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Communtity Law Manual | Credit & debt | High cost consumer credit contracts

Credit contracts: Hire purchase, loans and other credit

High cost consumer credit contracts

What is a high cost consumer credit contract?

Credit Contracts and Consumer Finance Act 2003 ss 45C

A high cost consumer credit contract is a contract that has an interest rate of 50% or more – whether that is expressed as an annual rate or made up of a number of charges (including default interest).

What interest and fees are allowed to be charged?

Credit Contracts and Consumer Finance Act 2003 s45E, 45H, 45I, 45J

The government has brought in new rules to protect consumers from the harm caused by accumulating excessive debt from not being able to pay high interest loans. The rules state that the total cost of borrowing (which includes credit fees, default fees, interest charges and any other fees or charges passed on by the creditor) can’t be any more than the first loan advance. The creditor also can’t charge you compound interest.

The maximum rate of interest that can be charged is no more that 0.8% per day

If the contract contains a default fee, or the creditor charges you a fee, that is more than the prescribed amount (as at July 2020 the prescribed fee is $30), the fee is presumed to be unreasonable, unless the creditor can prove that it more likely than not that is reasonable.

Can I enter into more than one contract?

Credit Contracts and Consumer Finance Act 2003 S45G

The law says that a creditor can’t enter into a high cost consumer credit contract with you if you still owe money under another high cost consumer credit contract, or you had owed money under one within the last 15 days.

A creditor can’t enter into a high cost consumer credit contract with you if you have already entered into 2 high cost contracts within the last 90 days.

The law states that a creditor can’t arrange matters to try and avoid the effect of these rules.

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