Credit contracts: Hire purchase, loans and other credit

The legislation that covers credit contracts

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:

  • hire purchases (called “credit sales” in the Act)
  • secured loan contracts (this is where you provide some of your property, such as your car, as security to the lender for the loan), and
  • unsecured loan contracts.

Key terms and concepts

What is “credit”?

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 (hire purchase for example).

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.

What is a “consumer credit contract”?

The protections in the Credit Contracts and Consumer Finance Act apply only to what the Act calls “consumer credit contracts”. As this term indicates, 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:

  • you’re getting the credit as an individual and not as a company or organisation, and
  • you’re getting the credit mainly for personal, domestic or household use, and
  • you’re being charged interest or credit fees (such as an establishment fee or insurance fee), or you’ve put up some of your property as security for the loan, and
  • the lender is someone who provides credit in the course of their business, or you and the lender were introduced by a paid adviser or broker.

A consumer credit contract can take the form of:

  • a hire purchase, also known as a “credit sale” (see “What is hire purchase (‘credit sales’)?” below)
  • a secured loan (see “What is a secured loan?” below)
  • an unsecured loan (see “What is an unsecured loan?” below)
  • a bank overdraft
  • revolving credit – for example a credit card
  • a layby sale agreement, if you have to pay interest charges or credit fees under the agreement (for layby sales, see the chapter “Consumer protection”)
  • a lease of goods (that is, hiring or renting goods, such as a car). The CCCF Act treats a lease of goods as a hire purchase, and therefore as a consumer credit contract, if the goods are mainly for your personal, domestic or household use, and either:
    • the lease payments will be substantially the same as the cash price for the goods, or
    • you have an option to buy the goods for no additional charge, or for a token amount, of for an additional amount that’s substantially less than what the goods will be worth at the end of the lease.

    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”.

What is hire purchase (“credit sales”)?

Credit Contracts and Consumer Finance Act 2003, s 5 (definitions of “credit sale” and “security interest”)

“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, and 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).

What is a secured loan?

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 also can’t take a security interest over: passports and other travel documents, ID cards and documents and bank cards.

What is an unsecured loan?

An unsecured loan is where you borrow money without providing any security. You can still be charged interest or credit fees.

Responsible lending requirements

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 also 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 Affairs website.

What are the lender responsibility principles?

All lenders have the following responsibilities:

  • Reasonable care and skill – A lender must exercise the care, diligence and skill of a responsible lender at all times. This includes: when advertising, before they enter into a credit contract with you and in all their later dealings with you in relation to the contract.
  • Your borrowing needs and ability to repay – Before entering into a credit contract with you, a lender must make reasonable enquiries so that they’re satisfied, first, that the contract will be likely to meet your requirements and objectives and, second, that you’ll be likely to be able to make your payments without suffering substantial hardship. The lender is entitled to rely on the information you give them, unless they have reasonable grounds to believe it’s not reliable.
  • Helping you reach informed decisions – The lender must help you reach informed decisions, not only about whether to enter into the credit contract but also in all later dealings involving the contract, and they must also help you to be reasonably aware of the contract’s full implications. As part of this responsibility, the lender must make sure:
    • that their advertising and any information they give you aren’t likely to be misleading, deceptive or confusing, and
    • that the terms of the contract, and any later changes to them, are written in plain language and are clear, concise and understandable.
  • Reasonable, ethical treatment – The lender must treat you and your property reasonably and ethically. This includes when problems arise (like you missing payments), or when you suffer unforeseen hardship, or when the lender is repossessing hire-purchase goods or any property that you’ve put up as security for a loan. During any repossession process, the lender must take all reasonable steps to make sure that no damage is done to the repossessed items, that the repossessed items are adequately stored and protected, and that the people carrying out the repossession don’t enter your home in an unreasonable way.
  • No oppressive terms or conduct – The lender must make sure that the credit contract isn’t oppressive, that they don’t pressure you to enter into it by oppressive means, and that they don’t exercise any of their rights or powers under the contract in an oppressive way.
  • Meeting all legal obligations – The lender must meet all their legal obligations to you, including, for example, their obligations under the Credit Contracts and Consumer Finance Act to provide you with necessary information, obligations under the Fair Trading Act 1986 not to engage in false or misleading advertising, and obligations under the Consumer Guarantees Act 1993 to provide their lending services with reasonable care and skill.

information you must be given

“Initial disclosure”: Information you must be given in advance

The lender must give you the following key information before you enter into the consumer credit contract (this is called “initial disclosure”):

  • the lender’s full name (including their trading name if this is different), their address, and their name and registration number on the financial services provider register
  • the initial amount owing
  • the amount of each payment you’ll make, and the number of payments
  • the credit limit
  • how much interest you’ll pay (including the annual interest rate) and how the interest will be calculated (see “Interest and fees” in this section)
  • any credit fees and charges you’ll have to pay, such as establishment fees, insurance fees and “break” fees (fees you’re charged if you repay the debt early – called “prepayment fees” in the Act) (see “Interest and fees” in this section)
  • a description of any security interest, including the property that’s subject to the security, and whether a disabling device will be attached to the property – for example, a remote-operated starter interrupter if the property is a car (see “Use of disabling devices on goods” in this chapter)
  • what happens if you miss payments, including any default interest charges or default fees you’ll have to pay (see “Interest and fees” in this section)
  • a statement of your right to cancel the contract during the “cooling off” period after you get this disclosure statement (see “When you can cancel a credit contract” in this section)
  • a statement of your right to ask the lender to change the terms of the credit contract if you face some unforeseen hardship (see “Unforeseen hardship: Applying to have the contract terms relaxed” in this section)
  • contact details for the dispute resolution scheme that the lender belongs to as a financial service provider (see “Financial service providers – Dispute resolution schemes” in this section).

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).

Ongoing information you must be given

As well as providing an initial disclosure statement (see above), lenders must provide you with ongoing information as follows:

  • “Continuing disclosure” – The lender must give you a statement every six months (or every 45 days for revolving credit contracts like credit cards) that includes information such as opening and closing balances for the relevant period, interest payments made, any fees or charges, and the amount and due date for your next payment. In some cases, this continuing disclosure isn’t required.
  • Changes – The lender must give you full written details of any changes to your contract (called “variation disclosure”). The lender must give you the information within a set time, but this time period will depend on whether it’s a change you’ve agreed to or one that the lender has a right to impose on you under the contract.
  • Information on request – The lender must provide certain information if you make a written request for it (“request disclosure”) – for example, the amount currently owing, the amount required to fully pay off the contract, details of any changes made to the contract, or a copy of the contract. You must be given the information within 15 working days (or within 15 working days after you pay any reasonable fee charged by the lender, if this is later).
  • Transfer to new lender – The lender has 10 working days to tell you if they transfer their rights as lender under the contract to someone else. This includes giving you the new lender’s details and telling you how this transfer will affect you.

    Note: Guarantors also have to be given certain information (see “Guarantors” in this chapter).

Standard form contracts and costs of borrowing

Lenders must make the following key information publicly available:

  • Standard form contracts – Lenders who use standard form contracts must make those contract terms publicly available. In general a “standard form” contract is one that a lender has prepared in advance for all their contracts of that type.
  • Costs of borrowing under secured contracts – Lenders whose contracts involve a security interest over any of the borrower’s property and a right to repossess it must make all the costs of borrowing publicly available. This includes their credit fees (such as establishment fees, “break” fees and insurance fees), default fees, annual interest rates, and default interest rates (see “Interest and fees” in this section).

Making this information “publicly” available means making it available in the following ways:

  • Websites – If the lender has a website, the information must be displayed prominently and clearly on the site.
  • Business premises, vehicles and stalls – If the lender operates from a place that’s open to the public (for example, if they have an office reception area) they must prominently and clearly display a notice stating that a copy of the information is available free of charge if a person asks for it. They must also display this notice if they sell goods on credit from a vehicle, stand or stall (for example, from a truck shop).
  • Available on request – A lender must also provide a copy of the information immediately, and free of charge, if a person asks for it (whether or not the lender has a website or premises are open to the public).

When you can cancel a credit contract

Different rights to cancel at different times

You have various rights to cancel a consumer credit contract. The extent of your cancellation rights depend on whether the lender has given you all the information they’re required to – called a “disclosure statement” (see “Information you must be given” in this section):

  • If you have been given this information, then you have a “cooling-off period” (usually five working days) immediately after you get that information – you can cancel the contract at any time during this cooling-off period (for more details see below, “Cancelling during the ‘cooling off’ period”).
  • If you haven’t been given this information, you can cancel at any time. You’ll need to return any goods you’ve received. If you’ve already received services, you’ll have to pay the cash price for the services within 15 working days after cancelling. If the lender gives you all the necessary information later on, and you haven’t already cancelled by then, the cooling-off period starts at that point.

If you cancel, you may have to pay:

  • the lender’s cancellation expenses – but these must be reasonable
  • interest for the time that you had the credit
  • for any damage to goods that happened while you had them.

Cancelling during the “cooling off” period

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:

  • If the paperwork was handed to you directly, you have five working days.
  • If it was sent to you electronically (by email for example), you have seven working days.
  • If it was mailed to you, you have nine working days from the date it was posted.

    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.

How do I cancel?

The cancellation must be in writing. It can be worded in any way that shows you intend to cancel the contract. Consumer Affairs has a template cancellation notice you can use on its website.

What cancelling means for different kinds of credit contracts

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:

  • If it’s a hire purchase (“credit sale”) for goods or services, your rights will depend on whether you’ve already received the goods or services before you cancel:
    • If you’ve already received the goods or services, you’ll only be able to cancel the credit part of the contract, so you’ll still have to pay the cash price of the goods or services. You’ll have 15 working days to do this after you cancel.
    • If you haven’t already received the goods or services, you can cancel the whole contract, and you won’t have to pay for the goods or services.
  • If it’s a loan, and you’ve already received money under the loan contract, you can cancel the whole contract by returning the money within the cooling-off period.

    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).

Interest and fees

What interest can I be charged under a consumer credit contract?

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 penalty interest, this must be set out in the contract and the penalty rate must be fair (see “Challenging an unfair credit contract” in this section).

What fees can I be charged under a consumer credit contract?

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:

  • Establishment fees – These fees (sometimes called “application fees” or “booking fees”) should generally be no more than the lender’s reasonable costs in setting up the credit contract, including the costs of processing your application, documenting the contract, and advancing the credit.
  • Break fees – These are fees you’re charged if you repay the debt, or some of it, early (they’re called “prepayment fees” in the CCCF Act). They can’t be more than a reasonable estimate of the lender’s loss resulting from the early payment.
  • Other credit fees – For other types of credit fees charged by lenders (for example, for the administrative costs involved with early payment, or “prepayment”), the fee should generally be no more than is needed to reasonably compensate the lender for any costs they incurred. The judge will take into account reasonable standards of commercial practice.
  • Default fees – These are fees you’re charged for missing payments or breaching the contract in some other way, including, for example, a repossession fee. Default fees should generally be no more than is needed to reasonably compensate the lender for any costs or losses they were caused by your default. The judge will take into account reasonable standards of commercial practice.
  • Third-party fees – Lenders can also pass on to you any fees they’ve been charged by others in relation to your credit contract – for example, for a credit check, or a broker’s fee. The lender can’t mark up these fees: you can only be charged what the lender was charged.

    Note: If the lender complied with the Responsible Lending Code when they charged a fee, this will be evidence that the fee is reasonable.

Unregistered lenders can’t charge interest or fees

Lenders must be registered as financial service providers, and 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.

Credit-related insurance

Do I have to take out credit-related insurance?

Lenders can’t unreasonably require you to take out:

  • credit-related insurance (for example, to insure any property you’ve put up as security), or
  • a repayment waiver (this is where you pay an extra charge so that you don’t have to repay the debt if you become sick or injured or lose your job), or
  • an extended warranty for goods you buy on hire purchase (“credit sale”).

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.

Repaying the loan

Problems with making your repayments

Note: You have options if you’re having trouble with your loan. You can phone Consumer Affairs’ helpline, 0800 LOAN STRESS (0800 56 26 787), 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).

What happens if I can’t meet my payment commitments?

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).

Unforeseen hardship: Applying to have the contract terms relaxed

When you can ask the lender to relax your repayment obligations

You can ask the lender to change the terms of the credit contract if you’re unable to meet your obligations because of some unforeseen hardship and if you can reasonably expect to meet your obligations if the lender relaxes the contract terms. 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.

When you’re not entitled to make a hardship 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:

  • if you’ve been behind on your payments for two months or more, or
  • if four times in a row you’ve failed to make your payments on time, or
  • if you’re behind two weeks or more after getting a repossession warning notice (see “Repossession” in this chapter).

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 it was reasonably foreseeable to you 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.

The lender’s response to your hardship request

After they receive your written hardship request, the lender must meet a number of deadlines:

  • They have to give you a written notice acknowledging your request within five working days after receiving it.
  • If they want more information from you, they have to ask for this within 10 working days after your request.
  • The lender must make a decision and notify you of it within 20 working days after your request (or if they’ve asked for more information, then within 10 working days after getting the information or within 20 working days after asking for the information, whichever is later). The lender must comply with the lender responsibility principles when they decide (see “Responsible lending requirements” in this section). If they refuse your request they have to give you written reasons for this and must tell you about your right to take the issue to the courts or the Disputes Tribunal.

What can I do if the lender refuses my hardship request?

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).

“Prepayment”: Paying off the debt early

Can I pay off the debt early?

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.

Challenging an unfair credit contract

What can I do if the contract is unfair?

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:

  • the contract is “oppressive”, which means it’s “harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice”, or
  • the lender is exercising a right they have under the contract in an oppressive way – this includes, for example, refusing to change the terms of the contract or to agree to an early termination, or
  • the lender persuaded you to enter into the contract by acting in an oppressive way.

There are certain factors that the tribunal or the court has to consider, including:

  • the relative bargaining power of the two sides
  • whether your age or physical or mental condition meant you weren’t reasonably able to protect your own interests
  • whether the lender complied with the lender responsibility principles (see “Responsible lending requirements” in this section)
  • whether the contract is written in clear, understandable language
  • the terms you could have obtained from other lenders
  • how much you have to pay under the contract
  • how long you were given to put right any default.

The threshold for getting a credit contract changed is quite high. In general 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.

Enforcing the credit contract laws against lenders

What action can borrowers take against lenders?

You can take civil court action against a lender if you think they’ve breached the Credit Contracts and Consumer Finance Act:

  • The Disputes Tribunal can deal with a wide range of breaches under the Act, but only if the value of credit is under $15,000, or up to $20,000 if both sides agree to the Tribunal hearing the case (see the chapter “The Disputes Tribunal”).
  • The District Court will hear claims above these amounts, up to $200,000.
  • The case must go to the High Court if the amount of credit is above $200,000, or if you want to apply for an injunction to stop the lender doing something.

The Commerce Commission can also bring civil court action against lenders.

What can the courts do about lenders who break the rules?

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:

  • they’ve repeatedly breached the CCCF Act (which can include the lender responsibility principles), or
  • they’ve been convicted of an offence against the Act or a dishonesty offence such as theft, or
  • they’ve had a credit contract reopened by the courts or a Disputes Tribunal on the ground that it was oppressive or that the lender acted oppressively (see “Challenging an unfair credit contract” in this section).

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.

What happens if a lender commits offences against the CCCF Act?

Credit Contracts and Consumer Finance Act 2003, ss 95, 102A-105F, 111; Credit Contracts and Consumer Finance (Infringement Offences) Regulations 2015, reg 4

The Commerce Commission can take the following action against lenders who commit offences against the CCCF Act:

  • Infringement offences – This is a set of less serious offences for which the Commerce Commission can issue a lender with an infringement notice and a fine (similar to a speeding ticket). These offences include, for example, leaving out some of the required information from a disclosure statement given to a borrower, or not giving the disclosure statement within the required time. Infringement notices carry a fine of $1,000. If in a particular case the Commission thinks a more serious response is needed, it has the option of bringing a criminal prosecution in court for the infringement offence. In these cases the maximum penalty is a fine of up to $10,000 for individuals, and up to $30,000 for companies.
  • Other offences – For other, more serious offences against the CCCF Act, the Commerce Commission can bring criminal prosecutions, and for this second layer of offences the penalties are much heavier if the lender is convicted: a fine of up to $200,000 for individuals, or up to $600,000 for companies. If a lender has been banned by the courts from operating a lending business for repeated offending, and they then breach the order, they can be jailed for up to three months or fined up to $200,000 or both.

Other legal protections when you get credit

Automatic guarantees (Consumer Guarantees 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).

Protection against misleading conduct (Fair Trading Act)

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).

Financial service providers – Dispute resolution schemes

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:

  • the services, advice or products you’ve received from a lender or from another type of financial service provider such as a financial adviser
  • the conduct of any financial service provider
  • a financial service provider’s breach of a legal obligation, of an industry code of conduct, or of their contract with you.

How do I complain?

Dispute resolution is available to any individual consumer and to any small organisation (that is, 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.)

How are complaints resolved?

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 (but not always) monetary compensation.

If your complaint isn’t resolved, you can take it to the Disputes Tribunal (see the chapter “The Disputes Tribunal”) or the courts.

Problems with goods and services bought on credit

Goods or services bought on credit still have to comply with the general consumer-protection laws. This means you have the following rights:

  • Substantial defects – If there’s a problem with the goods or services that can’t be fixed or that amounts to what the Consumer Guarantees Act calls “substantial”, you can cancel the credit contract and the lender must return all the payments you’ve made. (For more details, including when a defect is “substantial”, see “Automatic guarantees when buying from a business” in the “Consumer protection” chapter).
  • Less serious defects – If the defect with the goods or services can be fixed and doesn’t amount to a “substantial” defect, you’ll need to give the supplier an opportunity to fix the problem and you must keep up the payments on the credit contract. If you stop your payments, and it’s a hire-purchase contract for goods, the lender may be able to repossess the goods (see “Repossession” in this chapter). If the supplier doesn’t fix the problem, or doesn’t fix it within a reasonable time, you can cancel the credit contract and the lender must return all your payments.
Next Section | Guarantors

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