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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” in this section). 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. See “Challenging an unfair credit contract” in this section.

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” 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 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, 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.

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, Hamoney, Marac or MTF Finance. 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 would look out for high break fees.

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. It’s important to research your car finance options before you enter into any agreement.

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

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

Community Law

www.communitylaw.org.nz

Your local Community Law Centre can provide free initial legal advice and information.

Consumer Protection

www.consumerprotection.govt.nz

Consumer Protection helpline: 0508 426 678 (0508 4 CONSUMER)

Email: cpinfo@mbie.govt.nz

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).

MoneyTalks

www.moneytalks.co.nz

Phone: 0800 345 123

Email: help@moneytalks.co.nz

MoneyTalks provides free, confidential budgeting support. They can pair you with a financial mentor to help you if you are struggling with debt or need advice on budgeting.

FinCap

www.fincap.org.nz

Phone: 0800 345 123

Email: kiaora@fincap.org.nz

FinCap can help you with budgeting information online or on the phone. They may also suggest a local budgeting service to help you with debt and other budgeting issues.

Consumer NZ

www.consumer.org.nz

Phone: 0800 266 786

Email: info@consumer.org.nz

The Consumer NZ website provides a wide range of information on consumer credit and debt issues, including debt collectors, repossession and bankruptcy

Commerce Commission

www.comcom.govt.nz

Phone: 0800 943 600
Email: contact@comcom.govt.nz
The Commerce Commission enforces the consumer credit legislation (the Credit Contracts and Consumer Finance Act) and the laws against misleading and deceptive conduct by traders (the Fair Trading Act). The Commission provides information on these areas on its website.

It’s All Good

www.comcom.govt.nz/business/resources-for-consumer-organisations/its-all-good

It’s All Good is an animated series produced by The Commerce Commission about consumer rights.

Citizens Advice

www.cab.org.nz

Phone: 0800 FOR CAB (0800 367 222)
Citizens Advice Bureaux have volunteers trained in consumer law who can provide information and advice if you have a problem with credit and debt issues.

Dispute resolution schemes

There are four dispute resolution schemes for consumers dealing with lenders and other credit providers.

  • Financial Services Complaints Limited – www.fscl.org.nz
    Phone:
    0800 347 257
  • Email: info@fscl.org.nz
  • Insurance & Financial Services Ombudsman –
    Phone: 0800 888 202
  • Email: info@ifso.nz
  • Banking Ombudsman – www.bankomb.org.nz
    Phone:
    0800 805 950
  • Email: help@bankomb.org.nz
  • Financial Dispute Resolution – www.fdrs.org.nz Phone: 0508 337 337
  • Email: enquiries@fdrs.org.nz

Cases in the District Courts

The Ministry of Justice

The Ministry of Justice website has information about civil claims in the District Courts: see www.justice.govt.nz and search “Claims you can take to civil court”.

Credit reporting

Privacy Commission

www.privacy.org.nz
Phone:
0800 803 909

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

Your credit record

Three credit reporting companies 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.

Centrix – www.centrix.co.nz 0800 236 874

Illion – www.illion.co.nz 0800 733 707

Equifax – www.equifax.co.nz 0800 698 332

Personal Properties Securities Register (PPSR)

www.ppsr.companiesoffice.govt.nz

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.

Bankruptcy and other options

Insolvency and Trustee Service

www.insolvency.govt.nz

Phone: 0508 INSOLVENCY (0508 467 658)

The Insolvency and Trustee Service (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).

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