When you lend money, the CCCF Act has rules you must follow when setting your fees.
The Credit Contracts and Consumer Finance Act (CCCF Act) sets restrictions on the fees that lenders can charge over the life of a consumer credit contract.
All fees must be disclosed and accurately described
By law you must make sure that:
you disclose all fees the borrower must pay
you clearly describe those fees
the amount of credit and default fees is reasonable
you pass on any third party fees at cost.
Fees must be disclosed
You must set out any fees a borrower may pay in the initial disclosure statement. This includes what the fee is, when the borrower must pay it and the amount of the fee. If you cannot work out the amount of the fee at that time, then you must set out for the borrower how you will calculate the fee.
If the contract allows you to change the amount of your fees, or introduce new fees, then you must disclose these changes to the borrower within 5 working days of changing or introducing the new fee.
Fees must be clearly described
You need to take care when naming and describing fees. This means making it clear to borrowers what a fee is for, the types of costs recovered in the fee, when you will charge the fee and what may trigger the fee.
Generally, the name or description of the fee should give the borrower this information. If you describe their fees in a way that is misleading, you may breach both the CCCF Act and the Fair Trading Act.
Some principles that apply to fees provisions
All credit and default fees must be reasonable
The concept of reasonableness is central to the fees rules in the CCCF Act. All credit and default fees must be reasonable. The assessment of reasonableness is objective.
Some fees may be unreasonable even when they are used to recover the lender's costs. For example, we are unlikely to consider the fee to be reasonable if it includes costs that, while actually incurred by the lender, are unusually high or relate to a step unreasonably taken.
Fees are restricted but interest is not
The fees restriction does not limit the total revenue you can earn under a consumer credit contract. There are no limitations on the interest you can charge, provided that the interest is:
disclosed to the borrower
not set at an oppressively high level
Costs and losses are key in assessing reasonableness
The lender's costs and losses are the key factors in deciding whether their fees are reasonable.
The costs you seek to recover must be transaction-specific - there must be a close connection between the cost and the transaction for which the fee is charged. Fees for costs that are not transaction-specific are likely to be unreasonable and cannot be used in setting your fee.
There are a number of other guidelines you need to take into account when setting consumer credit fees.