11 Jun 2015
Lending-related complaints the Banking Ombudsman Scheme investigates are usually covered by consumer credit contracts legislation. This legislation has recently been updated, with the main changes made to the Credit Contracts and Consumer Finance Act 2003. The Act now places specific legal obligations on lenders – those who provide credit – including banks.
A consumer credit contract is a contract where a borrower is given credit for personal use, such as through a mortgage, credit card, arranged overdraft or personal loan, so is applicable to banking (as well as other lenders).
You may have rights under the Act if you are considering or already have a lending agreement with your bank. The Commerce Commission website has detailed information covering all aspects of consumer credit changes.
The changes are designed to ensure lenders act responsibly and that vulnerable consumers are protected. The Act places obligations on lenders and lending agents such as repossession agents and debt collectors.
Some key changes to the Act are:
lenders will have to:
comply with responsible lending principles. A Responsible Lending Code provides guidance for lenders to comply with these principles.
ensure customer agreements, and lender actions under them are not oppressive for customers
make initial disclosure before agreements are signed, including what required payments are, how interest is calculated, any applicable fees or charges, and all the agreement’s terms and conditions
a five-working day cooling-off period (instead of three) for borrowers under a consumer credit contract
new rules about fees and charges lenders can include in a consumer credit contract
different rules for unforeseen hardship applications (see Financial hardship on page 2).
All lenders must now comply with “responsibility principles” set by the Act.
These principles require lenders to act with the care, diligence and skill of a responsible lender when advertising consumer credit contracts and before entering into an agreement to provide credit (and before taking a relevant guarantee). They also apply in all subsequent dealings with the borrower or guarantor.
The responsibility principles require a lender to:
make reasonable inquiries to be satisfied that the credit is likely to meet the borrower’s requirements and be repaid without the borrower suffering substantial hardship
assist the borrower to make informed decisions about whether to enter into the agreement, and to make informed decisions in all subsequent dealings
treat borrowers and their property reasonably and in an ethical manner, including during any repossession process
make sure agreement terms and powers exercised by the lender are not oppressive
meet all legal duties to the borrower
You can read the full set of principles and lender responsibilities in the Act here: http://www.legislation.govt.nz/act/public/2014/0033/latest/whole.html#DLM6108975.
The Act now enables people suffering unforeseen hardship to make a hardship application when already in default, as long as they have been in default for less than two months and have not missed four consecutive payments.
To apply, you must explain to the lender in writing why you’re unable to meet your obligations (for example, an illness, injury, loss of employment, or the end of a relationship).
Lenders must then comply with lender responsibility principles when assessing your application, respond within set timeframes, and provide written reasons if your application is declined.
Our Quick Guide on Hardship and financial difficulty has more information about applying for a change to your credit contract on hardship grounds.
If you have concerns about how the Act affects your bank dealings, discuss these with your bank in the first instance.
We can consider complaints about a bank’s breach of a statutory obligation or industry code. However, we don’t have power to make banks alter their practices or policies. If you consider the bank has not complied with its responsibilities, and you are not happy with its response to your concerns, you can contact us.
The Ministry of Consumer Affairs also has checklist of things to think about before borrowing money, and the NZ Federation of Family Budgeting Services has published a Code of Responsible Borrowing, which covers ensuring you can afford repayments, looking at other options apart from borrowing, knowing what you’re signing, providing real information, and keeping lenders informed about life changes which affect making repayments.