Credit laws are changing, it is important that you understand the changes to your obligations.
The changes are being introduced in stages with the first changes effective from 20 December 2019. Some of the dates that the changes take effect are set but others will be confirmed by the Governor General by way of Order in Council. Some obligations will take effect once Regulations have been passed. As a results some commencement dates are noted as “proposed”. This means that these are the commencement dates that are currently proposed by MBIE but are not yet final. We will provide final commencement dates as soon as we can.
A summary of the changes by date is provided below. At this stage the most important thing for lenders to note is the introduction of penalties and statutory damages for breaching Lender Responsibility Principles. Lenders now face penalties of up to $600,000 for a company and $200,000 for an individual. More information on all the changes will be published here over the coming months.
All mobile trader contracts where goods are not paid for in full at the time of purchase will now be subject to the CCCF Act
Introduction of rules that only 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 principal
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
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 applying to HCCC
The following changes are currently expected to come into force on 1 June 2020 (subject to the commencement order being finalised):
Introduction of duties on directors and senior managers to exercise due diligence and penalties for failing to comply
Clarification of cancellation rules for goods sold on deferred payment
Amendments to initial disclosure requirements for credit agreements that are also layby sales
Expansion of remedies for CCCF Act breaches including compliance orders and corrective advertising
It is currently proposed that the following changes will come into force on 1 April 2021:
Lenders will no longer be 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
Introduction of 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 will need to 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 will be 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 provide an annual report to the Commission containing specified information
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
New obligation to undertake affordability and suitability inquiries before making “material changes”
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.
Note: The Commission will release for consultation its criteria for assessing the fitness and propriety of individuals in early 2020. The criteria will cover both the capability (fitness) and character (propriety) of individuals. Guidance on the certification scheme and application process will be published mid-2020.