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Consumer rights & money

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Your rights and obligations: When you can cancel a credit contract

Interest and fees

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

Credit Contracts and Consumer Finance Act 2003, ss 36–40

The interest rate and the method for calculating interest must be fully and clearly disclosed at the beginning of the contract (see: “The information you must be given”). In particular, the contract must state the annual interest rate.

The law states that interest rates must not be “oppressive” (see: “Challenging an unfair credit contract”). The law also limits how interest can be charged. Usually, interest 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 just 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.

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

Credit Contracts and Consumer Finance Act 2003, ss 41–45, 94(1)(ca)

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: “The information you must be given”). If a fee is unreasonable, you can apply to the District Court to have it reduced or cancelled.

When the courts are deciding whether 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 (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 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, 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, the fee 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.

What fees can I be charged if I borrow money to buy a car?

If you’re buying a car and need to borrow money to pay for it, you may enter into a car finance agreement. Some big car brands have their own financing divisions. Most other dealers offer loans through finance companies such as AA Money, Harmoney, Marac or MTF Finance.

When the loan is arranged through a finance company, you may be charged a “broker fee”. This is what the dealer gets paid for arranging the loan. For example, Marac loans arranged through a dealer can include a broker fee of up to $500 on top of an establishment fee. However if you set up the loan directly with Marac, you will be charged an establishment fee but not a broker fee.

Some car finance agreements can require you to have an immobiliser in your car. An immobiliser is a device that can be switched on by the lender that disables your car. The contract could require that you pay for the immobiliser to be installed and if you miss any payments they have the right to disable your car until you catch up on payments.

Note: It’s important to research your car finance options before you enter into any agreement. The more you compare, the better chance you have of finding the right car finance for your needs. For example, if you are planning on making early repayments, you should be aware of high break fees.

Unregistered lenders can’t charge interest or fees

Financial Service Providers (Registration and Dispute Resolution) Act 2008, s 11 Credit Contracts and Consumer Finance Act 2003, s 99B

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.

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Credit and debt

Where to go for more support

Legal information and support groups

Community Law

Your local Community Law Centre can provide you with free initial legal advice.

Find your local Community Law Centre online: www.communitylaw.org.nz/our-law-centres

Consumer Protection

The Consumer Protection website has useful information on a range of consumer topics. Consumer Protection is part of the Ministry of Business, Innovation, and Employment (MBIE).

Website: www.consumerprotection.govt.nz
Email: cpinfo@mbie.govt.nz
Phone: 0508 426 678 (0508 4 CONSUMER)

Consumer NZ

The Consumer NZ website provides a wide range of information on consumer issues and template letters you can use to write to traders to enforce your rights.

Website: www.consumer.org.nz
Email: info@consumer.org.nz
Phone: 0800 226 786 (0800 CONSUMER)

Commerce Commission

The Commerce Commission enforces the laws against misleading and deceptive conduct by traders (the Fair Trading Act) and the consumer credit legislation (the Credit Contracts and Consumer Finance Act). The Commission provides information on these areas on its website.

Website: www.comcom.govt.nz
Email: contact@comcom.govt.nz
Phone: 0800 943 600

To make a complaint online: comcom.govt.nz/make-a-complaint

To read consumer rights in different languages: comcom.govt.nz/consumers/read-about-your-consumer-rights-and-business-responsibilities-in-another-language

Citizens Advice Bureau (CAB)

CAB provides free, confidential and independent information and advice. See CAB’s website for valuable information on a range of topics.

Website: www.cab.org.nz
Phone: 0800 367 222
Facebook: www.facebook.com/citizensadvicenz

Find your local CAB office: www.cab.org.nz/find-a-cab

FinCap and Money Talks

FinCap is a non-government organisation providing free financial mentoring services.

Website: www.fincap.org.nz
Email: kiaora@fincap.org.nz
Phone: 04 471 1420

MoneyTalks is a financial capability helpline operated by FinCap. The Financial Mentors offer free, confidential advice by phone, text, email and live chat.

Email: help@moneytalks.co.nz
Phone: 0800 345 123
Text: 4029
Live chat: www.moneytalks.co.nz

Insolvency and Trustee Service (ITS)

The ITS deals with bankruptcies, no-asset procedures, summary instalment orders and some company liquidations. Information about those processes is available on its website. The ITS is part of the Ministry of Business, Innovation and Employment (MBIE).

Website: www.insolvency.govt.nz
Phone: 0508 INSOLVENCY (0508 467 658)

Dispute Resolution Schemes

There are four dispute resolution schemes for consumers dealing with lenders and other credit providers. Contact the scheme your service provider has registered with.

1. Financial Services Complaints

Website: fscl.org.nz
Phone: 0800 347 257

2. Insurance & Financial Services Ombudsman

Website: www.ifso.nz
Phone: 0800 888 202

3. Banking Ombudsman

Website: www.bankomb.org.nz
Phone: 0800 805 950

4. Financial Dispute Resolution Service

Website: www.fdrs.org.nz
Phone: 0508 337 337

Credit Reporting

Your credit record

There are three credit reporting companies that operate nationally in New Zealand. To check your record or correct any information, you’ll need to contact them all.

You’re entitled to a free copy of your credit record. You should make sure you choose the free option when you contact each company.

1. Centrix – www.centrix.co.nz – 0800 236 874
2. Illion – www.illion.co.nz – 0800 733 707
3. Equifax – www.equifax.co.nz – 0800 698 332

Personal Properties Securities Register (PPSR)

Search the PPSR register to see if there is any security interest registered against a vehicle. This can be done for a small fee by registering to check online.

Website: www.ppsr.companiesoffice.govt.nz

Privacy Commissioner

The Privacy Commissioner has information on your rights in relation to credit reporting and how to complain if you feel your rights have been breached.

Website: www.privacy.org.nz
Email: enquiries@privacy.org.nz
Phone: 0800 803 909

To make a complaint online: go to the website above and select “Your rights tab” then “Complaining to the Privacy Commissioner”

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