The Commerce Commission has visited fifty credit providers in Auckland, Wellington and Christchurch and come back with a mixed report card for the credit industry. The visits checked performance against the Credit Contracts and Consumer Finance Act, which came into force on 1 April 2005.
"Many creditors have made changes to comply with the Act," said the Commission's Director of Fair Trading Deborah Battell, "but there are a number of areas where the industry needs to lift its game." Ms Battell said that areas of concern for the Commission include:
Consumers not getting all the information they are entitled to, and the information not being clearly set out;
Consumers being charged fees that appear to the Commission to be unreasonable;
Consumers being required to take out insurance on credit contracts when these appear unreasonable to the Commission.
The Commission has received over 160 credit related complaints and enquiries since 1 April 2005 and has over a dozen credit-related investigations underway.
"Creditors who are not complying with the Act should make changes quickly, and seek legal advice if they are not sure of their obligations," Ms Battell said. "The Commission will take enforcement action if we consider creditors are breaching the Act."
Those breaching the Credit Contracts and Consumer Finance Act can face criminal conviction with fines of up to $30,000. They may also be required to pay damages of up to $3000 per debtor.
The Commission is continuing to work with industry to address issues that have arisen under the Act. For example, the Commission will publish a guide to section 45 of the Act, relating to fees and charges. This section has particular significance for commissions on credit related insurance.
Background
The CCCF Act was passed in October 2003 and replaced the Credit Contracts Act 1981 and Hire Purchase Act 1971 from 1 April 2005. The Act applies to consumer credit contracts and is enforced by the Commerce Commission. The Commerce Commission's function includes promoting compliance with the Act and providing information to industry and consumers.
The Commission has been actively enforcing the main provisions of the Act since 1 April 2005 although it has been engaged in investigations relating to subpart 3 and part 5 of the Act (relating to buy-back transactions of land and the re-opening of oppressive buy-back transactions) since October 2003.
The Commission has recently completed an investigation into an Auckland company involved in running buy-back schemes. The Commission issued a warning to that company as a result of identifying several potential breaches of the CCCF Act. It appears however, that the number of operators offering buy-backs is in decline given adverse publicity, tougher regulation and the potential for enforcement action by the Commission.
The Commission has been actively promoting compliance with the CCCF Act within the credit industry. In May and June 2005 the Commission undertook a series of compliance visits in Auckland, Wellington and Christchurch. Commission staff visited 50 businesses and obtained initial disclosure documents from 17. The Commission issued a general report to those businesses that identified practices that the Commission considered breached the Act. As a result of those visits the Commission issued a warning to an Auckland business that had not made any changes to their forms or procedures since the introduction of the CCCF Act. The Commission is continuing to monitor the credit industry.
The Commission's enforcement activities are going smoothly. Between 1 April 2005 and 20 September 2005 the Commission received 169 complaints and enquiries relating to credit matters. The Commission has issued warnings to three businesses as a result of investigations into complaints into breaches of the CCCF Act. Two of these warnings have related to a breach of the disclosure provisions of the Act and one has related to a fee charged on early prepayment of a consumer credit contract.
The Commission currently has 13 open investigations into alleged breaches of the Act. While the investigations involve a range of issues the Commission has a number of strategic enforcement areas. Those areas include:
The initial disclosure of the information required by schedule 1 of the CCCF Act in relation to consumer credit contracts;
Breaches of disclosure standards;
Unreasonable requirements to obtain credit related insurance
Unreasonable fees including the calculation of fees representing a reasonable estimate of a creditor's loss on full prepayment of a consumer credit contract.
While it appears that most businesses have made significant changes and have sought legal advice in relation to their new obligations under the CCCF Act there are areas, in the Commission's view, where creditors are not compliant. The Commission has already provided information to industry in relation to their obligations under the Act in the form of The Credit Contracts and Consumer Finance Act 2003: A General Guide for the Credit Industry and will provide further information to industry where appropriate. It is anticipated, for example, that the Commission will shortly provide further guidance as to its approach to section 45 of the CCCF Act.
