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Communtity Law Manual | Credit & debt | Responsible lending requirements

Credit contracts: Hire purchase, loans and other credit

Responsible lending requirements

The lender responsibility principles

Credit Contracts and Consumer Finance Act 2003, s 9C

All lenders have to comply with the “lender responsibility principles” set out in the Credit Contracts and Consumer Finance Act. These are:

  • 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 that relate to the contract.
  • Considering 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 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 those terms, 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 act unreasonably when they enter your home.
  • No oppressive terms or conduct – The lender must make sure that the credit contract isn’t oppressive, that they don’t use oppressive means to pressure you to enter into it, and that they don’t exercise any of their rights or powers under the contract in an oppressive way. Oppressive means that the contract or the lender’s conduct is extremely unfair or unreasonable. See “Challenging an unfair credit contract” in this chapter.
  • 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, their obligations under the Fair Trading Act 1986 not to engage in false or misleading advertising, and their obligations under the Consumer Guarantees Act 1993 to provide their lending services with reasonable care and skill.

    Credit Contracts and Consumer Finance Act 2003, ss 9E-9I

    Note: A Responsible Lending Code issued by the government 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

What happens if a lender breaches the lender responsibility principles?

Credit Contracts and Consumer Finance Act 2003, ss 9C, 93, 96, 108

If a lender breaches the lender responsibility principles, the courts can order them to pay you compensation or can make various other orders. Lenders who repeatedly breach the responsibility principles can be banned from operating a credit business.

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