The Credit Contracts Legislation Amendment Act 2019 (Act) became law on 19 December 2019. The Act amends the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and introduces some significant changes which will affect all lenders providing consumer credit in New Zealand.
In addition providers of "high-cost" consumer credit contracts will be subject to new rules and "mobile traders" will be brought within the scope of the CCCFA.
The Act extends and strengthens the existing lender responsibility provisions in the CCCFA.
Affordability and suitability tests
Lenders are already obligated under the CCCFA to make "reasonable inquiries" as to a borrower's or guarantor's requirements and objectives and whether the borrower or guarantor will be able to make payments under the agreement without suffering "substantial hardship". From 1 April 2021, these inquiries must be carried-out in accordance with requirements set by regulation.
These regulations (currently in draft form) will codify and expand on the existing guidance set out in the Responsible Lending Code and will draw on the current requirements in the United Kingdom and Australia. There will also be additional requirements when assessing the suitability of repayment waivers, extended warranties and insurance.
For existing consumer credit contracts, these suitability and affordability checks will need to be undertaken when there is a "material change" to the contract (for example, if the credit limit is increased or unforeseen further advances are made).
Lenders will be required to keep records to substantiate how the lender satisfied itself as to the loan's suitability and affordability and make this information available to the Commerce Commission, borrower, guarantor or the lender's approved dispute resolution scheme on request.
From 1 April 2021, advertising must comply with new advertising standards set by regulation. These will likely include, for example, requirements to include details of payments, interest rates, credit fees and charges in advertisements.
Lenders will also be required to take reasonable steps to provide borrowers and guarantors with information to assist the borrower or guarantor to make an informed decision and must do so in any language in which the lender has advertised.
Evidence of how fees are calculated
The CCCFA prohibits unreasonable credit or default fees in consumer credit contracts. From 1 April 2021 lenders will be...