose any agreed decrease in a credit limit after 20 December 2019 within 5 working days of change taking effect or with the next continuing disclosure statement.
• You will need to take reasonable steps to locate the borrower or guarantor, but if after doing that you cannot locate them you will not need to:
  • disclose any variations made under a contractual power
  • disclose any variations to guarantors
  • make transfer disclosure.
• You can now make electronic disclosure (if the recipient consents) by sending a communication that enables the person to access the disclosure statement (for example a link to a disclosure statement) or tells them how to access the disclosure statement (for example telling borrowers where their disclosure is stored on-line). Disclosure can be made this way providing:
  • the disclosure statement is readily accessible at the time it was sent and over the life of the contract
  • the statement can be stored in a permanent and legible form.
• You can now provide electronic disclosure to two people sharing the same information system by sending it once.

Changes to repossession enforcement action

In particular situations you can now take repossession enforcement action, despite a written complaint from the borrower or a hardship application.

Currently the law does not allow you to take enforcement action if you have received, but not decided, a hardship application or if the borrower has made a written complaint that has not been decided.

You are now able to take enforcement action if your dispute resolution scheme gives notice that repossession would be in the borrowers’ best interest and if you agree with the borrower that the enforcement action can proceed. This applies in situations where you have received a complaint or hardship application on agreements that are in existence on 20 December 2019.

Expansion of enforcement response options for the Commission to include enforceable undertakings

The Commission is now able to accept enforceable undertakings in relation to breaches of the Credit Contracts and Consumer Finance Act (CCCFA). This applies to conduct before and after 20 December 2019. For more information on enforceable undertakings please see our Enforcement Response Guidelines.

Changes to the enforcement of guarantees

You are now unable to enforce a guarantee if you have failed to make reasonable inquiries to be satisfied that the guarantor can meet their obligation without suffering substantial hardship. However, you can ask the Court to be able to enforce a guarantee in these circumstances.

Effective 13 January 2020

Changes to the criteria for the application of repossession rules

The focus of the consumer protection relating to repossession is now on the purpose of the credit, rather than the nature of the goods. If you take security over consumer goods in relation to business loans you will no longer need to comply with the repossession rules set out in Part 3A of the CCCFA.

If you take consumer goods as security for consumer loans, you will need to ensure you meet your obligations under Part 3A. You can read more about those obligations in our Repossession Guidelines.

Repossession rules (Part 3A) will continue to apply to non-consumer credit contracts entered into before 13 January 2020 which are secured over consumer goods.

Introduction of offences (including infringement offences) for failing to make prescribed information publicly available including online

It is now an infringement offence for consumer credit providers to fail to display prescribed information on their website, this includes information about:

• annual interest rates
• how interest is charged
• credit fees.

You can find details about the specific information that must be displayed in the Credit Contracts and Consumer Finance Regulations – NZ Legislation.

If you have failed to display your standard form contract terms or if your costs of borrowing are not clear or prominent, you may be prosecuted and face penalties of up to $600,000 for a company and $200,000 for an individual. You can read more about how to ensure disclosure is clear and prominent in our guidelines.

Effective 1 May 2020

Introduction of the following rules that apply to high-cost consumer credit contracts (HCCC):

• Lenders are required to disclose additional key information
• Total cost cap – fees and interest under a HCCC will be limited to 100% of the first advance
• Lenders cannot charge compound interest
• Default fees exceeding $30 considered unreasonable unless the lender can prove it is reasonable
• Anti-avoidance provision to address anyone trying to circumvent provisions apply to HCCC
• Expansion of remedies for CCCFA breaches including compliance orders and corrective advertising
• Option of providing certain disclosure within 5 days or next continuing disclosure statement no longer applies for high-cost loans.

Effective 1 June 2020

• All mobile trader contracts where goods are not paid for in full at the time of purchase will now be subject to the CCCFA
• Amendment to initial disclosure requirements for credit agreements that are also layby sales
• Introduction of rules that only apply to high-cost consumer credit contracts (HCCC):
  • Rate cap – maximum daily charge of interest and fees added to a HCCC will not be able to exceed 0.8% of the credit provided per day
  • Restrictions on entering into HCCC in certain circumstances when the borrower already has or has had other HCCCs.

Effective 1 October 2021

• Lenders (except for those exempt) and mobile traders must be certified by the Commission that their directors and senior managers are fit and proper persons to hold their respective positions
• Exemption for certain premium funding agreements from suitability and affordability assessment obligations.

Effective 1 December 2021:

• Introduction of duties on directors and senior managers to exercise due diligence and penalties for failing to comply
• Lenders are no longer able to rely solely on the fact that information has been provided by the borrower to show that they have made reasonable inquiries about the affordability and suitability of loans
• There are minimum advertising standards and requirements for affordability and suitability inquiries
• Lenders must keep records demonstrating compliance with their obligation to undertake affordability and suitability inquiries
• Lenders must take reasonable steps to provide information about the loan to borrowers in the same language as they advertise in
• Lenders under HCCCs must prominently disclose in print and internet advertising prescribed information about disputes resolution and financial mentoring services
• Advertisements for HCCCs are required to include a prominent statement that a HCCC should not be used for long-term or regular borrowing, and is only suitable for temporary, short-term cash needs
• Lenders must make disclosure to borrowers when they start debt collection
• Lenders must keep records demonstrating that their fees are reasonable and review their fees if there is a material change that is likely to affect the reasonableness of the fee
• Lenders must undertake affordability and suitability inquiries before making “material changes”
• Revised Responsible Lending Code (with the exception of Chapter 12)
• Lenders must provide Commission with an annual return each year containing content prescribed by regulations (first return for year 1 April 2023 to 31 March 2024 not due until 30 June 2024).

Effective 1 February 2022

• Chapter 12 of the Revised Responsible Lending Code.

Effective 7 July 2022

• Amendments to affordability assessment regulations (definition of listed outgoings and initial assessment requirements).
• Revised Responsible Lending Code (changes to affordability assessment guidance)

Effective 13 and 20 February 2023

• Exemption from responsible lending affordability assessment obligations for certain loans providing relief to borrowers experiencing the negative effects of flooding and weather-related damage.

Effective 4 May 2023

• Amendments to affordability assessment regulations (definition of listed outgoings, exception to affordability rule).
• Revised Responsible Lending Code (changes to affordability assessment guidance).

Effective 25 April 2023

• Local authority targeted rate loans exempted from being consumer credit contracts.
• Non-financial businesses providing credit on an interim basis exempted from annual return obligation on the condition that the assignee creditor submits required information.

Effective 31 July 2024

Changes to responsible lending affordability assessment obligations

The prescriptive affordability assessment regulations are revoked from 31 July 2024 (with the exception of regulation 4AO which continues to apply to high-cost consumer credit contracts).

Lenders will still need to comply with the responsible lending principle to make reasonable inquiries, before entering a loan or making a material change to a loan, to be satisfied that the borrower will make loan repayments without suffering substantial hardship.

The affordability assessment guidance in chapter 5 of the Responsible Lending Code has been updated and a Revised Responsible Lending Code issued.

Effective 2 September 2024

Buy Now Pay Later loans subject to CCCFA

Buy Now Pay Later loans declared to be consumer credit contracts from 2 September 2024. BNPL lenders are subject to all of the obligations of a creditor under a consumer credit contract subject to some exemptions.

BNPL lenders are exempt from the responsible lending obligation to assess that the loan is affordable subject to compliance with conditions relating to point of sale disclosure and comprehensive credit reporting.