When you make changes to a consumer credit contract, there are rules around what information you must give to the borrower, and when and how you must provide it.
Generally, you must give the borrower information if you make changes to a consumer credit contract. This is known as variation disclosure.
You must also provide variation disclosure to anyone who has agreed to pay back the debt if the borrower doesn’t (the guarantor).
There are two circumstances where you need to make variation disclosure, these are:
where you agree with the borrower to change the contract
where the contract gives you the right to vary certain parts of the contract, and you do so.
When do I have to provide variation disclosure?
You agree with the borrower to change the contract
If you agree with the borrower to change the contract, you must give the borrower and any guarantor details of the change before it takes effect. However, you can provide variation disclosure within 5 working days or with the next continuing disclosure statement if as a result of the change, either:
the borrower’s obligations are reduced (such as an administration fee being waived)
the borrower has more time to repay the contract
some or all of a security is released, or
the borrower has to make payments at a different place.
If changes are made to a contract because of a hardship application, then you must still disclose full details of the change.
The contract gives you the right to vary parts of the contract
You must give the borrower and any guarantor details of any change you make within 5 working days of it taking effect if the change relates to either:
the amount of fees or charges
how fees or charges are calculated
when or how often fees or charges are imposed
the amount or timing of any payment or how it is calculated, or
the interest rate or the way interest is calculated r charged.
You do not have to provide disclosure if the change reduces the borrower’s obligations, gives them more time to pay or increases their credit limit.
What information do I have to provide for variation disclosure?
You must give the borrower full details about the change. This includes the effect of the change on other key terms of the loan (such as any impact on the term of the loan, the amount of interest payable or the total amount payable under the contract).
How do I provide variation disclosure?
You must provide variation disclosure in writing, either in a single document or in a series of related documents. The information must be clear and concise so that a reasonable person will see it. The overall effect must not be misleading or deceptive.
You must provide variation disclosure by either:
giving a disclosure statement to the borrower (and any guarantor) in person
posting a disclosure statement to the borrower’s (and any guarantor’s) last known address, or
emailing or faxing a disclosure statement to the borrower (and any guarantor), as long as they have agreed to this.
If you are increasing the interest rate, fees or charges a borrower may have to pay under a contract, and this is allowed under the contract, then you may instead disclose by:
displaying information about the changes prominently at your place of business
advertising the changes at least once in all the following areas in which they do business: Whangarei, Auckland, Hamilton, Rotorua, Hawkes Bay, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin and Invercargill, and
posting information about the changes on your website (if you have one).
You can’t use this method of disclosure, however, if the change in any way affects the repayment amount, frequency, time for payment or method of calculation of any payment under the contract.