Simpson Grierson Chair and Partner Anne Callinan and Partner Andrew Harkness discuss planned changes to the Credit Contracts and Consumer Finance Act 2003. These changes will better protect vulnerable borrowers while potentially restricting access to credit, they write.
The Ministry of Business, Innovation & Employment (MBIE) has announced changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
The main changes involve tougher lender registration requirements, new duties for lenders’ directors and top executives, prescriptive requirements for testing affordability and suitability, interest and fee caps on high-cost loans, and stronger enforcement provisions. The changes are summarised below.
This comes after a Government review found that predatory lending practices, irresponsible lending, and unacceptable debt collection practices were still occurring despite the 2015 amendments to the CCCFA, and after consultation by MBIE on possible measures to protect consumers.
Tougher registration requirements
For a consumer creditor to be registered on the Financial Service Providers Register (FSPR), its directors and top executives will be required to meet a “fit and proper person” test. This will test for capability as well as good character.
It will become easier to obtain a banning order against a creditor or a person involved in the management of a creditor.
Directors’ and top executives’ liability
A duty will be imposed on a creditor’s directors and top executives to ensure that the creditor complies with its CCCFA obligations, failing which they will be personally liable for civil pecuniary penalties and for compensating borrowers.
Substantiating credit fees
Lenders will be required to substantiate that their credit fees are reasonable. They must provide evidence of this on request by the Commerce Commission, a dispute resolution scheme, or the borrower.
Assessing affordability and suitability
Mandatory standards will be prescribed (under a new regulation-making power) for assessing loan affordability and suitability, particularly for what must be considered in relation to income and expenses.
The current presumption that lenders can take the information provided by borrowers and guarantors at face value will be removed.
Lenders will be required to substantiate that they have made the required enquiries, by providing evidence on request by the Commerce Commission, a dispute resolution scheme, or the borrower.
New rules about disclosure and advertising
Mandatory standards will be prescribed for responsible advertising, including for disclosure of applicable interest rates.
If a creditor advertises in a language other than English, it must also provide disclosure for the credit contract in that language.
Interest and fee caps on high-cost loans
For high-cost loans, interest and fees over the life of the loan will be limited to 100% of the original amount of the loan. “High-cost loan” refers to a loan where the annualised interest rate is 50% or more (such as a typical payday loan). The cap will apply to the original loan, as well as to any loan provided by the same lender to repay or replace it.
When debt collection commences, the debtor will need to be informed of key loan information to be set out in regulations. This will include the name of the original creditor, the date on which the debt was passed to debt collection, fees added in relation to the debt collection, and information about the borrower’s rights.
Predatory behaviour by mobile traders and shopping trucks
All mobile traders who offer products or services door-to-door on deferred payment terms will need to be registered on the FSPR and be members of approved dispute resolution schemes (even if they do not currently qualify as “creditors”).
“Do not knock” stickers will be legally enforceable.
The civil pecuniary penalties, statutory damages, and court powers for breaches of the CCCFA will be extended. The maximum civil pecuniary penalties will be $200,000 for an individual and $600,000 for a body corporate. Statutory damages will be available for breaches of the responsible lending duties and for breach of the interest and fee cap for high-cost loans.
A Credit Contracts and Consumer Finance Amendment Bill to effect the changes and an exposure draft of the additional regulations are being prepared.
As these changes may tighten access to credit, the Minister of Commerce and Consumer Affairs has initiated cross-agency work with the financial and community sectors on expanding access to microfinance and inclusive banking products. The Ministry of Social Development is also developing a strategy on increasing access to safe credit.
Partner Anne Callinan is the Chair of Simpson Grierson. She is an all-round commercial litigator with particular expertise in competition and regulatory law. Anne has over 25 years’ experience in commercial litigation of all kinds. Anne has acted as counsel in a wide range of proceedings including interim injunctions, judicial reviews, sentencing hearings and commercial arbitrations. Anne’s particular area of specialisation is competition, consumer and securities law where she has represented clients in relation to numerous investigations and civil and criminal proceedings involving the Commerce Commission and Financial Markets Authority. Anne provides advice on all aspects of the Commerce Act and regularly advises on the Fair Trading Act, consumer credit finance legislation and general contract claims. Contact Anne at [email protected]
Andrew Harkness is a partner in the banking and finance department. He heads the firm’s transactional banking and finance group in Auckland, and heads the debt capital markets group. Andrew’s expertise covers the full range of transactional banking, with a particular focus and expertise in acquisition/leveraged finance, corporate finance, asset finance, distressed debt acquisition and debt restructurings, and other complex financing transactions. He has significant expertise in debt capital markets, where he has acted on a number of retail and wholesale issuances and USPP and EMTN programmes. Andrew also has considerable specialist knowledge on acquisition/leveraged financings, where he has acted for both lenders and private equity sponsors on financing arrangements. Contact Andrew at [email protected]