Loan sharks the target of consumer credit law reform

Consumer credit laws are in line for an overhaul to protect consumers from rogue credit companies.

Cabinet has approved a package of reforms to provide more protection to consumers, require lenders to give borrowers more information and beef up the powers of enforcement agencies.

Finance Minister Bill English says the changes would balance up financial sector reforms on the credit side.

“There has been significant and much-needed reform of the investment side of the financial sector over the past three years,” Mr English says.

 “However, credit providers remain largely unregulated and have no conduct requirements, leading some to exploit vulnerable people, resulting in severe financial hardship and spiralling debt. This is not acceptable.”

For some people who are a higher lending risk, the cost of credit will always be higher, but that did justify the exploitive and irresponsible lending practices of some lenders, Mr English says.

Cabinet has approved a package of reforms that include:

• Strengthening the Consumer Contracts and Consumer Finance Act (CCCFA) by adding new responsible lending requirements including that:  The borrower must be reasonably expected to repay the loan without substantial hardship and, the lender must be honest and transparent in dealing with the borrower.
• Creating a Code of Responsible Lending that sets out the types of practices accepted as meeting the principles of responsible lending.
• Giving the Financial Markets Authority (FMA) the power to issue formal warnings and cancel a person’s financial service provider registration if they fail to comply with the code and other relevant legislation.
• Provide that borrowers are not liable for the costs of interest or fees if their lender is not registered, as required, on the Financial Service Providers Register.
• Amend the CCCFA to stipulate that advertising must not be misleading, deceptive, or confusing and must comply with the code, and allow the regulator to prohibit advertisements that fail to do so.
• Protect important goods, such as tools of trade, necessary household items, and motor vehicles with a value of up to $5000, from being used as security against a loan (except if the credit contract is for the purchase of such an item).
• Extend the 'cooling-off period', where a consumer has the right to cancel a credit contract, from three to five working days.
• Improve disclosure requirements, including that disclosure of key information and full terms and conditions must occur before the contract is made (presently this can happen up to five days after).
• Changes to the rules around oppressive credit contract provisions and hardship applications to provide increased consumer protection.

Government intends to release draft legislation for consultation on the proposed changes in advance of introducing final legislation to Parliament.