Consumer credit law overhaul

credit card, online, e-commerceAn overhaul of consumer credit law, which takes effect from Saturday, will make significant changes to lending practices.

Changes to the Credit Contracts and Consumer Finance Act 2003 come into force on June 6. The Commerce Commission will be responsible for enforcing the amended law and will have a wider range of tools which it can use to better protect New Zealanders.

One of the key changes is the introduction of lender responsibility principles. These new rules require lenders to make reasonable enquiries before entering into a loan or taking a guarantee to be satisfied that the credit provided will meet the borrower’s needs. The lender must also be satisfied that the borrower or guarantor will be able to make the payments under the loan, or comply with the guarantee, without suffering substantial hardship.

“Lender responsibility will change the way loans are made. The new rules will give NZ consumers more protection and better information when borrowing money and require all lenders to act responsibly. This is particularly important for vulnerable borrowers,” said commissioner Anna Rawlings.

“Lenders must ensure loan documents are clear, concise, and intelligible so that borrowers can understand them and make informed decisions. Borrowers will also need to be prepared for more thorough questions and provide evidence to ensure the loan is suited to them.”

The changes also mean that lenders must publicly display their interest rates and fees as well as their standard form contract terms. This allows consumers to shop around, whether online or in-store when choosing the best loan for them.

These new stricter rules apply to all lenders who provide consumer credit, take security over consumer goods, or enter into buy-back transactions.

Repossession laws are also updated under the changes, with an increased focus on consumer protection. Lenders are no longer able to take security over essential goods such as beds and fridges. Repossession agents must also now be licensed or can be fined up to $200,000 for individuals or $600,000 for companies. The Commerce Commission acquires a new enforcement role in relation to unlawful repossession practices.

“The arrival of responsible lending principles has set a benchmark for a more transparent and robust lending process which all lenders must follow. This allows us to better protect consumers, especially those that need it most,” said Rawlings.

Most of the changes apply only to contracts entered into on or after June 6, but there are some exceptions. More information on the changes can be found at www.comcom.govt.nzconsumer.

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