The Credit Contracts and Consumer Finance Act 2003 (the CCCF Act) is the main legislation that protects consumers who have entered into a credit contract. Credit contracts include:
A “credit” contract is any agreement you make to borrow money, or any agreement that gives you the right to put off (“defer”) payment of an existing debt or to buy goods or services without having to pay the full price immediately (for example, hire purchase).
The lender is called a “creditor” in the CCCF Act, and sometimes a “credit provider” in other Acts. You the borrower are called the “debtor” in the CCCF Act.
The protections in the Credit Contracts and Consumer Finance Act apply only to what the Act calls “consumer credit contracts”. The Act’s protections don’t cover you when you get credit for your business or trade.
Your credit arrangements will be a “consumer credit contract” – and so be covered by the CCCF Act – if all of the following conditions apply:
A consumer credit contract can take the form of:
Note: The CCCF Act also provides separate, more limited protections for other types of leases of goods. It calls those other types of leases “consumer leases”.
“Credit sale” is the name the CCCF Act uses for what’s often called “hire purchase”. This is when you buy goods or services but pay for them later, usually by instalments. Sometimes the seller will provide the credit, but usually the lender will be a finance company that’s separate from the seller. With hire purchase, unlike a layby sale, you get to take the goods home when you sign the contract.
However, until you pay off the goods the lender will usually have a security interest in the goods that will entitle them to repossess the goods if you miss your payments. Sometimes the lender’s security interest will consist of them keeping formal legal ownership of the goods (legal “title”) until they’re fully paid off. But regardless of who has legal ownership of the goods while you’re still making your payments, you’ll still be protected by the rules in the CCCF Act for consumer credit contracts, and the lender will still have to follow the detailed processes in the Act if they want to repossess the goods (see “Repossession” in this chapter).
A secured loan is where you borrow money and you (or a guarantor) provide property as security for the loan. The lender then has what’s called a “security interest” in that property. If you don’t meet your repayments on the loan, the property that was provided as security can be taken by the lender and sold – this is called “repossession” (see “Repossession” in this chapter). If the price the property sells for doesn’t cover the amount you borrowed, plus the interest and other charges, you may still end up owing money to the lender.
Finance companies who offer secured loans often charge very high interest rates and sometimes ask you to provide property for security that’s worth far more than the loan – for example, a car, or sometimes even your house. In these cases, you may be able to get the courts or the Disputes Tribunal to change the terms of the agreement (see “Challenging an unfair credit contract” in this section).
Lenders can’t take a security interest over certain types of consumer goods, and any term in a credit contract that seems to do this will be legally invalid. This applies to beds and bedding, stoves and other cooking equipment, medical equipment, portable heaters, washing machines and fridges.
However, that restriction doesn’t apply when a bank or other lender loans you money specifically for the purpose of you buying the item. In those cases, the security over the item is called a “purchase money security interest”.
Lenders can’t take a security interest over passports and other travel documents, ID cards and documents, and bank cards.
An unsecured loan is where you borrow money without providing any security. You can still be charged interest or credit fees.
From 6 June 2015, all lenders must comply with the “lender responsibility principles” set out in the Credit Contracts and Consumer Finance Act. If a lender breaches those responsibilities, the courts can order them to pay compensation to the borrower or can make various other orders. Lenders who repeatedly breach the responsibility principles can be banned from operating a credit business.
Note: A new Responsible Lending Code, issued by the Government in March 2015, expands on the lender responsibility principles and gives guidance to lenders on how to put those principles into practice. The Code isn’t law, and doesn’t legally bind lenders. However, if a lender is taken to court and they can show that they complied with the Code, this will be treated as evidence that they complied with the lender responsibility principles. That fact won’t decide the issue, however, as it can be weighed against other evidence. The Code is available on the Consumer Protection website, at www.consumerprotection.govt.nz.
All lenders have the following responsibilities:
The lender must give you the following key information before you enter into the consumer credit contract (this is called “initial disclosure”):
This information must be provided in writing in the form of a disclosure statement – this can be a single document or a number of related documents, and it can be within the credit contract itself. The information must be clear, concise and accessible.
If you don’t get a disclosure statement with all this information, you can cancel the contract (see “When you can cancel a credit contract” in this section). If you cancel, the lender won’t be able to enforce the contract, and they may also face penalties (see “Enforcing the credit contract laws against lenders” in this section).
As well as providing an initial disclosure statement (see above), lenders must provide you with ongoing information as follows:
Note: Guarantors also have to be given certain information (see “Guarantors” in this chapter).
Lenders must make the following key information publicly available:
Making this information “publicly” available means making it available in the following ways:
You have various rights to cancel a consumer credit contract. The extent of your cancellation rights depends on whether the lender has given you all the information they’re required to in their “disclosure statement” (see “Information you must be given” in this section):
If you cancel, you may have to pay:
Note: There’s usually no right to cancel short-term consumer credit contracts – that is, when credit is provided for a period stated in the contract that’s less than two months. There’s also no right to cancel a consumer credit contract on the ground that disclosure hasn’t been made to a guarantor (see “Guarantors” in this chapter).
If you’ve signed a consumer credit contract, the law then gives you a “cooling off” period – usually five working days – during which you can change your mind and cancel the contract.
The length of the cooling-off period depends on how the lender gave you the necessary information:
Note: The cooling-off period starts once the lender has given you all the information that the law requires. If the lender hasn’t given you all the necessary information, you can cancel the contract at any time.
The cancellation must be in writing. It can be worded in any way that shows you intend to cancel the contract. Consumer Protection has a template cancellation notice you can use, on its website ( www.consumerprotection .govt.nz).
If you cancel a consumer credit contract, either during the cooling-off period or when the lender has failed to give you all the information the law requires, exactly what you’ll need to do will depend on the type of credit arrangement it is:
The interest rate and the method for calculating interest must be fully and clearly disclosed at the beginning of the contract (see “Information you must be given” in this section). In particular, the contract must state the annual interest rate.
The law doesn’t set a limit on the interest rates, except that the rates must not be “oppressive” (see “Challenging an unfair credit contract” in this section). But the law does limit how interest can be charged. Interest generally must not be charged in advance – that means you can only be asked to pay it after it has built up.
The lender can charge a higher interest rate (a “penalty rate” or “default rate”) on the amount of a payment you’ve missed until you get your payments up to date. They can’t raise the interest rate for the whole unpaid balance because you’ve missed a payment or done something else in breach of the contract. However, if you go over your credit limit you can be charged a higher rate on your total debt until you bring it back under the credit limit.
If the lender is going to charge a penalty interest rate, this must be set out in the contract and the penalty rate must be fair (see “Challenging an unfair credit contract” in this section).
Lenders can charge you various credit and default fees, but these must be reasonable, and the lender must have told you about all these fees at the outset of the contract (see “Information you must be given” in this section). If a fee is unreasonable, you can apply to the District Court to have it reduced or cancelled.
When the courts are deciding whether or not a credit fee or default fee is reasonable, the following specific rules apply:
Note: If the lender complied with the Responsible Lending Code when they charged a fee, this will be evidence that the fee is reasonable.
Lenders must be registered as financial service providers. If they aren’t registered, they can’t charge you any interest or fees under a credit contract.
If a lender registers after you’ve entered into a credit contract with them, they must give you written notice of this, and they can’t charge you interest or fees for the period before you were given the notice.
Lenders can’t unreasonably require you to take out:
If the lender does unreasonably require you to do this, the courts can order them to refund you some or all of the premiums or other amounts you’ve paid, and/or the courts can cancel the insurance, waiver or warranty.
It will be unreasonable for a lender to require you to take out insurance, a repayment waiver or an extended warranty if this isn’t reasonably necessary to protect the lender, or if it’s not reasonably justifiable given the risks you and the lender are taking. For example, a lender can’t require income-protection insurance if you’re unemployed, and they can’t require you to buy an extended warranty that doesn’t provide additional rights to those you already have under the law.
If a credit contract involves insurance, a repayment waiver or an extended warranty, the lender must give you a copy of the specific terms of the insurance, waiver or warranty before they arrange it.
Note: You have options if you’re having trouble with your loan. You can phone Consumer Protection’s helpline, 0508 4 CONSUMER (0508 426 678), to talk to someone there about it. You may also be able to apply for a break from your repayments if something unexpected has happened (see below, “Unforeseen hardship: Applying to have the contract terms relaxed”, and for more information about your options generally, see “Other resources” at the end of this chapter).
If you fail to meet your payment commitments or breach the credit contract in some other way, the lender may be able to repossess goods that you bought on hire purchase or that you put up as security for a loan (see “Repossession” in this chapter).
Note: If you’re not able to meet your payment commitments, you may be able to negotiate alternative arrangements with the lender – for example, making smaller payments over a longer period. If the debt is unsecured, you may be able to apply for a summary instalment order to pay the debt back over time and avoid the lender taking court action against you (see “When you can’t pay your debts: Bankruptcy and other options” in this chapter).
You can ask the lender to change the terms of the credit contract if:
Examples of unforeseen hardship are if you’re sick or injured, if you’ve lost your job, or if your marriage or relationship has ended.
Changes to the contract can include extending the term of the contract (to reduce the amount of each payment) and postponing certain payments.
You’ll need to put your request in writing. The lender can’t charge you a fee for dealing with your request.
In some cases when you’ve already missed a payment, the lender doesn’t have to consider any hardship request you make. This applies:
However, even in those cases the lender must consider your hardship request if you’ve now fixed the problem.
The lender also doesn’t have to consider your request if you could reasonably have been expected to foresee, when you made the contract, that the hardship would prevent you making your payments.
There’s also a restriction on how often you can make hardship requests on the same grounds. If you’ve already made a hardship request to the lender, you can’t make another one within the next four months, unless it’s for a different reason.
After they receive your written hardship request, the lender must meet a number of deadlines:
If the lender refuses your request, you can ask the courts or the Disputes Tribunal to change the terms of the contract (see the chapter, “The Disputes Tribunal”).
You can also take your request to the courts or Disputes Tribunal if the lender fails to respond with a decision within the required time (see above).
A lender must accept early or extra payments (also called “part prepayments”) unless the contract says that the lender can refuse them. If a lender refuses an early payment, they must refund that payment to you as soon as practicable.
A lender must accept full repayment at any time, and the contract can’t prevent this.
Note: The lender can charge you a “break fee” if the contract specifically allows this. A break fee – called a “prepayment fee” in the CCCF Act – is a fee you pay if you pay off the credit early. The fee must be a reasonable estimate of the lender’s loss arising from the early payment (see also “Interest and fees” in this section).
If you’re considering early repayment, ask the lender what it will cost to repay early (they may charge you a small fee for working out the figures). Make sure you check whether it’s worth it to repay early. Getting budgeting advice will help.
You can ask the Disputes Tribunal or the District Court to change the terms of a credit contract if you think it’s very unfair (the CCCF Act calls this “reopening” the contract). The terms can be changed if:
There are certain factors that the tribunal or the court has to consider, including:
The threshold for getting a credit contract changed is quite high. Usually, the court or tribunal won’t change a contract merely because, for example, a penalty interest rate is high. They will tend not to intervene if you’re experienced and you clearly understood the contract. They’re more likely to intervene if your understanding was limited in some way – for example, by not being able to speak or read English or by some disability.
You can take civil court action against a lender if you think they’ve breached the Credit Contracts and Consumer Finance Act:
The Commerce Commission can also bring civil court action against lenders.
The courts and the Disputes Tribunal have wide powers when a lender has breached the CCCF Act, including the Act’s repossession rules. This includes ordering the lender to refund you money you’ve paid or to pay you compensation for any loss or damage you’ve suffered, and generally making any other order that the court or the Tribunal thinks is appropriate. A lender who has acted in a particularly outrageous way can also be ordered to pay you “exemplary damages” – these are damages that go beyond compensating you for any loss or damage and that are aimed instead at punishing the lender.
If it’s a case where “statutory damages” apply (see below), you won’t also be awarded compensation unless the statutory damages aren’t enough to cover the loss or damage you suffered.
The High Court can also make injunctions to stop the lender doing certain kinds of things.
For some breaches, a lender will be required to pay “statutory damages”, which can be up $6,000. These include breaches such as failing to give you key information, using incorrect interest calculations, or breaching the rules for repossessing goods. These penalties apply regardless of the loss you actually suffered and are designed to punish the lender.
The District Court can also ban lenders from operating a credit business if:
The ban can be indefinite or for a specific period.
If the lender breaches the ban by operating a credit business, they can be jailed for up to three months or fined up to $200,000, or both.
The Commerce Commission can take the following action against lenders who commit offences against the CCCF Act:
Consumer credit contracts come under the definition of “services” under the Consumer Guarantees Act 1993, and therefore lenders must comply with the relevant guarantees under this Act (see “Automatic guarantees when buying from a business” in the “Consumer protection” chapter).
Lenders must comply with the Fair Trading Act 1986 and therefore aren’t allowed to mislead or deceive debtors about loans and their rights related to them (see “Protections against misleading or unfair trading” in the “Consumer protection” chapter).
All lenders must be registered as financial service providers and be members of an approved dispute-resolution scheme.
These dispute-resolution schemes are intended to be accessible, independent, fair, accountable, efficient and effective for consumers. The schemes can deal with problems with:
Dispute resolution is available to any individual consumer and to any small organisation (that is, one with fewer than 20 full-time equivalent employees).
You’ll first need to make a complaint to the lender to give them a chance to address the issue. For the next steps, check with the lender’s dispute-resolution scheme. You can find out which scheme they belong to by:
(For information about the four dispute-resolution schemes in New Zealand, see “Other resources” at the end of this chapter.)
Each dispute-resolution scheme has its own process for handling complaints. These services are all independent and the process is always confidential.
There are many kinds of settlement outcomes available, including monetary compensation (but this is not always given).
If your complaint isn’t resolved, you can take it to the Disputes Tribunal (see the chapter “The Disputes Tribunal”) or the courts.
Goods or services bought on credit have to comply with the general consumer-protection laws. This means you have the following rights: