Credit Contracts and Financial Services Law Reform Bill Officials’ Report to Commerce Committee 30 January 2014
Credit Contracts and Financial Services Law Reform Bill – Officials’ Report 1. This is the officials’ report on the Credit Contracts and Financial Services Law Reform Bill. It is in two parts: Part A discusses the key changes to the Bill and officials’ recommendations on matters not discussed by submissions, and Part B is a clause-by-clause analysis of submissions made to the Committee and changes recommended by officials in response. 2. The Credit Contracts and Financial Services Law Reform Bill (the Bill) reforms the entire suite of legislation that governs consumer credit contracts from before their inception, to their termination or enforcement. The Bill amends the Credit Contracts and Consumer Finance Act 2003 (the Act), repeals the Credit (Repossession) Act 1997 (the CRA) and incorporates its provisions within an expanded Act. Repossession agents will be required to be registered under the Private Security Personnel and Private Investigators Act 2010. A small amendment is made to the Personal Property Securities Act 1999 (the PPSA), and the Bill also amends the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (the FSPA) to promote cost-effective financial dispute resolution and protect the integrity of the financial service provider registration regime. 3. The Bill makes the following key changes to the Act: Elevates consumer protection to the primary purpose of the Credit Contracts and Consumer Finance Act; Introduces responsible lending which require lenders to exercise the care, diligence and skill of a responsible lender, and to comply with specific lender responsibilities. These will be supported by a Responsible Lending Code which will elaborate and provide guidance for lenders; Increasing the disclosure requirements, requiring initial disclosure to be made before the consumer credit contract is entered into and providing for a ‘standing disclosure’ which a borrower will be able to obtain at any time from a lender; Clarifying the tests for unreasonable fees and removing the one year limitation period; Clarifying that default interest can only be charged on the amount in default; Applying responsible lending principles to credit-related insurance; Allowing borrowers to make unforeseen hardship applications for a period after they are in default and providing processes and timelines for lenders considering applications; Incorporating repossession provisions from the Credit (Repossession) Act 1997 into the CCCFA and making improvements as recommended by the Law Commission including the requirement for all repossession agents to be registered;
Prohibiting unregistered creditors from enforcing the costs of borrowing under consumer credit contracts; Providing more detail in relation to oppression and when a credit contract may be considered oppressive; Removing the reserve dispute resolution scheme and making other changes to protect the integrity of the financial service provider registration system under the Financial Service Providers (Registration and Dispute Resolution) Act 2008. 4. The Bill was introduced to the House on 18 April 2013 and referred to the Commerce Committee after its first reading on 17 September 2013. The Committee received written submissions from approximately 70 submitters and heard 43 oral submissions in both Auckland and Wellington. 5. Submitters generally supported the intention of the Bill, including the elevated consumer protection purpose of the Credit Contracts and Consumer Finance Act. There are a large number of suggested drafting improvements which officials agree should be made. 6. This report provides an overview of the submissions received on the Bill, identifies and responds to areas where changes to the Bill were proposed and provides some recommendations from officials for amendments to the Bill that were not suggested by submitters. 7. All changes recommended are subject to the advice and drafting of Parliamentary Counsel.
Credit Contracts and Financial Services Law Reform Bill – Officials’ Report Part A: Main Issues Departmental Report Part A Key Decision Points ........................................................................................................................................................................................................................ 5 Commencement..................................................................................................................................................................................................................... 5 Responsible Lending ............................................................................................................................................................................................................. 5 Responsible Lending Code .................................................................................................................................................................................................... 7 Disclosure .............................................................................................................................................................................................................................. 8 Fees ..................................................................................................................................................................................................................................... 10 Unforeseen Hardship .......................................................................................................................................................................................................... 11 Enforcement & Remedies ................................................................................................................................................................................................... 13 Repossession ....................................................................................................................................................................................................................... 14 Oppression .......................................................................................................................................................................................................................... 15 Financial Services Providers (Registration and Dispute Resolution) Act ............................................................................................................................ 17 Officials’ Recommendations ........................................................................................................................................................................................................ 19
Key Decision Points Key recommendations have been made in relation to commencement, responsible lending, the Responsible Lending Code, disclosure, unreasonable fees, unforeseen hardship, enforcement and remedies, repossession, oppression and dispute resolution. Part A provides a high level overview of each of these areas and includes the suggested recommendations.
Commencement 1. The Bill provides for a 6 month commencement period. 2. Submitters noted that some of the amendments made by the Bill will require systems changes and a period for implementation and that this cannot be achieved within the 6 month timeframe. 3. Recommendation: 3.1. Amend the commencement provisions to provide for the Bill to come into force by Order in Council, with a 12 month backstop date. Ensure consultation and other work developing the responsible lending code can commence before the Act fully comes into force.
Responsible Lending (pages 23 – 44 of Part B) 4. The Bill introduces responsible lending provisions into the CCCFA as an additional mechanism to ensure competitive markets for credit and assist in consumer protection. There is currently no specific statutory obligation for credit providers to take into account the needs of consumer seeking to use their products or the ability of the consumer to repay the loan. The responsible lending principles will require lenders to exercise the care, diligence and skill of a responsible lender. These principles will apply:
in any advertisement for consumer credit;
before a creditor enters into a credit contract; and
in all subsequent dealings with the borrower.
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5. The specific lender responsibilities set out the lender’s obligation to:
make initial inquiries for the lender to be satisfied that the agreement will meet the borrower’s requirements and objectives, and payments can be made without the borrower suffering substantial hardship;
assist borrowers to reach informed decisions entering into agreements and in all subsequent dealings with the lender (including by ensuring advertising and other information provided to borrowers is not misleading, deceptive or confusing, and agreements are clear, concise and intelligible);
assist guarantors to reach informed decisions;
treat borrowers reasonably and with respect (including in relation to any repossession action);
ensure the terms of the agreement, the circumstances in which it is entered into, and the exercise of lenders’ rights, are not oppressive; and
comply with all legal obligations.
6. Both Australia and the UK have responsible lending legislation. In both countries these obligations are tied to a licensing regime for credit providers. The Financial Service Providers (Registration and Dispute Resolution) Act 2008 applies in New Zealand, and it is being amended by the Bill, but it is not a licensing regime. 7. Submissions on the Bill generally supported the Responsible Lending Principles but were concerned that the language be precise and that the relationship with other legal obligations should be clear and not duplicated. There was also a concern from some creditors that borrowers need to remain responsible for their own decisions. 8. Recommendations: 8.1. Amend Part 1A to include an outline provision which identifies the relevance of the Responsible Lending Principles and their relationship with the Lender Responsibilities; 8.2. Remove consumer leases from Part 1A – Lender Responsibilities; 8.3. Remove an insurer from the definition of lender under Part 1A;
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8.4. Amend section 9B to ensure the responsible lending principles do not apply to all credit contracts, and are only intended to apply to consumer credit contracts, (or credit contracts to which Part 3A applies); 8.5. Amend section 9B(2)(a) to ensure it only applies to “agreements “, and (iii) in particular does not extend beyond the scope of the agreements under Part 1A; 8.6. Amend section 9B(3) so references to information provided to borrowers do not apply in relation to disclosure information under section 32; 8.7. Amend section 9B(3) so the examples of how the lender responsibilities may be met are not exclusive and limiting; 8.8. Amend the Bill to clearly separate disclosure standards and information-based lender responsibilities; 8.9. Amend section 9B(3)(e) to refer to defaults, and to ensure the relevant Responsible Lending Principles apply to debt collectors which become creditors through assignment of the debt.
Responsible Lending Code (pages 45 – 56 of Part B) 9. The Lender Responsibility Principles will be elaborated upon, and guidance on their implementation will be provided, through a Responsible Lending Code. The Code will not include rules that are binding on lenders, but compliance with the Code will be evidence that lenders have complied with Lender Responsibilities in the Bill. The Code may contain different provisions in relation to particular lenders, borrowers and agreements however there is likely to be some aspects of the Code which will apply across the board – for example, advertising. 10. Submitters on the Bill have expressed concerns with the legal status of the Code, the inconsistency of the content of the Code with the lender responsibility principles as well as concerns with the timing implications. 11. The legal status of the Code is non-binding on lenders. The Code will provide guidance to lenders, so a lender who does not follow the Code will not necessarily be infringing the Act. The crucial consideration is that lenders comply with the lender responsibility principles – non-compliance with the principles will be a breach of the Act. 12. The Code is intended to closely reflect the lender responsibility principles and the associated lender responsibilities in section 9B of the Bill. Submitters have identified that elements of section 9D are inconsistent with the lender responsibilities – for example, the Code may set out the processes, practices or
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procedures that a lender should follow to verify information provided by a borrower. This is inconsistent with the lender responsibility which allows a lender to rely on information provided by a borrower. 13. It will be impractical for the lender responsibility principles to come into force ahead of the Code which informs their application. By aligning the commencement of the principles with the Code, this will promote a higher degree of certainty for lenders about what their obligations are and the changes they will need to implement to comply with the principles. 14. Recommendations: 14.1. Clarify the status of the Code as non-binding on lenders; 14.2. Amend the Bill to align the coming into force of the Principles and the Code, and to allow work to develop the Code to commence before the Bill is passed. As well as amending the Bill to align the coming into force of the principles and the Code, the “backstop” for the Code should be 12 months after the Bill is passed. 14.3. The content of the Code set out in section 9D needs to more closely reflect the Responsible Lending Principles and the lender responsibilities in section 9B(3) (including, for example, reference to substantial hardship).
Disclosure (pages 75 – 93 of Part B) 15. Disclosure is a key mechanism employed to give effect to the consumer protection purpose in the CCCFA. It remains important for the disclosure rules to be as effective as possible and to give consumers all the information they require in order to make an informed decision about a consumer credit contract. 16. There are 4 types of consumer credit disclosure under the CCCFA - initial, continuing, variation and request disclosure. The Bill expands on the current disclosure requirements by including a new type of disclosure for lenders of consumer credit. This is a standing disclosure regime for the publication of the creditor’s costs of borrowing and standard terms. These must be publicly available on-line and at the lender’s publically accessible premises. “Standing disclosure” is intended to inform the market, rather than being targeted to individuals and individual loan agreements. Submitters have identified concerns with the definition of “standard terms” as it is not explicit what will and will not be included. The intention is not to capture bespoke agreements, but to provide consumers with standard form agreements which are offered by the lender. In addition, compliance issues have been identified in relation to how costs of borrowing and standard terms will be required to be presented. Lenders have expressed concern with the difficulty of publishing a number of interest rates and sets of terms which would result in a wallpaper approach to disclosure. It is not the intention of the Bill to impose an obligation on lenders to publish every contract and display it on the wall of their premises and recommendations to the Committee reflect this point.
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17. In addition to the introduction of standing disclosure, the Bill makes a number of amendments to the current disclosure rules including:
Requiring initial disclosure (and disclosure of the terms of credit-related insurance contracts) to be made before contracts are entered into;
Adding reference to dispute resolution and unforeseen hardship to the key information for initial disclosure;
Extending the initial disclosure cooling off period from 3 to 5 working days to provide more time for consumers, as well as consistency with cooling off periods in other consumer laws;
Adding a regulation-making power so standard mandatory disclosure forms can be prescribed in future;
Removing some of the exceptions for variation and continuing disclosure so all current terms of consumer credit contracts are disclosed;
Providing that variations (like increased credit card or current account limits) can be disclosed with the next continuing disclosure statement; and
Providing for transfer disclosure. We are aware that transfers of credit contracts for the purposes of securitisations where the borrower continues to deal with the initial creditor will need to be exempted from the new transfer disclosure requirement.
18. Submitters on the Bill largely supported the amendments to the initial disclosure requirements, budget advisors and community groups in particular are supportive of the move toward increased initial disclosure, provided to the consumer before the consumer credit contract is entered into. Transfer disclosure was more controversial because, as currently drafted, the Bill would require disclosure of the transfer of consumer credit contracts as part of securitisation transactions entered into by creditors. 19. Recommendations: 19.1. Amend sections 9H and 9I, publication of standard terms and costs of borrowing to make it clear that: 19.1.1. disclosure will only apply to current offers in the market; 19.1.2. that the lender must, at the request of any person provide a copy free of charge; 19.1.3. that the lender must, at the request of any person provide a copy immediately, on a working day during business hours; 19.1.4. the lender must prominently display on their website if they have one;
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19.1.5. the lender must prominently display a notice at their publically accessible premises that any person may ask for a copy of the standard terms and costs of borrowing free of charge; 19.1.6. “standard terms” are defined to reflect that this section should apply to standard form contracts only; 19.2. Amend the Bill to require disclosure to a guarantor before the guarantee is given. 19.3. Amend the Bill to ensure disclosure to a guarantor of subsequent contracts is provided within 5 days of the subsequent contract being entered into. 19.4. Amend section 26A to create an exception for securitization and provide further detail of prescribed circumstances where the exception will apply in regulations. 19.5. Amend clause 68 of the Bill to include reference to the trading name, registered name and number of the lender in initial disclosure.
Fees (pages 99 – 118 of Part B) 20. There are four types of fees defined by the CCCFA- establishment fees, prepayment fees, default fees and other credit fees. There are different tests in the CCCFA for whether the different types of credit fees are unreasonable. The test for unreasonable establishment fees refers to the creditor’s reasonable costs in connection with the application for credit. The tests for part and full prepayment fees refer to the creditor’s loss. The test for default fees and other credit fees is combined and refers to reasonable compensation for costs and losses, and reasonable standards of commercial practice. 21. The common feature of the various tests is that they are designed to restrict fees to the recovery of costs or losses (as opposed to including elements of profit). The policy intention is that a lender’s costs of capital and profits are built into the interest rate rather than fees. This should therefore provide consumers with a basis for comparison across credit products. 22. Amendments in the Bill are intended to remove uncertainty for the regulator (Commerce Commission) when it comes to enforcement, lenders when determining whether their fees are likely to be reasonable and for consumers when comparing credit products. The amendments to the fees provisions include:
the separation of default fees from other credit fees;
clarification of the test for unreasonable fees;
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prepayment fees explicitly apply only to fixed rate loans, and the lenders recoverable costs must relate to changes in interest rates;
Applying the unreasonable fees constraint to non-arm’s length third party fees, and preventing creditors from charging a commission on creditrelated insurance policies which are arranged by them; and
the removal of the one year limitation period.
23. Fees have been a contentious issue throughout the policy process, particularly in relation to the changes to unreasonable fees. The Bill removes ‘reasonable standards of commercial practice’ from the unreasonableness test for credit fees. The banking industry has expressed concern that the changes to the test for unreasonable fees will restrict the industry’s innovation ability in relation to credit products. Some submissions reflect that lenders’ have been treating cost recovery as separate from reasonable standard of commercial practice, rather than applying it as a qualifier to cost recovery. The recent High Court decision in Commerce Commission v Sportzone Motorcycles and Motor Trade Finances confirmed the policy position and interpreted the test as a ‘limiting factor’ when determining whether average costs are reasonable. 24. Recommendations: 24.1. Amend section 44 (credit fees) by reinstating ‘reasonable standards of commercial practice’ clarifying its position as a qualifier when determining the creditor’s reasonable average costs for credit fees. 24.2. Amend section 43 to separate administration costs from prepayment fees, to make the treatment of such fees clearer.
Unforeseen Hardship (pages 120 – 131 of Part B) 25. The CCCFA includes the right for borrowers to apply to the creditor to change their loan by extending the term, or reducing or postponing payments due, if the borrower faces circumstances of unforeseen hardship. Unforeseen hardship includes illness, injury, loss of employment, end of a relationship, or other reasonable cause that makes it unreasonable for the borrower to make the payments due without the terms being changed. 26. The borrower cannot apply for a change if the loan is already in default. 27. If the borrower does not agree with a lender’s decision on a hardship application, the borrower can apply to the Court (including the Disputes Tribunal) to make the changes requested.
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28. The Bill makes a number of changes to the administration and timing of hardship applications including:
Clarifying that hardship applications must be in writing, with supporting reasons.
Increasing the timeframe for eligibility to make applications in respect of loans which are in default is the sooner of, i. 2 weeks after a repossession warning notice or default notice has been served ii. 4 or more payments have been missed iii. 2 months
Borrowers cannot make repeat applications on the same grounds in less than 4 months.
Lenders must acknowledge receipt of applications, require further information, and make decisions to accept or decline applications.
Decisions on hardship applications must be made in light of the lender responsibility principles, and lenders must provide written reasons for declining any application.
Lenders cannot charge any fee or default interest charge in relation to hardship applications that would not otherwise have been payable, and cannot commence or continue any enforcement action while an application is being considered.
The existence of the hardship remedy is to be added to initial disclosure, and to repossession warning notices and notices of sale in relation to the repossession of consumer goods.
29. Submitters on the Bill largely supported the changes, particularly the increased visibility of the remedy through initial disclosure and the increased accessibility of the remedy to consumers. Creditors were concerned that the increased consumer rights (especially the stay on enforcement action while an application is being considered) will be open to abuse by borrowers. 30. Recommendations: 30.1. Replace section 57A(3)(b) with a signpost to section 83G (which imposes a stay on enforcement proceedings while a hardship application is being processed). 30.2. Amend section 55(1B) to make it clear the 4 month period runs from when an unforeseen hardship application is made. CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
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30.3. Provide that document service provisions similar to section 83ZH apply to unforeseen hardship applications.
Enforcement & Remedies (pages 162 – 169 of Part B) 31. The Commerce Commission and the Financial Markets Authority are the regulators of consumer credit legislation. The Commission is primarily responsible for the CCCFA and the Financial Markets Authority has responsibility for the Financial Service Providers (Registration and Dispute Resolution) Act 2008. 32. Submissions on the Bill identified a perceived lack of enforcement as a problem with the CCCFA because parties are not deterred from breaching the Act. The Commerce Commission submitted that its enforcement efforts have been hindered by uncertain legal test for fees in particular, and insufficient enforcement powers in the CCCFA. 33. Recommendations: 33.1. Increase the cap on statutory damages from $3,000 to $6,000 (section 89). 33.2. Remove the reference to the responsible lending code from section 93(aa) (which would have inappropriately criminalised the Code). 33.3. Align penalties for CCCFA offences in section 103 with new penalties for offences in the Fair Trading Act (i.e. $200,000 for an individual and $600,000 for a company). 33.4. Remove section 103(1A) from the Bill (which is the offence of obstructing a repossession). 33.5. Amend section 108(1A) to refer to a test similar to section 107 of the Sentencing Act 2002. 33.6. Ask PCO to consider whether the inclusion of an infringement offence regime in the CCCFA for disclosure and credit repossession obligations, similar to the provisions recently included in the FTA, would be practical and achievable within the timeframes. (Note that not every disclosure or repossession obligation in the CCCFA or the Bill is amenable to being an infringement offence).
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Repossession (pages 134 – 176 of Part B) 34. Credit repossession is currently regulated under the Credit (Repossession) Act 1997 (CRA). Regulating credit repossession is justified because it involves creditors and their agents entered somebody’s house to take their property. Borrowers also lose value in goods that are repossessed and sold, invariably at a discounted price. 35. A balance is required between protecting the interests of consumers, and ensuring creditors have sufficient incentives and protections to provide credit to consumers who could not borrow on an unsecured basis. 36. The consumer protections in the CRA primarily involve disclosure, which is consistent with the CCCFA. In addition to the disclosure requirements in the CCCFA (initial, variation, continuing and request disclosure), creditors are required to serve pre-possession and post-possession notices, and statements of account when they repossess and sell consumer goods. 37. Secured creditors’ rights to enter premises and repossess consumer goods are contractual rights. The CRA does not authorise secured creditors to repossess goods. The CRA does however require a security agreement to be in default (or the consumer goods to be at risk) before consumer goods can be repossessed, and any right to enter premises to repossess consumer goods must be exercised in a manner that is reasonable. The CRA also limits the times when premises may be entered for repossession, and it regulates the process for disposing of consumer goods that have been repossessed. 38. The CRA provides self-help civil remedies for consumers; there is no regulator responsible for the CRA, there are no offences for people carrying out repossessions, and repossession agents are not required to be registered. 39. The Bill makes a number of substantive amendments to the law governing repossession of consumer goods. Following a report by the Law Commission in 2012, the Credit (Repossession) Act 1997 is being repealed and its provisions incorporated into the Bill and a new requirement for the registration of repossession agents included. Repossession agents are included in the PPPSI Act. 40. Submissions received on the Bill were largely supportive of the changes in the Bill. Some submitters were concerned that the scope of the repossession provisions (which focus on consumer goods) does not match the rest of the CCCFA (which focuses on consumer credit contracts). Some consumer goods might be repossessed under a contract that is not otherwise covered by the CCCFA. Note that the responsible lending principles will apply to these contracts. 41. Most of the submissions raised technical points with practical implications. Many relate to the provisions being taken from the CRA. A number have been accepted. The stay on enforcement while complaints are resolved was controversial, but it is a necessary consumer protection because the status quo will be impossible to restore if goods are repossessed and sold in the face of a complaint which is justified.
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42. Recommendations: 42.1. Move section 7A to Part 3A and amend to ensure it creates a fully legally enforceable obligation not to take security over the prohibited items, and the full range of civil and criminal remedies in the CCCFA should be available (including any purported security being unenforceable). 42.2. Amend section 83B to ensure there is a positive obligation on creditors to specifically identify consumer goods subject to a security interest, and noncompliance is actionable. 42.3. Amend the Bill to ensure contracts or arrangements creating security interests must be treated as being part of the credit contract. 42.4. Amend section 83C so it only refers to the responsible lending principles/lender responsibilities relevant to repossession. 42.5. Amend the period in section 83D(4) for repossession warning notices to expire from 28 days to 60 days. 42.6. Amend section 83E (voluntary return of goods) so it is not implicitly limited to credit sales. 42.7. Amend section 83H to ensure it creates enforceable obligations on creditors using disabling devices. 42.8. Include the option for electronic service of notices on agreement with the debtor. 42.9. Delete clause 2(2)(d) from the transitional provisions in Schedule 1AA . The Part 3A repossession provisions should not apply to existing agreements.
Oppression (pages 170 – 176 of Part B) 43. The CCCFA includes the remedy for the courts to “reopen” credit contracts where the transaction is “oppressive”, or the creditor has exercised a right or power under a credit contract in an oppressive manner. The courts have the power to make a wide range of orders adjusting payments and transfers of property between the parties if a credit contract is reopened. 44. This remedy is the only provision in the CCCFA that applies to all credit contracts, rather than only applying to consumer credit contracts. 45. The CCCFA says oppressive means, “oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice” (section 118). This test is intended to balance the need to provide an effective mechanism to protect consumers in the face of oppressive conduct, while not being so wide as to create significant uncertainty for lenders about the possibility of a contract being re-opened. CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
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46. The CCCFA also includes a list of “guidelines” the courts must have regard to in deciding whether a credit contract is oppressive (including all the circumstances, whether the amount payable is oppressive, time given to remedy a default, requirements for prepayments, conditions on releasing security). 47. The Bill provides a range of new factors for consideration in the guidelines the courts must have regard to in deciding whether a credit contract is oppressive. The new factors include:
Responsible lending compliance;
Relative bargaining power;
Particular characteristics of the debtor;
Whether legal advice was provided;
Unfair pressure or tactics, or unfair influence;
Terms of comparable arrangements, including cost and onerous terms;
Plain language, legible, clearly presented;
Debtor being reasonably able to comply with terms;
Terms reasonably necessary to protect the legitimate interests of the lender;
Enforcement and recovery actions reasonable in the circumstances.
48. The Bill does not amend the definition of oppressive, or make any distinction between credit contracts and consumer credit contracts. The new elements in the oppression guidelines in the Bill are however all based on comparable provisions in the Australian National Consumer Credit Protection Act 2009. 49. The Bill potentially improves access to the oppression remedy for debtors, and creditors which submitted on the Bill are generally concerned that it is unnecessary to lower the oppression threshold. They are concerned that the Bill will introduce uncertainty, especially as the oppression remedy is not limited to consumer credit contracts. Consumer groups either supported the changes, or felt they do not go far enough.
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50. Recommendations: 50.1. Amend section 124 to add whether the arrangement is a consumer credit contract as a criterion for the court to have regard to. 50.2. Amend section 124(1)(g) to change the reference to “comparable arrangements” to “the same or substantially the same.” 50.3. Amend section 124(1)(j) to make the legibility etc. requirements consistent with the relevant lender responsibilities in section 9B(3). 50.4. Amend section 124(1)(n) to refer to lenders acting lawfully rather than reasonably so the new guidelines do not lower the oppression standard too far.
Financial Services Providers (Registration and Dispute Resolution) Act (pages 180 to 188 of Part B) 51. The Financial Service Providers (Registration and Dispute Resolution) Act (FSP Act) includes a relatively light-handed registration requirement for financial service providers (FSPs). FSPs include creditors under consumer credit contracts, and other financial institutions, brokers and advisers. The only requirement for registration of FSPs is that the applicant for registration must not be disqualified, and must become a member of an authorised dispute resolution scheme. 52. The requirement for FSPs to be registered, and to be members of a dispute resolution scheme, does not apply to the providers of finance leases (effectively hire purchase agreements) to consumers, because those transactions are excluded from the definition of credit contracts in the FSP Act. 53. There are three industry dispute resolution schemes (Banking Ombudsman, Insurance and Savings Ombudsman, and Financial Service Complaints Limited), and the reserve scheme (Dispute Resolution Services Limited). The reserve scheme is subsidised by the Government (approximately $200,000pa), and it was established as a backstop in case the other private approved dispute resolution schemes did not provide sufficient coverage for FSPs (or consumers). 54. Dispute Resolution is governed by the Financial Service Providers (Registration and Dispute Resolution) Act 2008. 55. The Bill makes amendments to both the registration and dispute resolution parts of the FSP Act including:
Disqualifying persons with overseas dishonesty convictions from registering as financial service providers;
Providing the Financial Markets Authority to the power to decline registration or deregister financial service providers where they are registering solely for the purposes of taking advantage of New Zealand’s reputation as a well regulated jurisdiction;
Expanding the powers of the Registrar of Financial Service Providers to require information and to insert notes of warning on the Register; and
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Removing the reserve scheme.
56. Submissions on the Bill largely supported the amendments to the FSP Act, but suggested a number of ways in which the new provisions could be made more effective. In particular, submitters highlighted that the Financial Markets Authority’s deregistration power should be more clearly bounded, and that the role of the dispute resolution schemes in resolving complaints relating to the new consumer credit protections should be acknowledged. 57. Recommendations: 57.1. The addition of a signpost within the CCCFA to dispute resolution jurisdiction in relation to the CCCFA. 57.2. Amend section 63 to restore the existing section 63(g), and to clarify (either in the CCCFA or the FSP Act) that the statutory obligations referred to in section 63(g) include the obligations of creditors under the CCCFA. 57.3. Amend section 63 to allow for additional requirements for, or terms to be implied into, scheme rules via regulations. 57.4. Amend section 67 of the FSP Act to require dispute resolution schemes to report a series of material consumer credit complaints to the Commerce Commission. 57.5. Request PCO to ensure the consumer credit covered by the FSP Act matches the definition of creditor in the CCCFA (i.e. may provide credit, and including transferees and assignees), and that credit contracts where credit fees but no interest are charged are not excluded under the FSP Act. [Note that assignees under securitisation arrangements will need to be exempted under regulations on the same basis as for the transfer disclosure requirements under section 26A of the Bill. The FSP Act already has a regulation-making power in section 44.]
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Officials’ Recommendations We have a number of recommendations that are not directly connected with submissions on the Bill. These are set out in the following table.
Issue
Recommendation
Part 1A Interpretation
We recommend that the Bill is amended so:
Part 1A in the Bill includes an insurer within the definition of lender. This could be confusing because the principles are generally targeted at credit, not insurance. Deeming insurers to be lenders is artificial. We need to ensure consumer credit-related insurance is covered under responsible lending because credit-related insurance is often implicated in problem debt. Credit-related insurance should however still be referred to as one of the categories of “agreement” subject to responsible lending. Suggest that the creditor is held primarily responsible for credit-related insurance which is arranged by the creditor themselves (in line with section 52(5)) and not refer to the insurer within Part 1A. If insurance is sold at the point of sale, then the lender should be responsible for ensuring it is appropriate.
The reference to an insurer under a credit-related insurance agreement is removed from the definition of lender. The reference to credit-related insurance in the definition of agreement refers to credit-related insurance arranged by the creditor (applying the test in section 52(5) and 70(3). Clarify that where the creditor has arranged the insurance, the creditor has responsibilities similar to 9B(3)(a) and (b) adapted as appropriate.
The lender responsibilities included in section 9B(3) will not apply to all credit-related insurance contracts as the creditor does not have a creditrelated insurance contract with the borrower. The insurance contract is between the borrower and the insurer. However, if the creditor is arranging the insurance, they should be responsible for certain lender responsibilities, including the requirement to make reasonable enquiries and to assist the borrower to reach an informed decision. Responsible Lending Principles The “can be expected” language in section 9B(3) is unusual. “Is likely” would be more conventional drafting.
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We recommend that PCO review the language in the lender responsibilities as appropriate.
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The Bill requires a lender to assist the borrower and the guarantor to be aware of the full implications. This is a high standard being placed on the lender. Assisting them to be “reasonably aware” is a more practical and achievable standard. Where section 9B(3) refers to the lender meeting its responsibilities “by ensuring that …”, the elements that are then listed may be read as exclusive considerations, rather than examples. Inserting the word “including” would make the drafting more open-textured. Responsible Lending Code The Bill outlines the purpose and the scope of content of the Responsible Lending Code. The ‘Content of the Code’ includes a catch-all provision which states that the Code may set our any other matter that promotes the lender responsibility principles. We consider that it would be helpful to expand the catch-all to say “promotes or facilitates the lender responsibility principles”. Standing Disclosure It is unclear in the Bill whether lenders will have to comply with a request under sections 9H or 9I immediately or whether they will get the benefit of 15 working days under section 24(3) relating to request disclosure. The intention of 9H and 9I is that the standard terms and costs of borrowing are available immediately and on request during working hours on a working day.
We recommend amending section 9D(1)(d) to broaden the catch-all provision.
We recommend:
Amending sections 9H and 9I to make it clear that disclosure is intended to be provided immediately upon request. Amending section 9J to make it clear that it relates only to the standard terms.
Publication of the costs of borrowing is not applicable to repayment waivers and extended warranties and therefore 9J should be amended to reflect this. Initial Disclosure Amendments to section 17(1) in the Bill are inconsistent with 17(2). Note that leaving the 5 working day backstop in section 17(2) is not intended and
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
We recommend that the initial disclosure requirement to disclose before the contract is made is extended to all undisclosed terms of the contract referred to in 17(2).
20
should be removed. Credit Card Disclosure Currently there are no separate requirements for credit cards within the CCCFA. Amendments to the Australian disclosure regime require a minimum repayment warning to be disclosed on all credit card contract statement of accounts. This will informed the customer how long it will take to repay the balance outstanding if only the minimum payment is made and the total amount of interest payable over the period of the contract. Hardship Section 57A(1)(c)(i) in the Bill does not reflect an obligation on the lender to comply with the responsible lending principles. Consider that a stronger statement is required in the place of “in light of”. Effect of debtor’s complaint on creditor’s right to enforce contract The intention of section 83G is unclear. Including a requirement for a complaint to be in writing is consistent with the unforeseen hardship change in section 55 and would stop a general statement of dissatisfaction from qualifying as a “complaint”. Where a complaint is escalated to a dispute resolution scheme and cannot be resolved under the scheme rules for some reason, then the creditor will not be able to enforce the contract. Consider that clarification of ‘resolved’ to include a determination made by a dispute resolution scheme would address this gap. Secured Creditors Section 83D(1)(d) in the Bill requires the creditor to provide every secured creditor a repossession warning notice. It is unclear how the creditor will know who is a secured creditor. The reference to secured creditor would be
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
We recommend providing a definition of a ‘credit card contract’ in the Bill and adding a requirement for the continuous disclosure of a minimum repayment warning and any other prescribed warnings or information. The detail of the minimum repayment warning will be prescribed by regulations.
We recommend an amendment to section 57A(1)(c)(i) to reflect the lender’s obligation to comply with the responsible lending principles.
We recommend:
That the complaint must be in writing Clarifying when a complaint is "resolved" Clarifying the drafting of s 83G(4), including clarifying how it fits in with a complaint being deemed to be resolved for the purpose of section 83G(5)(c). Add an equivalent provision to section 55(1B) so borrowers are prevented from making repeated complaints to restrict creditors’ ability to enforce their loans.
We recommend that section 83D(1)(d) is amended to reflect wording in the PPSA and the cross reference to section 83ZD(1)(a) and (b) is removed.
21
clearer if it was consistent with the wording in the Personal Property Securities Act: "every person who— (i) is known by the creditor to have a security interest in the consumer goods; or (ii) has registered a financing statement in the name of the debtor and referring to the consumer goods; or (iii) has registered a financing statement containing the serial number of the consumer goods as required or authorised by regulations made under the Personal Property Securities Act 1999." Repossession
We recommend that Part 3A is amended to
There is no requirement on creditors or their agents to secure the premises after affecting a repossession. The creditor should be responsible for ensuring that the premises is not obviously left open.
In addition, the Bill does not include clarification that the Act does not confer a right to take possession of consumer goods, or a right to enter premises, or a right to enter premises when an occupier is not present.
Debtors right to force a sale The timeframe included in the Bill is 6 weeks. This should refer to working days to ensure consistency with the rest of the Bill. Enforcement & Remedies The Bill makes amendments to the enforcement provisions and care needs to be taken to ensure that the coverage and cross-references in the Bill are accurate.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
Include an equivalent of s 18(3) of the Credit (Repossession) Act 1997: "The creditor or creditor’s agent must take such steps as are reasonably practicable to ensure that the premises are not left obviously open." Include an equivalent of s 6(2) of the Credit (Repossession) Act 1997: “This Act does not confer a right to take possession of consumer goods, or a right to enter premises, or a right to enter premises when an occupier is not present.”
We recommend that the reference to 6 weeks in 83Z is replaced with 30 working days.
We recommend:
Amending cl 53 (which amends s 96) to allow an injunction to be granted for a breach of the provisions of the lender responsibility principles.
22
Jurisdiction The Bill amends the jurisdiction of the District Court in section 86(2)(b) however it does not address the situation where relief in order of a monetary figure is not claimed – for example in the case of hardship where you are applying to vary the terms of the contract. Oppression
Amending clauses 54(2), 56(2), and 57(2). These provisions refer to a period during which the creditor etc has failed to comply with disclosure obligations. An amendment is required to clarify when this period starts and ends. Amending new s 94(1)(aa) relating to Court Orders to delete the reference to s 69. Section 69 doesn't concern fees. We recommend that section 86 is amended to reflect the situation where a creditor is not claiming a monetary amount.
We recommend replacing the reference to “reasonable” with “lawful”.
The guidelines for oppressive behaviour in the Bill refer to whether action by the credit provider in relation to enforcement of the arrangement was reasonable in the circumstances. The reference to whether action by the credit provider was ‘reasonable’ sets the bar too low. Private Security Personnel and Private Investigators Act Section 55 of the PSPPI Act sets out the effect of a certificate of approval to be held by (among others) repossession employees. Creditors carrying out repossessions in their own rights (rather than through an agent) will be required to hold a certificate of approval of that purpose under the Bill. The effect of a certificate of approval in those cases needs to be covered under section 55.
We recommend:
Adding an amendment to section 55 of the PSPPI Act to refer to creditors that hold a certificate of approval. Amending sections 62 and 63 of the PSPPI Act to refer to offences under Part 3A of the CCCFA, alongside offences under the FTA. Drafting a new clause providing for a separate specified date to apply to repossession agents.
Offences under the CCCFA that are related to credit repossession under Part 3A should be grounds for disqualifying repossession agents and repossession employees under sections 62 and 63 of the PSPPI Act. These sections already refer to offences under the FTA within the previous 7 years. The relevant offences in the CCCFA will be under sections 83C(1)(a), 83D, 83J and
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
23
83M. The transitional arrangement for a ‘specified date’ under section 126 does not work. See the Private Security Personnel and Private Investigators (Specified Date) Order 2011, which has already specified a date of 1 November 2011 for the purposes of section 126. Financial Service Providers Act The Bill extends the disqualification criteria in section 14 of the FSPA to include a person who has been convicted within the last 5 years in a country other than New Zealand of an offence comparable to one contained in sections 217 to 266 of the Crimes Act. There may be an issue as to how close an offence needs to be for it to be “comparable” and therefore, reference to “substantially similar” may be more appropriate.
We recommend:
Amending section 14(2)(ea) of the Bill to refer to an offence which is substantially similar. Amending section 18A to enable the FMA to consider deregistration of a financial service provider without a referral from the Registrar. Removing section 27(4).
The Bill requires referral to the FMA by the Registrar before the FMA can consider whether or not to deregister a financial service provider. The FMA should have jurisdiction to do this without referral from the Registrar. New s27(4) should be removed because of the more comprehensive immunity for the Registrar provided by the State Sector Amendment Act 2013. It is expected that the equivalent provision in the Companies and Limited Partnerships Bill will be removed by SOP. Schedule 1AA The provisions due to existing agreements when they come into force should be referred to specifically, rather than described generally. The enforcement provisions in the Bill would also need to apply alongside any new provisions that will apply to existing agreements (e.g. changes to statutory damages and penalties, amendments to the orders available to the courts).
We recommend:
Amending Schedule 1AA to refer to specific sections and categories of agreements. Removing the retrospective application of Part 3A to repossessions under credit contracts entered into before the commencement of the Act.
There are also concerns with how the new repossession provisions might
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
24
apply to existing contracts, e.g. the new excluded assets provision and tightening the rules on specifically describing the consumer goods subject to a security interest. Drafting issues There are a number of minor and technical drafting issues that Parliamentary Counsel have identified in relation to the Bill or legislation that is or should be amended by the Bill and more will be identified during the drafting process.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL – OFFICIALS’ REPORT PART A
We recommend that PCO be authorised to make minor or technical changes to the Bill, such as to improve clarity and workability within the Bill and in respect of other legislation.
25
Credit Contracts and Financial Services Law Reform Bill – Officials’ Report Part B: Table of submissions with comments and recommendations
Table of Contents General Comments ..................................................................................... 1 PART 1 – Amendments to the Credit Contracts and Consumer Finance Act 2003 ............................................................................................................ 6 Section 2.................................................................................................. 6 Section 3 – Purposes ............................................................................... 7 Section 5 – Interpretation ..................................................................... 11 Section 6................................................................................................ 18 Section 7A – Credit contract may provide for a security interest......... 19 PART 1A – Lender Responsibilities ............................................................ 24 9B – Lender Responsibility Principles ................................................... 32 9C,D & E – Responsible Lending Code .................................................. 47 9H – Publication of Standard Terms ..................................................... 58 9I – Publication of the costs of borrowing ............................................ 68 Pawnbrokers ......................................................................................... 71
Prepayment Fees............................................................................. 110 Other credit fees ............................................................................. 114 Third Party Fees............................................................................... 118 Recovery of Payments ..................................................................... 121 Amount Required for Full Prepayment ........................................... 121 Hardship .............................................................................................. 123 Consumer leases, credit-related insurance and buy-back transactions of land...................................................................................................... 135 PART 3A – Repossession of consumer goods under credit contract ...... 137 Enforcement and Remedies ................................................................ 167 Oppression .......................................................................................... 175 Regulation Making Powers ................................................................. 182 Schedule 1 ............................................................................................... 184
Consumer Credit Contracts ................................................................... 72
PART 2 – Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008.................................................................. 186
Disclosure .............................................................................................. 77
Schedules ................................................................................................ 193
Initial Disclosure ................................................................................ 82
Schedule 1 - New Schedule 1AA inserted ........................................... 194
Continuing Disclosure ....................................................................... 86
Schedule 2 - New Schedule 3A and Schedule 3B inserted .................. 195
Request Disclosure ............................................................................ 90 Disclosure of guarantee .................................................................... 92
Schedule 3 - Consequential amendments to, or repeals of, other Acts ............................................................................................................. 196
Disclosure of transfer of credit contract ........................................... 93
Miscellaneous issues ............................................................................... 197
Cooling off period ................................................................................. 96
CCCFA Regulations 2004 ......................................................................... 211
Fees ..................................................................................................... 102 Unreasonable Fees.......................................................................... 103
Ref
Section in Bill
Submitter/s
Submission1
MBIE Response
General Comments 1.
General
National Council of Women in New Zealand (NCWNZ)
2.
General
Agape Budgeting Services
3.
General
4.
General
Newtown Budgeting and Advocacy Service Families Commission
5.
General
Consumer NZ
6.
General
Christian Budgeting New Zealand Inc (CBNZ Inc)
7.
General
Christian Care Budget Service
8.
General
Counties Manukau District Health Board
NCWNZ welcomes the Bill, particularly the recognition that there are at least two parties to any contract, both with responsibilities to fulfil. Supports responsible lending principles, consumer protection and other purposes outlined in the Bill. Strongly supports the Bill to make borrowing fairer and safer for New Zealanders. Welcomes the Bill as a significant step towards protecting families during credit transactions, particularly when lenders have behaved irresponsibly. Strongly supports the introduction of responsible lending principles, the requirement to disclose standard terms and costs of borrowing, repossession provisions in the Bill, requirements for licensing and the Commerce Commission being given responsibility. Welcomes the Bill. Lenders are required to have greater due diligence when they issue a loan and borrowers must clearly understand the terms of the loan. Supports this Bill to impose standards on the lending industry which will reduce predatory and irresponsible practices. Supports the intent of the Bill because of the demonstrated need for increased financial
Agree. Support from community agencies, consumer advocates and individual submitters noted.
1
Each submission was reviewed individually before it was summarised. This highly summarised text is intended to reflect the general tenor of comments from the submitters listed, but is not necessarily verbatim of any one of them and omits the detail of some submissions. Errors may have arisen in preparing the table, such as errors in attribution of comments to a different submitter or the omission of parts of submissions.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
1
9.
General
Damian Chesterman
10.
General
11.
General
12.
General
East Auckland Home and Budget Service Charitable Trust Franklin Family Support Trust NZ Federation of Business and Professional Women
13.
General
GE Capital
14.
General
Gayatri Jaduram
15.
General
16.
General
Greater Wellington Regional Council (GWRC) Jenny Brash
17.
General
Law for Change
18.
General
19.
General
NZ Federation of Family Budgeting Services Mangere Budgeting Services Trust
protection for vulnerable members in the Manukau community. This Bill has potential to help achieve better health for members of the community and their family. Supports the intent of the Bill to provide greater protection to vulnerable borrowers. Supports responsible lending principles, consumer protection and purposes of the Bill. Supports the intent of the Bill to elevate consumer protection. Fully supports the intent of this Bill as shifting the power imbalance between lender and borrower which has made consumers (particularly women) vulnerable. Supports responsible lending principles in the Bill. Supports the purpose and policy objectives of the Bill with its emphasis on consumer protection and market behaviours and the introduction of lending principles. Supports the intent of the Bill to enhance consumer protection and ensure responsible lending. Supports the overall intent of this Bill because it provides more protection for consumers. Supports the motivation of the Bill to protect vulnerable members of the community from unscrupulous lending practices. Supports the Bill and particularly encourages full inclusion of the items submitted on. Supports the intent of the Bill, particularly the Code, introducing repossession provisions into the CCCFA and introducing stringent rules
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
2
20.
General
Cash Converters
21.
General
22.
General
Direct Selling Association of New Zealand (DSANZ) Kiwibank
23.
General
ANZ Bank New Zealand Limited (ANZ)
24.
General
BNZ
25.
General
26.
General
27.
General
New Zealand Retailers Association Trustee Corporations Association of New Zealand Incorporated (TCA) Save My Bacon
28.
General
Sovereign
around Registration and predatory behaviour. Supports the intent of the Bill, the requirement for lenders to act responsibly and the implementation of a Responsible Lending Code. Supports the Bill in principle, particularly the responsible lending principles. Supports changes to ensure lenders act responsibly, toughen up on unscrupulous behaviour and provide greater protection to consumers when they borrow. Supports the objectives of raising standards across the finance industry and protecting consumers from harm caused by irresponsible lending. Confident that the Bill can better protect and help consumers make informed borrowing decisions while being workable and providing certainty for lender responsibilities. Supports this Bill and supports the policy intention to apply and enforce high standards across the sector.
Agree. Support from lenders and business submitters noted.
Supports the purpose and intent of this Bill, to improve protection for vulnerable consumers, including from unscrupulous lenders. Supports the aim and intent of the Bill. Supports the policy objectives of the Bill.
Supports the Bill and is in broad agreement with the thrust of the proposed amendments. Fully supports the purpose of the Bill, and acknowledges the value of responsible lending.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
3
29.
General
30.
General
31.
General
32.
General
33.
General
Financial Services Complaints Supports the overall intent of the Bill. Ltd (FSCL) Dispute Resolution Services DRSL acknowledge that the Bill seems to Limited (DRSL) address most the issues presenting in the consumer credit sector and those raised in their submission on the Exposure Draft. Banking Ombudsman Supports the credit reforms proposed. Scheme Considers the proposed reforms are an appropriate response to harmful practices in certain sectors of the finance industry. Andrew Shann Supports the overall intent of the Bill as it provides an increased level of consumer protection. Concerned that the increased cooling off period, disclosure and hardship relief provisions will be of little use to those desperately needing to borrow funds. New Zealand Licensed Supports the intent of the Bill to control Traders Association irresponsible lending.
34.
General
Citizens Advice Bureau New Zealand
35.
General
Salvation Army
36.
General
Marama Stephens
Submits that the Bill helps finance company clients but not needy people who would never apply for a loan because they would not be approved. Welcomes the Bill and considers it a positive step forward for lenders and borrowers. Concerned the Bill does not provide adequate protection for borrowers in some areas. Generally supports Bill but it does not go far enough to protect those who are most vulnerable. Supports the overall intent of the Bill, however, is not satisfied that it goes far enough and provides enough of a disincentive to
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. Support from dispute resolution schemes noted.
Noted. Credit legislation is limited in how far it can go in addressing the financial needs of those who are needy or desperate. The effects of responsible lending will include making it harder for those for whom debt is harmful to borrow, but the judgement is that some people will be better off if they can’t access debt which tends to be very short term and extremely expensive.
Noted. There is a balance between sensible and enforceable consumer protections, and limiting access to credit for consumers across the board. This departmental report picks up on a range of improvements to consumer protections recommended by submitters.
4
37.
General
New Zealand Association of Credit Unions
38.
General
North Shore Budget Service Inc
39.
General
Full Balance Personal Financial Coaching (Full Balance)
40.
General
NZ Law Society
41.
General
42.
General
New Zealand Debt Collectors Association ASB
43.
General
American Express International (NZ)
44.
General
Brent Hollows
unscrupulous lenders. Supports the Bill and its objective to provide added protection for vulnerable consumers. Believes a few aspects could be improved on. All lenders should be required to be registered and subject to mandatory complaints resolution processes.
Supports the changes to the Act, but stresses the importance of defining hardship properly, increasing transparency and responsibility to the borrower and including relief to the borrower when the Act is not followed. Supports the underlying intent of the Bill. Note that this legislation will impact on a very wide range of businesses and an equally broad section of consumers. The provisions therefore need to be clear and to minimise compliance obligations, especially in those parts of the market that are already working well. Supports the Bill, but a number of concerns about certain areas of it. The proposed changes have not been subject to sufficient regulatory analysis and have the potential to produce numerous unintended consequences. Generally supports the Bill, particularly responsible lending and hardship amendments. However, there are still some areas which have unintended consequences for certain products. Generally supports the concepts of responsible lending. The Bill lacks fairness to lenders and there is no requirement for borrowers to act in
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. All providers of consumer credit are required to be registered and to be members of a dispute resolution scheme under the FSP Act. The coverage of the FSP Act is being extended, and enforcement improved, under the Bill. Noted. The Bill improves transparency through disclosure and the provision of reasons if a hardship application is declined. The borrower will be entitled to relief if provisions and responsible lending principles are not followed. Noted. The principles-basis of the Bill (and the CCCFA) is intended to be low-compliance–cost. Various clarifications in the drafting of the Bill are being recommended.
Disagree. Changes to the Act have been considered and there has been consultation and analysis of the issues raised by submitters, including through the Exposure Draft in 2012. Noted. The “unintended consequences” referred to by American Express relate to fees, discussed below. Disagree. The CCCFA is consumer protection legislation – not borrower responsibility legislation. This would be a fundamental change.
5
45.
General
Motor Trade Association
46.
General
Veda Advantage
47.
General
New Zealand Bankers’ Association
good faith. The Bill does not strike a fair balance to both sides. Supports the submission made by the Financial Services Federation. Supports the Bill and the implementation of the Responsible Lending Code, but submits that a number of changes should be made. These changes concern the timing of the Responsible Lending Code and guidelines on their operation, and the use of independent and reliable data sources (e.g. credit checks) for making ‘responsible inquiries’. Uses examples of overseas frameworks (see submission). Support the clear intent of the Bill to protect vulnerable New Zealanders, support responsible lending, and to target unscrupulous lenders. Submits that some of the changes proposed in the Bill will significantly increase uncertainty about what the law requires, unnecessarily increase compliance costs for all lenders and may unnecessarily restrict access to credit.
Noted. Noted. Some of the changes discussed are being recommended, although the main proposal to mandate credit checks is not being recommended. Credit checks will be among the menu for responsible lending inquiries in the Code.
Noted. The responsible lending code will assist in providing certainty and guidance on the Bill. The Bill intends to provide further protection to consumers. A number of detailed amendments to the Bill are being recommended, although not every submission from the NZBA is being accepted.
Recommends that a number of changes are needed to the Bill to ensure a better balance.
PART 1 – Amendments to the Credit Contracts and Consumer Finance Act 2003 Section 2 48.
2
Westpac New Zealand
The provisions amending the CCCFA should not come into force for at least 12 months after Royal assent. Some of the amendments will require system changes which have a long lead in time and little work can be done on implementation until the obligations under the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The Bill has already had a long gestation period, and the improvements to consumer protections being implemented by the Bill need to be brought in as soon as reasonably practicable.
6
49.
2
Kiwibank
50.
2(2)
BNZ
51.
2
ANZ
Act are certain. Recommends that the changes to the CCCFA come into force 12-18 months after the Bill receives Royal Asset to allow enough time to fully assess and implement changes. Recommends the commencement period should be extended from six months to 12 months. This is because the financial services sector is dealing with a surge of legislative and regulatory compliance, and a 12 month period provides a reasonable opportunity to implement the changes. This is also more consistent with the Government’s Business Growth Agenda. Recommends a transitional period of at least 12-18 months. ANZ will be required to undertake major system and process changes to ensure compliance. A longer transition period is necessary given the size of the organisation and wide range of products and services offered.
Note however, the responsible lending principles cannot sensibly come into force ahead of the Code, and there is a recommendation below to bring them into force together by Order in Council.
Pleased to see recognition of consumer protection in the purpose. Supports the purpose to protect the interests of consumers and the aim to promote confident and informed consumer participation in markets for credit. Supports these purposes and their attainment. Strongly support this subsection to require creditors to be responsible lenders when they provide credit and for the duration of the contract.
Noted. The primary purpose emphasises protecting the interests of consumers.
This may take longer than 6 months, but the goal will be that it shouldn’t. Work on the Code will be able to start before the Bill is passed, and it should not take 12 months for the Code to be ready. Some provisions relating to regulations etc. may come into force on royal assent. Recommendation: Amend the commencement provisions to provide for the Bill to come into force by Order in Council, with a 12 month backstop date. Ensure consultation and other work developing the responsible lending code can commence before the whole Act comes into force.
Section 3 – Purposes 52.
General
53.
General
54. 55.
3(3) 3(3)(a)
Citizens Advice Bureau New Zealand Franklin Family Support Trust
Veda Advantage FSCL
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree.
7
56.
General
NZ Federation of Business and Professional Women
Supports the purpose of the CCCFA to protect the interests of consumers and the aim to promote confident and informed consumer participation in markets for credit, and fair, efficient and transparent credit markets.
Noted. MBIE officials undertake to refer the Bill to the Ministry of Women’s Affairs.
Requests that a gender impact analysis of the proposed legislation be undertaken to provide a full understanding of those affected.
57.
General
Carol Fagan
Submits that the government consider Strategic Objective A.3 developed at the United Nations Fourth World Conference on Women in Beijing in 1995 (which put women’s access to credit on the international agenda) (see submission for further details). The purpose statements need to have the power to be upheld and not merely be lip service to the consumer. The ability of finance corporations to opt out of fiduciary responsibility by a clause in a long contract should be removed – especially where advice or preferential consideration is being provided by the same financial organisation.
Disagree. The function of statutory purpose clauses and long titles in legislation is to provide context and direction to courts and others applying and interpreting the legislation. Purpose statements are not independently enforceable, but they are reflected in the other provisions in the CCCFA/Bill. LVR issues are out of the scope of the Bill.
58.
General
Motor Trade Finances
Banks should provide some mortgage modification relief if LVR values drop by more than 10%. This is particularly relevant when property values are manipulated by the credit supply through those same organisations who recalculate the LVR without responsibility for their previous actions. To meet the requirements under s 3(b) and (c) in the current Act, the Act needs to: a. Define what is meant by a fee and what
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The provisions referred to are in the existing CCCFA and are not amended by the Bill. The CCCFA does mandate disclosure 8
is meant by interest. b. Provide for minimum disclosure, to enable customers to understand the cost of credit.
59.
3(1)
Veda Advantage
60.
3(1)
Full Balance
61.
General
Brent Hollows
62.
3(1)
Full Balance
63.
3(3)(b)(iv)
Full Balance
Supports this purpose, but also submits that to ensure this is effective, all of the contexts in which lending is made, and the position of the responsible borrower should be considered. Recommends adding another subsection to ensure borrowers disclose adequate information and that borrowers share responsibility. This should state: “provides for the adequate information from borrowers to enable the lender to determine that the credit contract will not put the lender in current or future hardship”. Submits that there is no corresponding requirement for borrowers to act in good faith in response to promoting and facilitating fair and transparent markets for credit. Submits there is a one sided requirement to protect the interests of consumers and that this should not be the primary purpose. Submits rewriting the subsection to reduce the effect of excessive use of credit. This should state: “Protect the interests of consumers and the detrimental effects on their lives and dependants lives including but not limited to financial hardship in connection with credit” Recommends adding another subsection to
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
requirements. Interest charges and credit fees are defined. “Fees” is wider than “credit fee” because “default fees” and “credit fees” are separate, and both are covered in the clause. Disagree. The purpose clause must be linked to the content of the CCCFA/Bill. The Bill does not institute borrower responsibility – the emphasis is on lender responsibility. The purpose clause cannot be inconsistent with the content of the Bill.
Disagree. The purpose clause refers to responsible lending, and those obligations will apply to all providers of consumer credit. However only a relatively small proportion of consumer credit is detrimental for consumers.
9
64.
3(1)
NZ Law Society
65.
3(2)(a) and (b)
Veda Advantage
66.
3(2)(c)
NZ Law Society
ensure that borrowers are aware of the effect on their budget when taking out a loan. This should state: “to determine how the payments of the credit contract will add additional stress if any to the financial situation of the borrower”. Submits that the courts look at purpose statements and objects clauses to assist a purposive approach to interpretation. Arguably, the identification of a primary purpose may introduce some inconsistency to the objects clause. For example, considering proposed section 3(2)(d), the objects clause may in some circumstances operate to elevate the interests of consumers over those of other debtors. Recommends that if this is the intention it should be made clear, but notes that there are risks in subordinating the rights of ethical lenders. Submits these purposes will be underpinned and best served by robust reasonable inquiry obligations which look at ascertaining the full picture of the financial circumstances of the borrower and their history of repayment of debts, which credit reporting can provide. Submits that it is not clear what the proposed section 3(2)(c) adds to the meaning of proposed section 3(1). On the other hand, its omission of buy-back transactions, already mentioned in section 3(1), introduces a source of confusion. In particular, section 3(1) could be interpreted as applying to those contracts both when agreements are entered into and for their duration, and the proposed section 3(2)(c) may
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The interests of consumers are the primary priority under the CCCFA. The example cited refers to the oppression remedy in the CCCFA, and that is the only remedy in the CCCFA that is available to non-consumers. Consumers are expected to gain greater protection under the amendments being made to the oppression provisions.
Agree that the operation of responsible lending will need to be robust.
Noted. Section 3(2)(c) adds the explicit reference to consumer protection for the duration of consumer credit contracts; not just when they are entered into. The comments about buy-back transactions are correct. The purpose clauses need to comprehensively cover buy-back transactions and consumer leases. 10
67.
3(3)
NZ Law Society
therefore elevate the interests of consumers holding credit contracts and consumer leases over those involved in buy-back transactions of land. The Law Society recommends that if this is the intention, it should be made clear. Submits that, arguably, it is not clear what the requirement to be “responsible lenders” consists of. Recommends giving greater clarity to this clause, by providing a definition of “responsible lenders” e.g. that complies with principles in proposed section 9B.
Recommendation: Amend the purpose clauses to cover consumer leases and buy-back transactions as appropriate. Disagree. All of the references in the purpose clause relate to operational aspects of the CCCFA/Bill. The general approach of the purpose clauses is not to include cross-references because they are implicit.
Section 5 – Interpretation 68.
Advance
ASB
Submits that paragraph (e) is not workable in the Bill.
Noted. There are separate (and slightly different) definitions of Advance in the CCCFA and the Credit (Repossession) Act. The Bill integrates the definitions, by adding references to guarantor liabilities and the cash price where there is an option to purchase. These additions are from the definition of Advance in the CRA. The guarantor references are only relevant in Part 3A (repossession), and the drafting in para (c) could be improved.
69.
Consumer goods
Buddle Findlay
Recommends that the definition of consumer goods be amended to ensure consistency.
Recommendation: Ask PCO to redraft para (c), and limit para (e) to guarantees for the purposes of Part 3A. Noted. The definition of consumer goods is taken from the Credit (Repossession) Act.
It states goods or services "primarily" acquired for personal useare consumer goods. Other
The “wholly or predominantly” test in section 11 relates to consumer credit rather than consumer
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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70.
71.
72.
Consumer goods
“Cost of borrowing” proposed sections 9A, 9I, 83V, 83ZC, 99A, 99B and 124, proposed amendments to s88, 99 proposed schedules 1AA, 3A, 3B.
Credit fees
BNZ
Commerce Commission
changes (for example section 11(1)(b)) refer to "wholly or predominantly", with "predominant purpose" defined. Submits that it is not clear whether it is meant to define consumer goods based on the reason why the particular consumer acquires the goods, or whether it is to be read like the proposed definition of “consumer” in the Consumer Law Reform Bill. If it is the latter it causes significant issues for borrowers in relation to section 7A. Recommends that the definition is clarified to avoid interpretation issues and to ensure a deliberate consistency with the definition of “consumer” in the Consumer Law Reform Bill. We think that some language used in the Bill is unclear and will give rise to enforcement difficulties. Seems akin to the concept of the cost of credit under the repealed Credit Contracts Act 1981. The Bill appears to revert to the discarded concept.
goods, so it is not directly relevant. The issue of consistency with the CLRB is whether there should be an objective (CLRB) or subjective (CRA) test for whether goods are consumer goods. The CCCFA generally takes a subjective approach (e.g. section 14), and the objective approach from the CLRB could be problematic in the CCCFA.
Noted. The ‘costs of borrowing’ term is used in relation to standing disclosure under section 9I. It is also used in relation to prohibitions on enforcement under section 99, and one of the new considerations in the oppression test in section 124. This is not a wholesale reintroduction of the cost of finance concept from the Credit Contracts Act. The definition used defined terms (credit fee, default fee, interest). Para (c) should refer to interest charge.
BNZ
Submits that it is not able to ascertain why subclauses (a)(iii) and (b)(v) have been inserted. Although these changes link into amendments that have been made to section 45 of the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Ask PCO to refer to interest charge in the definition of costs of borrowing. Noted. The effect of including section 45 third party fees in the general definition of credit fees it that the ‘reasonable fees’ obligation in section 41 will apply to ‘third party fees’ paid to 12
73.
74.
Credit Fees
Creditor
NZ Law Society
TCA
CCCFA (removal of reference to third party fees), the nature of the changes and references to “associated person” somewhat reverse the current section 45. There is no definition of “associated person” in the CCCFA – so if the references to “associated person” are to remain, a definition needs to be inserted. Recommends giving greater clarity as to which kinds of insurance premium should be captured by the term “credit fees”. It is unclear whether it is also intended to cover insurance premiums to protect the goods acquired by the borrower, and the costs of extended warranties for the goods purchased.
Recommends that the definition of “creditor” be amended to ensure that statutory compliance obligations sit with the original creditor who holds the operational responsibility with respect to credit contracts and customers, rather than any special purpose vehicle in the context of securitisation and covered bond programmes.
associated persons of the creditor. There is a definition of ‘associated person’ in section 8A of the CCCFA. The cost recovery principle for the recovery of credit fees under section 44 will apply to non-armslength third party fees.
Noted. This reference is reproduced from the CCCFA. Extended warranties (and repayment waivers) are separately defined in the CCCFA, and they are not ‘insurance’. The existing law states that insurance premiums for credit-related insurance are included in the definition of ‘credit fees’ if the creditor requires the insurance to be purchased from a particular insurer. Other elements included in credit fees under the Bill include third party fees paid to associated persons. The list of inclusions could be presented more clearly. Recommendation: that the definition is restructured so that the inclusions are listed together more clearly. Noted. The securitisation issue needs to be dealt with in the context of transfer disclosure (section 26A). It is not necessary to amend the definition of creditor as a more fundamental way of dealing with this issue.
Recommends that the definition of “creditor” is amended to clarify that the creditor is and CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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75.
Daily Interest Rate
Roger Sainty
remains the original creditor in the context of securitisation. Submits that a procedure be followed for deriving a “daily rate” from the agreed annual rate which allows for compounding daily. Submits that the section be amended to recognise leap years.
76.
Default
EGCC Scheme
Submits there is an error in limiting “default” to defaults relating to the purchase of goods. This definition appears to relate to credit contracts for consumer goods and not for the “provision of services”. However, credit and therefore credit contract and consumer credit contract is credit for purchasing property and services.
77.
Default
Full Balance
78.
Default
Westpac New Zealand
Disagree. The definition of daily interest rate (dividing the annual interest rate by 365) is only used in section 39(1). The effect of this section is that borrowers get credit for any repayments they make from the day the repayment is made. It does not entitle creditors to capitalise interest daily. Agree. The definition of default from the Credit (Repossession) Act needs to only apply for the purposes of new Part 3A. Recommendation: Ask PCO to amend the definition of default accordingly.
Although electricity and gas are ‘goods’ under the Consumer Guarantees Act 1993, the CCCFA uses ‘provision of services’ when talking about defaults that could relate to electricity and gas accounts. Questions the situation in which the word “default” is used but not in respect to a secured debt. "Default" is used in other parts of the CCCFA that do not relate to repossession. The CRA definition is not appropriate in those places. This definition should only apply in relation to Part 3A or amend the definition as follows: "default means, in Part 3A, 1 or more breaches..."
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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79.
Default
Commerce Commission
80.
Guarantor
ANZ
The word “default” is used throughout the Act in contexts where it is not intended to relate to a default that triggers a right of repossession. While the interpretation provisions say “unless the context otherwise requires” it seems unnecessary to have this argument. “Default” could have the meaning ascribed to it by clause 5 of the Bill for the purposes of Part 3A only. Recommends amending the definition of ‘guarantor’ to state that trustees of a trust and partners of a partnership are not natural persons. Guarantors that are trusts and partnerships should be treated in the same way that trusts and partnerships as borrowers are treated. The definition of consumer credit contract excluded lending to trusts and partnerships. Trustees and partners must be familiar with complex rules and documentation and do not need the extra protections given to a consumer.
81.
Hardship
Full Balance
82.
Intermediary
Jonathan Flaws
Recommends including a definition of “financial hardship” to be “an inability to meet basic living expenses for goods and services necessary for the survival of the debtor and his or her spouse and dependants”. Define “intermediary” and include a requirement that an intermediary must comply with the lender responsibility principles. Intermediaries play a crucial role in the origination of a loan, the work normally undertaken by a lender of making inquiries may
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The only change in the Bill is to change the reference in the definition to the guarantor being a “natural person” rather than a “person”. Only natural persons can grant security over consumer goods for the purposes of credit repossession, even if they have guaranteed a non-consumer credit contract. The CRA protects those people, and that protection is retained in the Bill. Restricting coverage of guarantors that are trusts or partnerships would be a new restriction, and this has not previously been considered. Disagree. The concept will be developed through the Code, Commerce Commission guidance and case law (Australian and New Zealand).
Noted. Responsible lending will apply to creditors, and agents and intermediaries will be covered under the lender responsibility principles as agents of the principal creditor. The responsibility will lie with the creditor. Section 113 of the CCCFA already imports section 15
be delegated to a mortgage broker or manager.
83.
Interest
NZ Law Society
84.
Interest Charge
Commerce Commission
85.
Repossession
Westpac New Zealand
See supplementary submission for further explanation in the context of mortgage brokers and Calibre Financial Services Limited v Mortgage Administration Services (Calibre) Limited and Cairns Lockie Limited). In the current CCCFA, interest is defined as “interest charge means a charge that accrues over time and is determined by applying a rate to an amount owing under a credit contract”. As long as interest is defined, then any other charge is a fee. The definitions of the various fees covered by the Act all exclude “interest”. Further, since the Act does not limit the rate of interest that may be charged, as long as interest is not charged as a fee, the amount of the fee will enable the consumer to “distinguish between competing credit arrangements”. Legislating for what costs can be recovered in a fee, with the exception of interest, does nothing to enhance the ability of a consumer to “distinguish between competing credit arrangements”. The Bill should clarify whether “interest” includes “default interest”. It is not clear whether a credit contract that only provides for default interest is a consumer credit contract under the Act. Suggest that references to interest be amended to make it clear whether the reference is to ordinary interest (only) or dealt interest or both ordinary interest and default interest. This definition assumes that the security interest will always be granted in the credit
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
90 of the Commerce Act, which makes principals liable for their agents.
Noted. The purpose of distinguishing between interest and fees is correct. However the function of specifying what costs can be recovered through a fee is to inform the unreasonable fee provisions (section 41 etc). The reason unreasonable fees are regulated is that they are more difficult to compare than headline interest rates.
Noted. ‘Interest charge’ seems to include ’default interest charge’ (which is ‘an additional interest charge payable on a breach’). It may however be ambiguous in other sections. Recommendation: PCO to consider whether additional clarification of these provisions is necessary. Agree that credit contracts need to include security interests for the purposes of Part 3A 16
86.
87.
Standard terms
Standard terms
BNZ
New Zealand Bankers’ Association
contract whereas the security interest may be granted in a separate security agreement (as is contemplated by the CRA). This can be addressed by using the extended definition of "credit contract" as set out in s 119(1) of the CCCFA. This should be incorporated into the repossession definition. It also assumes that the credit contract will relate to the consumer goods over which security is granted. The provision of credit may be unrelated to the secured property (for example, the credit is provided to repay other debts and security is granted over whatever personal property the debtor has). The definition should allow for this too. Submits that the current definition is so wide it could include any form of agreement, whether standard or bespoke. Therefore the definition is unlikely to work in practice and is likely to cause significant issues. Recommends the definition be amended to align to the Consumer Law Reform Bill’s concept of ‘standard form contracts’. This would also align the two pieces of legislation. Recommends that standard terms‘ should be more explicitly defined to address the specific purpose of the section and exclude terms that must be specifically tailored in any material way to meet any borrower‘s particular circumstances. The intention behind the insertion of this term appears to be to limit the application to standard form contracts that are not negotiated by the customer. The current definition is, however, excessively wide.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
(repossession). An amendment is necessary to make this clear. Note that ‘relating to consumer goods’ might unduly restrict the definition of repossession. Recommendation: Review the drafting of Part 3A to ensure that “credit contracts” include security interests for the purposes of Part 3A.
Agree. Recommendation: Amend the definition of standard terms to reflect the intention that standing disclosure should be provided for standard form contracts which have common or identical terms.
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Section 6 88.
89.
6
6
Commerce Commission
Buddle Findlay
The Bill should clarify which contracts are “credit contracts”. There is a lot of uncertainty about what types of arrangements are captured by the Act and that uncertainty is not addressed by the Bill. Recommend that the definitions of credit contract and credit fee are reviewed to remove any unintended application of the Act. Consider the following contracts might be caught: Contracts with funeral directors Portrait photos Dentist bills Private School fees Golf club memberships Gym memberships Consider that it is not clear whether Parliament intended to capture some of these transactions. The Commerce Commission has previously expressed a view that "credit" means any noncontemporaneous payment for goods and services, and that this will include prepayment, as well as what is more usually considered to be "credit".
Disagree. Consider that the definitions are clear. A deferred payment of a debt, or the purchase price of a good or service, is credit. It is consumer credit if (among other things) interest or fees are or may be payable (sections 7 and 11).
Submits that the current amendments to the CCCFA may be an opportune time to clarify this issue.
We remain of the view that this clarification is not necessary, and is likely to create more uncertainty than it resolves.
Advice from PCO is that any amendments to these provisions are likely to increase uncertainty, rather than be an improvement. Further guidance in relation to particular agreements such as gym contracts should be provided through guidelines such as Commerce Commission Guidelines on Credit Contracts.
Disagree. The definition of credit very clearly refers to credit as being a deferred payment of a debt, or for the purchase of property or services. A pre-payment can therefore not be a debt, because a payment in advance is not ‘deferred’.
Recommend that it should be clarified that an arrangement in which goods and services are prepaid for by instalment before the goods or services are received do not constitute credit contracts under the CCCFA. CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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The Ministry of Consumer Affairs' response was that it did not think the section would be interpreted in this way and as such no clarification is needed. With respect, we feel the clarification is necessary. An express exclusion could save retailers from potential complaints and subsequent litigation that ultimately results in the prepayment being deemed to not be a provision of credit (or erroneously being found to be subject to the CCCFA).
Section 7A – Credit contract may provide for a security interest 90.
7A
Families Commission
91.
7A
Consumer NZ, NZ Federation of Business and Professional Women, NZ Federation of Family Budgeting Services, FSCL, Franklin Family Support Trust Citizens Advice Bureau New Zealand
92.
7A
93.
7A
NZ Federation of Family Budgeting Services
Supports this section which itemises security and prevents certain household items from being used as security. This has the potential, if backed by enforcement, to substantially improve fairness in lending. Supports that only consumer goods identified as being subject to repossession should be subject to a security interest.
Agree.
Noted.
Supports that a security interest should not be held over essential household items. We see a problem with items being repossessed as a punitive mechanism to force debtors to pay their debt. Additional clause should be added which prohibits a security interest in items of a personal or sentimental value such as photographs, children’s toys, etc. Recommends that children’s toys be included as the removal of these can be distressing for families while realising very little value towards
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The Law Commission consulted on whether security over children’s toys should be included in section 7A, and the consultation showed problems with items like X-boxes and bikes. There is also a difficulty defining items of cultural or religious significance.
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94.
7A
Salvation Army, NZ Law Society
95.
7A
NZ Law Society
96.
7A
Financial Services Federation
97.
7A
GE Capital, Buddle Findlay, BNZ, ASB
settling debt. Recommends that the prohibited list be extended to include items of cultural or religious significance such as taonga and tapa cloth. Concerned that excluding essential household items means those items will be less readily available to consumers with limited access to other forms of collateral.
The responsible lending code could potentially provide that a responsible lender should not take security of high sentimental value and low economic value. Disagree. The list of items in 7A which will not be subject to a security interest is sufficiently narrow. In addition, consumers goods which are subject to a purchase money security interest are specifically excluded from section 7A(2).
Recommends an exemption that applies to household collateral (and in particular refrigerators and washing machines) only where the credit is advanced specifically for the purchase of those items. Broadly comfortable with much of the thrust of Disagree. The CCCFA generally applies to the section. But has some serious concerns: consumer credit contracts. The Credit (Repossession) Act applies to credit contracts Recommends the section should apply only to secured over consumer goods. “consumer credit contracts” not “credit contracts” generally. The current drafting may We have maintained this difference for Part 3A have peculiar consequences: a General Security (repossession), and section 7A (which is related). Agreement over a manufacturing plant may be ineffective in respect of the refrigerator in the The issue would be less acute if section 7A is factory kitchen, due to section 7A(2)(vi), and a moved from Part 1 of the Bill to new Part 3A receiver of such a business could sell the entire (which deals with repossession and credit business - but not that refrigerator. It also contracts secured over consumer goods). needs to be made clear that security for transactions involving financiers of medical Recommendation: Ask PCO to move section 7A equipment for business purposes is still to Part 3A. possible. Recommends that this section apply to consumer credit contracts only. This will unnecessarily restrict business lending
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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98.
99.
7A(2)
7A
100. 7A
101. 7A(1)
BNZ
ASB
Westpac New Zealand
BNZ
transactions where consumer goods owned by non-consumer entities are legitimately taken as security. The definition of “consumer goods” means, on its face, that the new section 7A could apply to a general security agreement (‘GSA’) over business stock that falls into section 7A(2). Recommends an amendment to make it clear that securities over a company’s inventory are included in the consumer goods exception. Submits that the Bill should clarify that when general security agreements are used, they are not enforceable against the consumer goods listed in s 7A(2). S 7A assumes that the security interest will always be granted in the credit contract whereas the security interest may be granted in a separate security agreement. S 7A can easily be circumvented by taking a security interest in a separate document. However, if the definition of "credit contract" is given the extended meaning set out in s 119(1) of the CCCFA here, it will include any separate security agreements. Submits that where the clause states that a credit contract ‘may provide for’ a security interest, the meaning of this is unclear.
Disagree. “Consumer goods” are defined as goods that are used or acquired for use primarily for personal, domestic or household purposes. Business stock is acquired for resupply in trade, which is not a personal, domestic or household purpose.
Agree. The intention of this section is to capture security agreements whether or not they are included in the credit contract itself or are contained in a separate security agreement. It is proposed to deal with this issue in Part 3A (where it also arises), and transferring section 7A to Part 3A will provide the solution. See recommendation above on the submission from Westpac regarding the need to ensure ‘credit contract’ includes security agreements for the purposes of Part 3A generally.
Recommends clarification as to whether this provision was drafted with a presumption that security interests would be included directly in the credit contract. BNZ’s current practice, along with other banks, is to document
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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102. 7A(1)
Financial Services Federation
103. 7A(2)
Financial Services Federation
104. 7A(2)
BNZ
separately the consumer credit contract to the security provided. To align s 44 of the Personal Property Securities Act, s 7A(1) needs to be redrafted so that the goods are “specifically identified in the credit contract or in an agreed variation to it”. Pleased that Bill still allows PMSIs over collateral types listed in (a). But preventing borrowers from being able to provide security over assets such as their refrigerator discriminates against people for whom such items are their only assets. Prevention of the taking of security over these assets increases the risk profile of loans, as they would then be unsecured and may well be faced with increased borrowing costs. This may also impact on lenders’ funding costs if a larger proportion of their lending book became unsecured and will increase costs for all borrowers. The problem is a responsible lending issue, not one relating to the type of security offered and is adequately dealt with elsewhere in the Bill, so in a real sense 7A(2) is not necessary. Submits that this section creates a contradiction where some goods of the type listed in paragraph (a) are not considered essential if a PMSI is taken over them but would be considered as such if another form of security arrangement is entered into. This definition will have potential implications for normal fixtures included in mortgagee sales, such as the stove and oven. The effect of this position is that normal industry practice will
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. Section 7A(1) will be redundant if section 7A is transferred to Part 3A. Section 83B deals with the issue. Recommendation: Ask PCO to delete section 7A(1) when transferring section 7A to Part 3A. Disagree. This was a policy decision recommended by the Law Commission. This is an area where protecting vulnerable borrowers may involve limiting the availability of credit, but the judgement is that the protection justifies the limitation in the specific cases in the Bill.
The issue is not so much that the consumer goods are essential – it is that they are used by creditors to maximise non-economic leverage, and that borrowers should be protected from this sort of pressure. The PMSI exception is empowering for consumers buying (and suppliers selling) these goods. Agree. Most of the prohibited goods will never be a fixture to land charged by a mortgage. Cooking stoves are an exception because they are 22
become unclear and potentially different from standard real estate transactions.
105. 7A(2)(a)
106. 7A(3)
NZ Law Society, Westpac New Zealand
Financial Services Federation
107. 7A(2) and 7A(3)
National Council of Women in New Zealand
108. 7A, 9H and 9G.
Commerce Commission
Recommends there should be an exception to the proposed exclusion which allows a security interest to be held if it was held by way of mortgage over an associated property and these consumer goods formed part of the fixtures of that property that would be sold with the property in a sale transaction. Typographical error - The word “interest” is missing from the term “purchase money security interest”.
There is nothing in principle wrong with a lender holding a duplicate set of keys from day one of a loan. The use should be regulated, not the custody of keys. Motor vehicle manufacturers typically hold duplicate keys for vehicles manufactured by them, and many of them own outlets that provide point of sale finance. Is the section intended to prevent them from holding duplicate keys? The cost to replace modern motor vehicle keys would ultimately be passed on to the consumer, and which will often need to be incurred by lenders if this clause is enacted without change. Supports restrictions on holding keys and barring essential household items and important documents from repossession. All obligations should have a corresponding sanction. There are sections in the Bill that
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
generally treated as fixtures. Recommendation: Ask PCO to amend section 7A to provide that fixtures charged under a mortgage of land are exempt from section 7A.
Agree. Recommendation: Amend the Bill to insert “interest” after “purchase money security” in section 7A(2)(a). Noted. There is a duplication between section 7A(3) and section 83I(2) which needs to be resolved. Moving section 7A to Part 3A will make this easier. In terms of the policy, see discussion in relation to section 83I below.
Noted.
Agree. When section 7A is included in Part 3A, it needs to clearly create an enforceable legal
23
place important obligations on creditors but there are no consequences for creditors if those obligations are not met. Recommend that enforceable sanctions are introduced for failure to comply with proposed sections 7A, 9H and [9G]. Note that offence provisions provide an effective method of promoting compliance.
obligation not to take security over the prohibited items, and the full range of civil and criminal remedies in the CCCFA should be available (including any purported security being unenforceable).
Supports Lender Responsibility Principles, particularly that lender can ensure borrowers can repay the credit offered. Generally supports the introduction of lender responsibility principles and the Code. Strongly supports Part 1A lender responsibilities which are a clear and workable set of principles. Strongly support responsible lending principles.
Agree.
Recommendation: Amend section 7A to ensure it creates a fully legally enforceable obligation.
PART 1A – Lender Responsibilities 109. General – Lender Responsibilities
ANZ
110. General – Lender Responsibilities 111. General – Lender Responsibilities 112. General – Lender Responsibilities
Kiwibank, Cash Converters, Consumer New Zealand FSCL Citizens Advice Bureau New Zealand
113. General – Lender Responsibilities
Families Commission
114. General – Lender Responsibilities
Salvation Army
Borrowers often use the acceptance or rejection of a loan application to assess whether they can afford a loan. Concerned that a number of lenders rely on the existence of security to grant a loan rather than a thorough assessment of the borrower's ability to repay the loan. Supports the implementation of a code of responsible lending. The code of responsible lending will allow regulators, FSP dispute resolution schemes and the Court more flexibility in regulating the behaviour of lenders. It will be easier to adjust as it is prescribed by regulation. Encourages the introduction of the Code and fair lending principles.
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115. General – Lender Responsibilities
Banking Ombudsman
116. General – Lender Responsibilities
Christian Care Budget Service
117. General – Lender Responsibilities
Commerce Commission
118. General – Lender Responsibilities
Counties Manukau District Health Board
Recommends formally codifying appropriate practice for the financial service industry in considering applications for lending. Submits that the principles should apply to all players in the industry. Supports the policy design of principles supported by guidance and elaboration in the Code. Submits that not one of their clients have fully understood their contract terms and conditions. Evidence of irresponsible practices such as lending when clients are already in deficit, high interest rates and repossession of goods not listed as security. Non-compliance with the Principles should be an offence. The Bill does not propose to penalise creditors for breaching the Principles – it should give rise to criminal offences or at least to civil penalties. Experience suggests that the prospect of refunding fees and interest is unlikely to impose sufficient incentives to ensure high levels of compliance across all categories of creditors. Anecdotal evidence from ASIC that the penalties for breaching the Principles in Australia are useful in encouraging compliance with the NCCP Act. Strongly supports the principles and notes the parallel with the New Zealand Code of Health and Disability Service Consumers’ Rights Regulation 1996 which states that “every consumer has the right to effective communication in form, language and manner that enables the consumer to understand the information provided.”
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The responsible lending principles and increased disclosure requirements are intended to address this information asymmetry and the lender will have an obligation to assist the borrower to reach an informed decision. Disagree. The Principles are binding and enforceable civilly, but the nature of the Principles is such that breaches could not be readily enforced as an offence. Features such as the skill, care and diligence of a responsible lender, making reasonable inquiries or assisting the borrower to reach an informed decision create legal obligations, but breaches of these obligations will not be criminal in nature.
Noted. The language in the lender responsibilities is to assist the borrower to reach an informed decision, and to be aware of the full implications of the agreement (section 9B(2)(b) and (d)). This is similar to “allowing the borrower to understand.”
25
119. General – Lender Responsibilities
120. General – Lender Responsibilities
National Council of Women in New Zealand, Janette Walker
Jonathan Flaws
Does not support the non-binding nature of the Code. This has potential to leave the credit industry open to self-regulation which has not been effective in this or other industries. The Code should include rules that are binding, and enforceable on lenders. Recommends that principles be referred to as “lending” responsibilities as opposed to “lender” responsibilities.
Disagree. The regulatory design is that the Principles are binding, and that the Code provides guidance and elaboration on the Principles. If the Code was binding, it would completely change the nature of the Code, and the opportunity for the Code to represent existing market best practice. Noted. There may be an issue with the use of “Lender Responsibility Principles” and “lender responsibilities” being too similar. Recommendation: Refer to PCO to draft an outline provision which will set the scene and identify the relevance of the principles.
121. General – Lender Responsibilities
Law for Change
Submits considering provisions around fair debt collection practices to prevent harassment and bullying.
Agree. The lender responsibilities need to apply when the consumer credit contract is in default, and the “when problems arise” wording in section 9B(3)(e) is inadequate. It should refer to defaults and potential defaults. As far as debt collectors are concerned, they will either be agents for the lender (in which case the lender will be responsible for the debt collector), or the debt collector will take an assignment of the debt and become the lender in its own right. Debt collectors which take assignments are creditors under the CCCFA, and they are also lenders for the purposes of Part 1A.
122. General – Lender Responsibilities
Franklin Family Support Trust
Supports the responsible lending code. Submits that all advertisements for credit carry
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 9B(3)(e) to refer to defaults. Noted. Requiring this information in advertisements would involve compliance costs. 26
123. General – Lender Responsibilities
NZ Federation of Business and Professional Women
124. General – Lender Responsibilities
NZ Federation of Business and Professional Women
125. General – Lender Responsibilities
Brent Hollows
126. General – Lender Responsibilities
Cash Converters
127. General – Lender Responsibilities
Westpac New Zealand
the credit provider’s registration number and the name under which they are registered in the Financial Services Provider Register. Supports this as central to the Bill. Contracts are clear the worst excesses of unscrupulous lenders are covered. Submits that all advertisements for credit (including goods for sale on credit) carry the credit provider’s registration number and the name under which they are registered in the Financial Services Provider Register. Recommends that the Code should be reviewed after one year of operation in consultation with affected people. The loan establishment process goes too far and is intrusive towards borrower’s privacy. It is discrimination for lenders to tell people not to borrow if it is for a legal purpose and they can afford it.
However the amendments to Schedule 1 will include the name and contact details of the dispute resolution scheme that the lender is a member of. We are aware that some lenders use different names, and adding the registered name used and the registration number to the disclosure requirement would be helpful in those cases.
Recommends that responsible lending principles not apply to pawn transactions. This creates undesirable and unintended consequences. Consumers are protected by strict residual equity rights, the FTA, access to the Disputes Tribunal and the CCCFA (to adjust unfair contracts).
Disagree. While there is no obligation on consumers to repay pawn contracts, there is an expectation that they will, and in the majority of cases pawn contracts are redeemed. Pawnbrokers also charge interest.
Recommend that pawn broking transactions are exempt from Part 1A and/or introduce principles in Part 2 of the CCCFA, not Part 1A. The principles should be consistent with, and not go beyond, the existing responsible lending
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend clause 68 of the Bill to include reference to the trading name, registered name and number of the lender in initial disclosure. Disagree. Responsible lending will not stop people who can afford it from borrowing. The requirements and objectives provision is designed for the lender to determine that the product it is offering is appropriate for the borrower.
Customers who use pawn contracts can be vulnerable, and the elements of responsible lending are relevant to pawnbroking.
Noted. Responsible lending and the Code are intended to reflect existing industry best practice.
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practices of banks.
128. General – Lender responsibilities
129. General – Lender responsibilities
BNZ
Mr Rental (NZ)
There is a risk that responsible lending obligations will increase regulatory and reputational risk and therefore encourage riskaverse lending behaviours in the top end of the industry. This risks creating a new group of marginalised borrowers who are more likely to have a lending relationship with fringe lenders. Supports the introduction of responsible lending principles. Submits that many provisions in the Bill may create unnecessary compliance obligations on the broader finance industry including mainstream responsible lenders. Uncertainty about the application of the principles generally and to what standard may lead to such risk aversion that mainstream lenders no longer extend credit to all of their existing customer base (on reasonable terms and at reasonable interest rates). These declined customers would then be forced to seek credit from lower tier lenders, who may not take seriously their new obligations or have them adequately enforced on them. Recommends that the Bill should be redrafted to make it clear that the additional requirements imposed by this part of the Bill do not apply to ‘consumer leases’. This may be achieved by referencing the defined term ‘agreement’ in the definition of ‘lender’. The lack of clarity arises because of various definitions used in the Bill and the Act, and their
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. “Consumer leases” are narrowly defined in the CCCFA (section 60), and they do not include consumer credit. If a consumer lease does include consumer credit, it is a consumer credit contract under section 16. Recommendation: Amend the Bill to ensure consumer leases are not covered under Part 1A.
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130. General – Lender Responsibilities
New Zealand Bankers’ Association
131. General – Lender Responsibilities
Save My Bacon
interconnectedness. The obligations in Part 1A apply to ‘lenders’ which includes ‘lessors’. The definition of ‘consumer lease’ in s 69 of the Act makes reference to ‘lessors’. This means that consumer leases may be caught by Part 1A. Supports the introduction of Responsible Lending Principles. However, from a practical perspective, lenders should have certainty as to what is required to implement these Principles. This is especially important where the Principles introduce new subjective terms for which there is no body of case law to draw on for clarity. Submits that the introduction of a positive obligation on lenders to behave in a responsible and ethical manner is welcomed. Agrees that it is preferable to address these matters using a principles based approach, rather than through prescriptive rules. However, the key to the success of this regime will be the quality of the Code itself.
Noted. Most of the new terms introduced in the Bill are directly from the Australian National Consumer Credit Protection Act (e.g. borrowers’ requirements and objectives, substantial hardship, intelligible), or the Financial Advisers Act (e.g. confusing). Agree on the necessary quality of the Code, and the collateral information and advice that will be necessary. Section 9B(4) provides a degree of protection for lenders, and the responsible lending principles have been carefully drafted to retain borrower responsibility for their own decisions.
Recommends that the Government should, in addition to publishing the code: a. Publish guidance b. Publish answers to questions from market participants c. Provide a consultation or pre-clearance service. Submits that the introduction of, what are in substance, ‘good faith’ dealing standards should be reciprocal. The unethical behaviour by borrowers should provide some relief from the obligations imposed on lenders and penal consequences of the Bill. CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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132. General – Lender Responsibilities
Jonathan Flaws
Recommends that mortgage brokers have obligations to observe and participate in lender responsibilities. If a mortgage broker deals with multiple lenders, the broker will be able to assist the borrower to select a loan product that can be expected to meet the borrower’s requirements and objectives.
133. 9A
Financial Services Federation, MTA, New Zealand Retailers Association
Definition of “lender” includes “creditor”. Under the CCCFA a “creditor” includes a dealer or retailer who sells goods on hire purchase before assigning the agreement to a financier. These people would be subject to the Lender Responsibility Principles. This is inconsistent with the Financial Advisers Act (retailers are exempt at the point of sale). There is also no difference with dealers or retailers who offer credit options to consumers as agents for a credit provider and do not themselves sign the credit agreement as creditor. However, the Bill does not capture these people. Recommends that “lender” should be defined so as not to apply to any point of sale dealers or retailers to exempt them from the Lender Responsibility Principles.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The approach of the CCCFA is to focus on the creditor. The responsible lending obligations in the Bill apply to creditors, and brokers have no independent responsible lending obligations. If there are issues with brokers not complying with the lender responsibilities when they arrange consumer credit contracts, the creditors on whose behalf the brokers are acting will be responsible for their agents. The CCCFA already provides for this to be the case. Section 113(b) imports section 90 of the Commerce Act into the CCCFA, and it has this effect. Disagree. If a dealer writes the credit on its own behalf then it is making the lending decision and the dealer will be required to be a responsible lender, even if the credit is subsequently assigned to another lender. If the dealer writes the credit as an agent for a creditor then the responsible lending obligations will fall on the creditor. Lenders are already responsible for their agents under section 113 of the CCCFA (importing section 90 of the Commerce Act). The fact that point of sale dealers or retailers are not financial advisers under the Financial Advisers Act does not mean they should not be responsible lenders.
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134. 9A
Westpac New Zealand
135. 9A
NZDSA
Should add to the definition of borrower: "....an agreement with a lender as the debtor". Once an agreement is entered into, the borrower will be the "debtor" for the purposes of much of the CCCFA. These two definitions should be linked. Recommends amending this section to clarify whether a transaction with a partial payment option is exempt or captured within the Bill. E.g. 3 instalments to cover repayment over a 3 month period. Submits that such transactions are exempt as there is no finance fee or interest charged. Submits that there is no power to exempt such transactions under the current Bill.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
The proposal to exempt point of sale dealers and retailers from responsible lending would potentially cover transactions such as clothing truck sales and hire purchase sales. Responsible lending is intended to improve consumer protection for all consumer credit contracts, including these sorts of transactions. Disagree. The “borrower” definition is only for the purposes of Part 1A. The “debtor” definition in the existing CCCFA only applies to “credit”, and does not include buy-back transactions and guarantees (which are covered by responsible lending). Disagree. Section 15 of the CCCFA provides that deferred payments of the agreed price of goods or services paid within 2 months are not consumer credit contracts. The disclosure and other consumer protections in the CCCFA do not apply to these contracts. Increasing the time period for the exemption to 3 months would reduce the consumer protections currently available under the CCCFA.
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136. 9A
BNZ
Submits that the new definition of “agreement” applies more widely than just to consumer credit contracts, which will mean that the lender responsibilities will also apply to nonconsumer credit contracts where the contract provides for security over consumer goods. This is inconsistent with the underlying purpose of the CCCFA.
Noted. Responsible lending is intended to apply to situations consumer goods are subject to credit repossession. The current Credit (Repossession) Act provides this coverage, and the Law Commission recommended that the existing coverage should not be reduced. Security agreements and other collateral or linked transactions related to consumer credit contracts are intended to be covered by responsible lending. Note that the use of ‘creditor’ in the definition of ‘lender’ should be amended so it does not apply to all credit contracts. Recommendation: amend the definition of lender to refer to a creditor under a consumer credit contract (or a credit contract to which Part 3A applies).
9B – Lender Responsibility Principles 137. 9B
Financial Services Federation
138. 9B
Commerce Commission
The requirement for a lender to assist a borrower or guarantor to be aware of the “full” implications is broad and onerous. “Full” should be deleted in (3)(b) and (d). The Bill uses the terms “borrower” and “lender” in the LRPs, whereas the Act uses “debtor” and “creditor”. It appears the main reason for adding these new terms appears to be to ensure the LRPs apply to all transactions. However it is not helpful having new – but different –terminology for essentially the same parties. Submit that this language should be consistent.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. “Full” provides useful emphasis.
Disagree. ‘Debtor’ and ‘creditor’ under the CCCFA are narrower than ‘borrower’ and ‘lender’ which are separately defined under new Part 1A. Borrower and lender is also more plain-English than debtor and creditor. It would be more confusing to use the same words (debtor and creditor) with different 32
139. 9B
Commerce Commission
140. 9B
Tauranga Budget Advisory Service
141. 9B
Mangere Budgeting Services Trust
142. 9B
Brent Hollows
143. 9B
Commerce Commission
144. 9B
BNZ
Consider that the following terms are imprecise and should be further defined: “responsible lender”, “reasonable inquiries”, “treat borrowers…reasonably”, “reasonable grounds to believe the information is not reliable”. Lenders should require clients to disclose full financial details via bank statements etc. when extending credit limits such as hire purchase or similar to ensure that clients can afford the additional credit limit. Supports that advertising is addressed in the Bill. Submits that the advertising of interest rates can be deceptive – e.g. advertised as 1.38% per day when this is 503% per annum. Supports that lenders are expected to ensure borrowers can make payments without suffering substantial hardship. Sections 9(3)(a)(i) and 9(3)(b) are onerous requirements for lenders. It will be difficult to measure how each lender can achieve this. The Lender Responsibility Principles should apply to all creditors within the industry. Neither banks nor any other group of lenders (including those who are currently subject to industry codes of practice or any other regulations) should be excluded. If creditors are already complying with LRPs they are unlikely to face significant compliance costs in meeting the Principles set out in the Bill. New section 9B(2) goes even further than those principles that just relate to “agreements”. This
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
meanings in Part 1A. Noted. These terms are principles that cannot readily be defined. The elaboration in the Code will be a more useful way of developing these terms than attempting to define them more closely in the Act. Noted. Lenders will be required to obtain information from borrowers to fulfil their responsible lending obligations. How lenders will do this is the kind of detail that will be in the Code, rather than being a ‘principle’ in the primary legislation. Agree.
Agree. The Code will provide further guidance on how lenders can act in accordance with the lender responsibility principles.
Agree. The Lender Responsibility Principles will apply to all consumer credit contracts.
Noted. The principles are not intended to apply beyond the ambit of consumer credit contracts,
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145. 9B
New Zealand Bankers’ Association
146. 9B
Save My Bacon
147. 9B(2)
Carol Fagan
is because these principles are not limited by the definition of “agreement”, which would mean that the principles in 9B(2) would need to be complied with by creditors in relation to all consumer and non-consumer credit agreements. This is out of step with the rest of the principles. Recommends that the proposed section 9B be amended to expressly state that compliance with the Principles must be viewed in the context of the individual lending decision. Submits that the regime needs to acknowledge, both in the legislation and in any Code which is eventually drafted, that the practical execution of the requirement to lend responsibly will vary depending on the context in which a contract is entered into. Applying a one-size-fits-all approach fails to effectively distinguish between different circumstances that may apply in each case. Submits that the adoption of responsible lending practices should reduce the risk of consumers being offered loans that they cannot afford or that are otherwise unsuitable. However, this outcome can never be absolutely avoided due to information asymmetries or, in extreme cases, deceit. Clause 9B(2) should apply at all times. Particularly in the case of complex derivative products and products that appear one thing to the lay person but on technical analysis are shown to be something else. For example a product that is marketed as an equity product when technical analysis by subject specialists
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
or credit contracts to which Part 3A applies. Recommendation: amend section 9B to ensure the responsible lending principles do not apply to all credit contracts.
Noted. It is correct that the application of the principles will vary according to the context. This will be clear in the Code, where, for example, different levels of inquiry will be required for different transactions. The principles drafted in the Bill are intended to be sufficiently high-level that they will have broad application. How they apply to particular transactions will be fact-specific.
Noted. An improved regulatory framework will make it more likely that negative outcomes can be avoided.
Noted. The CCCFA and the Bill only apply to consumer credit contracts (and credit contracts secured over consumer goods). Derivatives and other investment products provided by financial institutions are not covered by the CCCFA or the Bill. Neither are commercial property and other commercial transactions. 34
renders it subordinated debt.
148. 9B(2)(a)
NZ Law Society, GE Capital
149. 9B(2)(a)(iii)
Westpac New Zealand
The 9B(2) responsibilities should be legally binding on the lender especially in property and commercial transactions. Guarantors should be liable only for the specific loan being guaranteed and subsequent loan should not be allowed to be added as unlimited – especially when there is no liability of the lender to advise the guarantor of their increased risk. This is very pertinent with cross guarantees where the guarantee of one party may be minimal in relation to the guarantee of the other. Such guarantees often occur in family situations where one party has considerable assets and a child needs guarantees to purchase a much smaller property. Subsequent credit purchases by the original guarantor should be void from being attached to the secondary situation – this should always be treated as guarantee limited to the secondary purchase liability and not the whole indebtedness of the larger entity. Any potential change to a guarantor’s position should be clearly notified as in section (d). The term “responsible lender” is not defined. A logical definition of “responsible lender” is a lender who complies with the “lender responsibility principles”. However, if such a definition is used, behaving as a responsible lender cannot be an aspect of complying with the lender responsibility principles. (i) and (ii) are limited to the provision of credit. However, (iii) relates to subsequent dealings with the borrower generally. This may include matters that are unrelated to the agreement
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
The guarantees that are covered by responsible lending are guarantees of consumer credit contracts. The guarantee disclosure provisions in the CCCFA also only apply to these guarantees. The lender responsibility principles require the lender to assist the guarantor to reach an informed decision, and to be aware of the full implications of the guarantee. This does not necessarily limit the scope of the liability the guarantor might take on. The only part of the CCCFA which applies beyond consumer credit contracts (or credit contracts secured against consumer goods) is the oppression remedy in Part 5.
Noted. Understand that the statement can be seen as circular, but it is important as a statement of principle. The standard of care, diligence and skill needs a reference point.
Agree. The reference to subsequent dealings in (iii), and advertising in (i), are intended to apply to “agreements” defined for the purpose of Part 1A. 35
entered into which is not appropriate. Recommendation: amend section 9(2)(a) to ensure it only applies to “agreements “, and (iii) in particular does not extend beyond the scope of the agreements under Part 1A. 150. 9B(3)
GE Capital
The word “confusing” is subjective. Recommends that this term is deleted unless referenced against the standard of a defined “reasonable” borrower.
Disagree. The term is included in section 35 of the Financial Advisers Act 2008 (which relates to advertising). “Confusing“ is included in section 9B(3)(b)(i) (which also refers to advertising), and (iii) (which refers to other information).
151. 9B(3)(a)
Salvation Army
Disagree. Substantial hardship is part of the responsible lending test in the Australian National Consumer Protection Act. The principles will be elaborated on and guidance will be provided under the Code.
152. 9B(3)(a)
Veda Advantage
Clarify the meaning of “reasonable inquiries” and “substantial hardship” and how the lender will know that the repayment won't cause substantial hardship for the borrower. Suggests more of an onus is placed on lenders or those giving credit sales to investigate credit ratings on debts over certain amounts and on other existing insolvency commitments. Supports the introduction of lender responsibility principles, however more is to be inquired about than “the borrower can be expected to make payments under the agreement without suffering substantial hardship” (9B(3)(ii)(b)).
153. 9B(3)(a)
Save My Bacon
Recommends that s 9B(3)(a) should also address and include an obligation to make a reasonable inquiry into the financial circumstances of the borrower from objective, independent and reliable data sources not controlled by the borrower. The nature and extent of what the Government
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. The Code will expand on “reasonable
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considers “reasonable inquiries” needs to be clearly explained either in the Code of Responsible Lending or supplemental guidance. The level of inquiry required must be commensurate with nature, size, term and complexity of the loan. All lenders should be free to develop their own credit assessment processes. However, endorses the use of credit checks on all new customers. Any inquiries and credit assessment must be capable of being achieved under a “no advice” model. Recommends some form of safe harbour rules or additional guidance would be useful in this regard.
154. 9B(3)(a)
New Zealand Bankers’ Association, ANZ
The use of loan proceeds is often not relevant to a loan’s suitability for the consumer, or its affordability. Consumers should be free to make these decisions for themselves and lenders should not be called upon to make moral judgements or implement social policy. This clause is problematic due to the potential width of its scope and its overlap with the financial advice regime as regulated under the Financial Advisers Act 2008 (FAA). This specific requirement creates uncertainty about whether the regime will impose an obligation on lenders to take on responsibility for personal financial decisions made by borrowers. It also overlaps with the regulation of financial advice under the FAA.
inquiries”, and the level of inquiry will be flexible according to the circumstances. The relevant issue in relation to the borrower’s requirements and objectives is whether the credit product appropriately matches those requirements and objectives. For example, shortterm debt is not appropriate for a long-term need.
Noted. Creditors who make recommendations or give opinions in relation to consumer credit contracts may be giving financial advice under the Financial Advisers Act. There is a regulatory overlap to this extent. However not all creditors trigger the financial advice threshold, and the responsible lending principles deliberately go further and are more specific to consumer credit than the more general FAA conduct obligations.
Recommends that the scope of this provision is refined in order to make it workable for lenders CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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155. 9B(3)(a)
BNZ
156. 9B(3)(a)(i)
Westpac New Zealand, ANZ
157. 9B(3)(a)(i)
ANZ
to implement. Supports the NZBA’s submission on the concept of ‘reasonable inquiries’, including requesting further work to refine the scope of this provision and make it more workable. Creditors cannot take on the responsibility for borrowers to decide whether or not a lending decision is their optimal choice.
This provision should be deleted. The obligation for the lender to be reasonably satisfied that the credit or insurance can be expected to meet "the borrower's requirements and objectives" is unclear and requiring the lender to complete such an assessment is inappropriate. The use of the credit is ultimately the decision of the borrower, and any assessment as to the suitability of the credit or insurance should more properly be regulated under the Financial Advisers Act. The real question is whether, based on the information available to the lender, the lender reasonably believes that the borrower will be able to meet his or her obligations under the agreement. This is already addressed by new section 9B(3)(a)(ii). Recommends that this section be deleted or that the requirement is the same as the “fit for purpose” test in the Consumer Guarantees Act 1993. This requirement in the Bill is objective, whereas a subjective approach would be to say, “The credit or credited related insurance
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Borrowers remain responsible for taking on consumer credit. However creditors providing the credit will have a duty to make reasonable inquiries so the creditor is satisfied that the credit is likely to meet the borrower’s requirements and objectives, and will not cause substantial hardship. This does not mean the creditor takes on responsibility for borrowers’ choices. Disagree. The relevant issue in relation to the borrower’s requirements and objectives is whether the credit product appropriately matches those requirements and objectives. For example, short term debt is not appropriate for a long-term need. The requirement to make reasonable inquiries about the consumer requirements and objectives is directly from the Australian National Consumer Credit Protection Act (section 118). Responsible lending involves more than affordability. An affordable loan which does not meet the borrower’s requirements and objectives may still be irresponsible, depending on the circumstances of the borrower.
Disagree. The fit for purpose test in the Consumer Guarantees Act (and the Sale of Goods Act) is a similar idea to meeting the borrower’s requirements and objectives. The point of section 9B(3)(a)(i) is that the lender is on inquiry so as to be satisfied that the 38
provided under the Agreement is reasonably fit for any particular purpose that the borrower makes known”. 158. 9B(3)(a)(i)
BNZ
Recommends that this principle should be limited to ‘reasonable’ requirements and objectives.
159. 9B(3)(a)(i)
BNZ
160. 9B(3)(a)(ii)
Westpac New Zealand
It is unclear what types of insurance agreements this reference and principle is intended to encompass. Recommends that this be clarified in the Bill. Section 9B(3)(a)(ii) should be amended by deleting the words "without suffering substantial hardship".
161. 9B(3)(a)(iii)
Save My Bacon
162. 9B(3)(a)(ii)
NZ Law Society
The reference to "substantial hardship" is too vague and uncertain and, in any event, is inappropriate as some borrowers may be willing to bear some hardship, and perhaps even substantial hardship, in order to achieve a goal such as purchasing a first home. “Substantial hardship” is not defined and needs further clarity (preferably within the Act itself or, alternatively, within the Code of Responsible Lending). Direction can be obtained from Australian law. The “without suffering substantial hardship” requirement arguably extends the duty of a lender significantly, and there is a risk that lenders may be unclear how far their duty goes.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
borrower’s requirements and objectives are likely to be met. The onus is on the lender to inquire, and (under section 9B(4)) the lender can rely on the information provided by the borrower. Disagree. Determining whether the borrower’s requirements and objectives are reasonable would add an extra element of complexity and uncertainty. It is also not for the lender to make a judgement as to whether a borrower’s requirements and objectives might be unreasonable. Disagree. The relevant insurance agreements are the credit-related insurance contracts referred to in the definition of “agreement”. The clause says “insurance provided under the agreement.” Disagree. The substantial hardship test is directly from the Australian National Consumer Credit Protection Act (section 118). The meaning of substantial hardship will be informed by Australian authority and secondary material, and it will be discussed in the Code.
Noted. The Lender Responsibility Principles do significantly extend the duties of lenders. They are legislative principles, and they will be elaborated on and guidance will be provided in
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The lack of clarity is unsatisfactory.
163. 9B(3)(a)(ii)
Full Balance
164. General - Hardship
Mangere Budgeting Services Trust
165. 9B(3)(b)
Westpac New Zealand
Recommends giving greater clarity to the requirements of the proposed section 9B(3)(a)(ii), by providing definitions of what are “reasonable inquiries”, “satisfied”, and “substantial hardship”. Recommends removing “substantial”. The threshold should be lowered to circumstances such as unnecessary hardship. There should be a responsibility on the lender to inquire about the security and consistency of the borrower’s current situation and includes contingencies for any future changes that may affect the borrower’s income or expenses. Hardship should be termed substantial when it is on-going, the situation continually grows worse, more than 50% of a family’s income goes towards loan repayments, essential services are being disconnected, families are left with $50-$60 on average to feed a family and financial stress leads to health deterioration, family violence and other addictive habits. The test should be aligned with section 32 of the CCCFA by amending section 9B(3) to refer to a reasonable person and material particulars and remove the word "confusing". There is well-established jurisprudence as to the meaning of "misleading and deceptive".
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
the Code. The details provided in the Code will be more useful than including definitions of the principles in the primary legislation.
Disagree. Borrowers may freely and reasonably agree to credit that may involve some hardship. The lender responsibility principles are not intended to deal with credit that might cause any hardship. Substantial deliberately qualifies the test.
Disagree. The Bill does not define hardship explicitly as this should be a flexible concept that can apply to a number of circumstances. Hardship occurs when a debtor is unable reasonably to meet their obligations under a consumer credit contract. The Court will look to whether a person is genuinely unable to meet their debts. The circumstances described are likely to be instances of substantial hardship. Noted. The new lender responsibility is not intended to duplicate the standards for disclosure in section 32. The interface between the disclosure standards in section 32 and the lender responsibility regarding the provisions of information needs to be clarified. A higher standard is appropriate for a lender responsibility in relation to other information, apart from disclosure information.
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166. 9B(3)(b)
167. 9B(3)(b)
Kym Dalton
Jonathan Flaws
Recommends a fourth requirement to require lenders to make available tools to enable borrowers to reach an informed decision, e.g. requiring confirmation that the borrower has the required level of comprehension to reach an informed decision.
Recommendation: Ask PCO to amend section 9B(3) so references to information provided to borrowers do not apply in relation to disclosure information under section 32. Disagree. This would be too prescriptive to constitute a lender responsibility principle. The issue relating to tools to assist borrowers reach informed decisions will be more appropriately addressed in the Code than the CCCFA.
Require that lenders provide borrowers with a generic form of financial comprehension material. This material should be approved by a body such as the Commission of Financial Literacy. Recommends a fourth requirement where a residential property is provided a security for a lender to advise the borrower to consider obtaining financial literacy information and make available to the borrower sufficient material that would provide a level of financial literacy appropriate to the financial obligations being entered into. Information should be provided by written material, website or other audio visual devices. This requirement may be limited to first time borrowers providing security against their principal residence.
168. 9B(3)(b)
Jonathan Flaws
Recommends including a requirement that a lender uses the services of a translator to assist a borrower with the document if the lender is aware that is borrower is unlikely to understand
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. This is a matter better addressed in the Code as evidence of compliance with the lender responsibilities.
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the English document. Recommends a further requirement that the borrower provide a certificate to the lender stating that the borrower has reviewed the documents with the assistance of an interpreter. 169. 9B(3)(b) and 9B(3)(d)
Buddle Findlay
Submits that the section imposes too high a threshold on lenders. “Ensuring” that a borrower or guarantor is aware of the full implications is onerous. It would be reasonable to “assist” a borrower or guarantor.
170. 9B(3)(b) and 9B(3)(d)
Buddle Findlay
Recommends that the word “confusing” be removed as this imports a subjective evaluation to the provision of information.
171. 9B(3)(b)
BNZ
172. 9B(3)(b)
NZ Law Society
Submits that obligations on lenders should not be more onerous than that on issuers of financial products (compare requirement of documents to be clear, concise and effective in FMCA). This is all the Bill should require lenders to do if borrowers can make an informed decision. Submits that principle 3(b) contains the concept of advertising that is “confusing” to borrowers – this obligation goes further than the obligation under the Fair Trading Act. Submits that this repeats the FTA concerns with “misleading” and “deceptive” conduct, and goes a step further by introducing a new concept of requiring lenders to refrain from
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The obligation is to assist the borrower or guarantor, and the reference to “ensuring “ only relates to the content of advertising, the terms of agreements and other information not being misleading, deceptive or confusing. The lender has control over the content of this information. Disagree. “Confusing” is part of the test that applies to advertising under the Financial Advisers Act, and it sits alongside misleading and deceptive. “Effective” (as used in the FMCA) was considered, but it would provide less consumer protection than “confusing”. Wording that may be confusing or unintelligible to a borrower may still be legally “effective”.
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providing “confusing” advertising or information to borrowers.
173. 9B(3)(b)(iv)
Full Balance
174. 9B(3)(b)(v) – (vi)
Full Balance
175. 9B(3)(c)
BNZ
Recommends that the CCFS Bill to provide guidance as to how it is intended to be understood (given it is a new concept with no existing jurisprudence) and how it differs from the usual FTA obligations on businesses in trade. The desire for clarity of definition may be aided by the terms of the Responsible Lending Code. Recommends adding a subsection which states: “The borrower is made aware by the lender how the lender has determined the loan will not put them in hardship and what income and expenses are included as part of the borrowers financial situation”. This relates to assisting the borrower to reach an informed decision given the effect of the loan payment on the financial situation of the borrower. Recommends adding a subsection providing that, in reaching an informed decision, the borrower should be made aware of the option of getting independent advice and the organisations available that can help if they are unable to meet their basic living costs. Submits this should be clarified so this relates to just variations that are required to be disclosed under the CCCFA.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Lenders are required to provide borrowers with a written copy of an assessment that a loan is “not unsuitable” in Australia. However the Bill adopts a lower compliance cost model of responsible lending than the Australian model.
Disagree. This is a matter better addressed in the Code.
Disagree. The lender responsibilities relate to information provided in addition to disclosure information. The disclosure standards under section 32 that relate to variation disclosure should be separate from this information-based lender responsibility.
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176. 9B(3)(c)(i)
177. 9B(3)(d)
178. 9B(3)(e)(i)
NZ Law Society
Veda Advantage
Westpac New Zealand
Submits that the requirement in comparable legislation is that disclosure is “effective”. The requirement of intelligibility may be difficult to apply when lenders make agreements with a wide spectrum of borrowers. Recommends that the CCFS Bill states that the terms of an agreement “are expressed in a clear, concise, and effective manner”, consistent with disclosure requirements elsewhere. Recommends that the obligation to ‘make reasonable inquiries’ under s 9B(3)(a)(ii) should also apply to the lender guarantor context. The lender should be equally careful in dealing with the guarantor and the guarantor should be as protected as the ordinary borrower. Recommends that s 9B(3)(d) should be redrafted to include the lender being satisfied that the guarantor is not likely to suffer substantial hardship (in the same way as it applies to borrowers). 9B(3)(e)(i) should be amended to clarify what is meant by "reasonably and with respect" and "when problems arise". This language is very vague and uncertain. This principle should not apply unless the lender becomes aware that the borrower is either unable to make payments or is suffering substantial hardship.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend the Bill to clearly separate disclosure standards and informationbased lender responsibilities. Disagree. “Effective” was considered, but wording that may be unintelligible (or confusing) to a borrower may still be legally “effective” from the lender’s point of view.
Noted. The lender responsibility principles apply to guarantors, because guarantees are “agreements” and “borrowers” are the parties that enter into agreements (section 9A). Section 9B(3)(a) therefore already applies to guarantees and guarantors (and this includes the substantial hardship test).
Agree that “respect” and “problems” are problematic. “Ethically” is a more conventional concept for legislation than “respect”. The intention is to cover actual or pending payment defaults, as well as any other types of defaults. Linking the responsibility to actual or pending default implicitly means the borrower is unable to make payments. 44
179. 9B(3)(e)(iii)
GE Capital
180. 9B(3)(f)
Westpac New Zealand
181. 9B(3)(g)
Westpac New Zealand
182. 9B(3)(g)
GE Capital
Recommend that the bracketed words be amended to read “including by taking all reasonable steps to ensure that goods and property are not damaged during the process and that repossessed goods are adequately stored and protected”.
Recommendation: Amend this section so the lender is required to act ethically when a borrower is in default, or is at risk of defaulting. Agree. It may not be possible to avoid goods or property being damaged in all repossessions, so the reference to all reasonable steps is practical.
Note that the reference to the repossession process should also expressly refer to the right to enter premises not being exercised in a manner Repossessions may be difficult to effect because that is unreasonable. of location, installation or otherwise. This subsection does not recognise the possibility of Recommendation: Ask PCO to amend this section obstructive behaviour on the part of the to refer to the lender taking all reasonable steps borrower. to ensure the matters referred to, including that the right to enter premises is not exercised in an unreasonable manner. This principle substantially duplicates s120 of Noted. The intention is that the oppression the CCCFA. This unnecessary duplication should remedy be extended to be a positive duty. be avoided. Amend as follows: "(f) ensure that the terms of the agreement, the The drafting can be improved to make this circumstances in which the agreement is clearer, similarly to the Westpac suggestion. entered into, and the exercise of the lender's rights or powers under the agreement are not Recommendation: Ask PCO to redraft section oppressive to the borrower; and" 9B(3)(f) to make it clearer. Section 9B(3)(g) should be deleted. This Noted. The responsible lending principle of principle is redundant. That is, it requires acting lawfully is important, but the drafting can lenders to do something that they are already be improved to avoid double jeopardy issues. obliged to do. Further, this principle can result in a lender being penalised for exactly the same Recommendation: Ask PCO to redraft section conduct (that is, both under the relevant Act 9B(3)(g) to capture the principle of responsible and under the CCCFA). lenders acting lawfully, without duplicating other This section is unnecessary as these are existing statutory obligations.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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legal obligations.
183. 9B(4)
American Express, GE Capital, NZ Law Society, Buddle Findlay
This section allowing lenders to rely on information provided by borrowers unless they have reasonable grounds to believe it is unreliable sets out a fair balance.
184. 9B(4)
Consumer NZ
185. 9B(4)
Veda Advantage
Does not support this section. Concerned that some lenders will use this section to limit inquiries and encourage borrowers to take on additional debt. Submits that this subsection misunderstands the context in which it may be applied. Lender may not be able to discern whether there are reasonable grounds to believe the information is not reliable without making any inquiries. This waters down the obligations in s 9B(3)(a) and complicates in an unhelpful and unjustified way what it is the lender should do.
186. 9B(4)
Nicola Wills
Recommends that s 9B(4) should be deleted, and the extent and nature of inquiries should be addressed in the Responsible Lending Code and sections 9D(1)(a) and (b). Submits that this clause carries considerable potential to undermine the responsible lending principles. Any court considering the application of this clause would require evidence of the state of mind of the lender (ie the lender's belief) before finding the lender ought not to have relied on information. That
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Won’t re-draft but include another provision dealing with double jeopardy. “Ask PCO to carlfy that 9B(3)g captures the principles that the creditor must act lawfully. Noted. It is necessary to reflect the fact that landers rely on information provided by borrowers, at least up to a point. The fact that the lender cannot rely on information that it has reasonable grounds to believe is unreliable means the lender will still need to be on inquiry. Disagree. Lenders will be required to verify information provided by borrowers under the Code, so lenders will be warned if information provided is unreliable. Disagree. Section 9B(4) qualifies the obligations in section 9B(3)(a) (and the Code), but does not water them down. Lenders will be required to obtain information to verify information provided by borrowers – including the option of obtaining credit reference checks.
Disagree. In cases where lending has not met the borrower’s requirements and objectives, or where the borrower has suffered substantial hardship, it is likely that the lender should have had reasonable grounds to anticipate that this would be the case.
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would generally be quite difficult to establish. This creates a potential loophole as lenders could simply ask potential debtors to provide the information that will enable credit to be approved.
The Code will deal with the types of information lenders can be expected to rely on.
Recommends that the Code provide standards for the type of information it is reasonable for the lender to rely on.
9C,D & E – Responsible Lending Code 187. 9C
188. 9C
189. 9C-9D
Kiwibank
Carol Fagan
New Zealand Bankers’ Association, ANZ, BNZ, Westpac New Zealand
Submits that the legal status of the Code is unclear. The word “guidance” does not imply compliance with the Code will be imperative. Questions whether non-compliance with the Code will automatically constitute noncompliance with the principle and therefore the Act. There must be consequences for infringement of the Lending Code and these consequences should be monitored external to the Finance industry. It should also be noted that the practice in NZ (supposedly to save costs) is that conveyancing lawyers act both for the lender and for the lending institution (signing on behalf of the lender). This is a conflict of interest that needs investigation. Supports the use of a code to provide greater certainty. However, it is not possible to design a single Code that provides sufficient certainty that all lenders are complying with the Principles, without imposing unnecessary and
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. It is correct that the Code will be in the form of guidance rather than imperative rules. The Code will be a safe harbour for responsible lenders (section 9C(2)). The non-binding status of the Code could be clearer in the Bill. Recommendation: Add a new subsection to section 9C saying the Code is not binding. Disagree. The Code will be a guidance document, so a lender not following the Code will not necessarily be infringing the CCCFA. The crucial element is compliance with the responsible lending principles – non-compliance with the principles is what will be a breach. The circumstances in which independent advice should be recommended or required will be referred to in the Code. Disagree. Section 9D(2) already provides the Code may contain different provisions in relation to particular lenders, borrowers or agreements, or classes of each of them.
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potentially disproportionate compliance costs on different segments of the lending market. Recommends an amendment to allow for the approval of more than one Responsible Lending Code to make it easier for different sections of the market to comply with the Principles.
190. 9D
GE Capital
191. 9D
Westpac New Zealand
192. 9D(1)(b)(i)
American Express
Submits that specific sectors should be able to develop and ask the Minister to approve their own Responsible Lending Codes. A tailored approach provides the necessary flexibility without compromising the implementation of minimum standards across the board. Recommends that the Code be competitively neutral for all lenders and distribution channels. If the Code requires evidence to verify transactional information, non-banks and instore retail finance will be at a disadvantage in terms of convenience to customers. The Committee's report should note that the interplay between s9B(4) and s9D should be reflected in the drafting of the Code. Matters set out in a Code in relation to enquiries a lender must make or the extent to which a lender is required to verify information should not undermine new s9B(4) which generally allows a lender to rely on information provided by the borrower. This section appears inconsistent with s 9B(4). Similar to the equivalent legislation in Australia, any verification should be reasonable in the circumstances and not require more than
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
There will be the opportunity to include separate ‘parts’ or ‘chapters’ in the Code that will apply to different market segments. Some aspects of the Code may apply generally (e.g. advertising standards), while others can be expected to be more targeted (e.g. reasonable inquiries).
Noted. The provisions in the Code that suggest how a bank might verify information will not necessarily apply to non-bank lenders. The intention of responsible lending and the Code is to raise the bar on lending practises, but it can be expected that different Code provisions will apply to different categories of lenders. Noted. The Code is likely to refer to lenders taking some steps to verify information provided by the borrower. Those steps may provide reasonable grounds to believe the information is reliable (or not), which will be relevant to section 9B(4).
Agree that the reference to verification in section 9D(1)(b)(i) is inconsistent with section 9B. Recommendation: Amend section 9D so it more closely reflects the Responsible Lending Principles 48
193. 9D
194. 9D
NZ Federation of Family Budgeting Services
Commerce Commission
prudent lending practices currently undertaken by mainstream lenders today.
and the lender responsibilities in section 9B.
Submits that the Code detail the nature and extent of inquiries a lender should make and processes, practices and procedures a lender should follow to ensure that principles are effective and consistent across all industry sectors.
Noted. The appropriate processes, practices and procedures may in fact vary across industry sectors (section 9D(2)).
Submits that will be pleased to see the detailed guidance in the code with regard to s 9D(3)(a)(ii). The Lender Responsibility Principles and the Code should come into force at the same time, to promote certainty for the credit industry about what a creditor is actually required to do.
Agree. It will be impractical for the Principles to come into force ahead of the Code. Recommendation: Amend the Bill to align the coming into force of the Principles and the Code, and to allow work to develop the Code to commence before the relevant provisions in the Act come into force.
195. 9D
Veda Advantage
Supports the concept of safe harbours, but questions whether it is helpful to move to the Lending Responsibility Principles before the guidance provided by safe harbour is available.
196. 9D
CBNZ Inc, East Auckland Home and Budget Service
Supports the Code. Recommends that the Disagree. It is important to retain flexibility for words “may” in this subsection be replaced with the preparation of the Code. “must” (or “should”) to ensure greater due diligence by lenders. Note that the Code will not be binding.
197. 9D
East Auckland Home and Budget Service
Recommends that a lender obtain a credit check on borrowers. Without this, the lender is unable to decide whether lending is responsible.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Credit checks will obviously be referred to in the Code, but they will not be likely to be mandatory.
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198. 9D
Consumer NZ
Recommends that the code is sufficiently detailed to ensure lenders understand the practical effect of the principles. Submits the code provide direction on fulfilling section 9B(3)(a)(ii). The nature and extent of such inquiries should be set out in the code.
199. 9D
200. 9D
201. 9D(1)
DSANZ
Jonathan Flaws
Agape Budgeting Services
Recommends that the Code provide guidance on steps required for a lender to be “satisfied” as to the appropriateness of the agreement, guidance and examples on what constitutes “reasonable enquiries” and set out terms that will not be considered unduly onerous. Recommends excusing lenders from liability where lenders have reasonably relied on information provided by the borrower. Submits that guidance on “substantial hardship” be included in the Code in the context of consumer mortgages.
Recommends that the requirement for lenders to make enquiries and verify information provided by the borrower before entering into an agreement should be strengthened. The lender should be required to do due diligence on the client. For example, requiring two bank statements, electricity bills and documentation on existing loans and other debts.
Noted. The purpose of section 9D is to provide an indication of the coverage of the Code, and to ensure the provisions of the Code are sufficiently authorised to be valid. The Code will inevitably be quite detailed, but that detail does not mean section 9D itself needs to be detailed. Agree.
See section 9B(4). The test is broadly along these lines. Agree. Recommendation: The content of the Code set out in section 9D needs to more closely reflect the Responsible Lending Principles and the lender responsibilities in section 9B(3) (including, for example, reference to substantial hardship). Disagree. The CCCFA is principles-based legislation, and this degree of prescription is not appropriate for the primary legislation. These are the sorts of details that are likely to be included in the Code – although the details are yet to be worked out. Agree on the comments about the Code.
Recommends that the Code must be strong CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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202. 9D(1)
NZ Federation of Business and Professional Women
203. 9D(1)(b)
Jonathan Flaws
enough to protect both the lender and the person borrowing. Recommends that the Code contain strong requirements for lenders to explain the contract details embedded in the Code given that many people have English as their second language. Code needs to address issue that oppression can occur when contract not in first language of borrower.
Recommendation: The content of the Code (section 9D) should refer to processes, practices and procedures where borrowers’ first language is not English.
Recommends this section contain a provision to ensure that lenders have guidance as to when to require a borrower or guarantor obtain independent legal advice.
Noted.
Submits that a lender should always recommend this but in some cases a lender should require this. E.g. Reverse mortgages. Recommends that an obligation to ‘verify the financial circumstances of the borrower’ be included expressly.
204. 9D(1)(b)(i)
Veda Advantage
205. 9D(1)(b)(ii)
Brent Hollows
Submits that what is suitable and meets the requirement for a borrower can only be formed in the mind of each individual borrower.
206. 9D(1)(b)(ii)
GE Capital
Submits that this may lead to intrusive enquiry of the borrower. Unless financial advice, as defined by the FAA, is provided, product suitability (other than affordability) should not be a consideration.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: The content of the Code (section 9D) should refer to circumstances in which independent legal advice will be recommended or required.
Disagree. The reference to the borrower’s financial circumstances was removed from the Exposure Draft because submitters said it was too uncertain and subjective. The crucial point is whether the borrower can make the payments due without suffering substantial hardship. Noted. “Suitability” reflects the Australian responsible lending test and should not be included in section 9D. Recommendation: Align section 9D better with the Responsible Lending Principles and lender responsibilities, include (for example) by removing the reference to ‘suitable” from section 9D(1)(b)(ii).
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207. 9D(1)(b)(ii)
208. 9D(1)(b)(ii) and (iii)
209. 9D(1)(b)(v)
Veda Advantage
Westpac New Zealand
Westpac New Zealand
Submits that more is at stake than mere verification of information provided by the borrower – should be an obligation to obtain the whole picture. Recommend that this section be amendment to address this. These sub-paragraphs should be amended to be consistent with the language in the related lender responsibility principles. The language goes further than the principles, which will give rise to confusion and complexity. For example: (ii) refers to an agreement being suitable for, and otherwise meeting the requirements of, the borrower. In relation to s9B(3)(a)(i), references to this type of assessment should be removed; and The test in (iii) that advertisements are "not misleading, deceptive or confusing" should at least be "are not, or are not likely to be misleading..." (subject to comments on s9B(3)(b)). (v) should be amended to be consistent with (or cross-refer to) the related lender responsibility principles. (v) is much broader than (9B(3)(c) and (d)). It refers to "sufficient information" which is not used in the principles and does not refer to the actions that are specified in the related principles. The Code should be explanatory and should not be used to expand the scope or meaning of the principles. Further, the Code should not displace the common law position that a lender
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. “Verify” reflects the Australian responsible lending test, and should not be used in section 9D.
Agree that the wording of section 9D (1) should be better aligned with section 9B(2) and (3). Recommendation: Align the wording of section 9D(1) with section 9B(2) and (3).
Noted. The Code will be a form of delegated legislation that will be legally required to be within its empowering provisions. A responsible lender will be expected to provide information to
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210. 9D(1)(b)(iv)
Brent Hollows
211. 9D(2)
Jonathan Flaws
212. 9D(2)(a)
213. 9D(2)(a)
Consumer NZ
GE Capital
is not under a general obligation to disclose information about the borrower to a guarantor.
guarantors. The may involve creditors making sure guarantors understand the type of information which is not available to them.
Submits that the code will be able to dictate the reasonableness of lenders fees. Concerned with whether this is price fixing. Recommends that reverse mortgages are a class of borrowers for which the Code should contain different provisions.
Disagree. The ability to deal with unreasonable fees in the Code is a useful opportunity in a difficult area. Noted. Consumer Affairs does not have information showing reverse mortgages require specific regulation under the CCCFA. If reverse mortgages are consumer credit contracts (or buyback transactions) they will potentially be covered by the Code.
Recommends that non-conforming lending (non-bank lenders) require different provisions – these lenders require more intensive loan underwriting and investigation. Submits that this section provides for the code to contain different provisions for classes of lenders. Recommends that the code apply equally to all lenders. Does not support specific exemptions or special treatment for certain classes of lenders. Opposes the possible classification of lenders, which creates an inaccurate perception that “tier 1” lenders are more responsible or trustworthy than smaller lenders.
Disagree. The ability to target the Code to different market segments will be a benefit because the Code will be able to be more specific and relevant. It is not intended to soften the Code, or limit the overarching Responsible Lending Principles.
Disagree. There is pressure to prevent the Code from being a one-size-fits–all solution, and the ability to manage its application to ensure it is as appropriate as possible is important.
Submits the Code apply equally to all lenders assuming they are properly registered under the FSP (Registration and Dispute Resolution) Act. Submits it is not clear on what basis lenders CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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214. 9D(2)(b)
Brent Hollows
215. 9D(2)(b)
GE Capital
216. 9E
DRSL
217. 9E
NZ Federation of Family Budgeting Services FSCL
218. 9E
would be classified. Submits that this leaves open the possibility that the Code could exclude certain people from being able to borrow. Provision for sophisticated borrowers similar to the “eligible person/investor” concepts under the Securities Act 1978 may be appropriate. Suggests that the Code should be published within 6 months of 9E coming into force. 2 years is too long. Submits that the Code should be prepared 6-12 months after the Bill has come into force. Recommends the completion of the Code 1 year after the Bill receives Royal Assent. A shorter timeframe is required to carry the momentum of the Bill’s reforms.
Noted. Some people will not be able to borrower under responsible lending, because borrowing is hazardous for them. Noted. That would be possible under the Code, although the Code (and the CCCFA) only applies to consumer credit contracts. Agree that the 2 year backstop for the Code to be published is too long, and the Responsible Lending Principles and the Code need to come into force together. Recommendation: As well as amending the Bill to align the coming into force of the principles and the Code, the “backstop” for the Code should be 12 months after the Bill is passed.
Does not support the suggestion that principles are delayed until after the code is gazetted. The Code provides guidance and is a living document with amendments and additions from time to time. There should not be any difficulty or inconsistencies that result from applying the principles without a code.
219. 9E
NZ Federation of Business and Professional Women
220. 9E
BNZ
Lenders require certainty and consumers require protection, which should be ensured as soon as possible. Submits that as compliance to the Code is to be treated as compliance with the lender responsibility rules, that this be put in place in a shorter time frame with a maximum of one year. Recommends that the commencement of the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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creditor responsibility principles be aligned to the commencement of the Code. 221. 9E
Kiwibank
222. 9E
Community Law Centre Whangarei
223. 9E
Westpac New Zealand
224. 9E
225. 9E
Financial Services Federation, Banking Ombudsman Jonathan Flaws
226. 9E
GE Capital
227. 9E
Janette Walker
228. 9E
Franklin Family Support Trust
Recommends delaying the date on which the principles come into force so that the principles and code come into force at the same time. A long lead in time for the Code is not conducive to the purpose of the Bill. There should be consequences for lenders who do not abide by the Code. The commencement of the lender responsibility provisions should be deferred until the Code is in force. Failing this, lenders will be left to interpret the principles on their own, which will result in needless confusion. This will also result in the compliance burden increasing as lenders will be required to repeat the exercise when the Code is finalised. The period for development of the Code should be one year not two. Recommends that the Code clarify lending principles from the start. Submits that the Code come into force at the same time as section 9B to avoid uncertainty prior to the publication of the code. Suggest that the Code should be published within 6 months of 9E coming into force. 2 years is too long. Recommends that the Code be in place within 1 year and that the Code be reviewed after 1 year of operation in consultation with affected people.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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229. 9E
230. 9E 231. 9E
ANZ
National Council of Women in New Zealand Buddle Findlay
232. 9E
New Zealand Bankers’ Association
233. 9E(1)(b)
Veda Advantage
Submit that the Responsible Lending Code be developed before the Lender Responsibility Principles take effect. This will guide lenders on how to meet the principles, provide certainty and allow lenders to understand and take any extra steps needed to meet their obligations. A delay could be costly and frustrating for lenders. Suggests that the Code should be developed in a timely fashion following the passing of the Bill. Submits that it is not reasonable that lender responsibility principles will apply before the Code is finalised. This will lead to uncertainty before finalisation of the Code. Recommends that the Bill must be amended so that the Principles only come into force at such time as a default Responsible Lending Code has been approved. If the Principles apply before the Code is introduced, lenders will be required to guess how these should apply during the transition. This would also create significant difficulties with enforcement, and will be inefficient for the industry as a whole. Submits that compliance costs for lenders will be significant when these new regulatory obligations are imposed. It is therefore fair and necessary to create and permit safe harbour guidance which takes effect when the amended legislation does. Submits that Lender Responsibility Principles will only be effective if what is meant by them is clear and lenders have some guidelines to
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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follow. Until this point each lender must determine what they mean and what their implementation entails. Questions whether the timeframe of within 2 years will be sufficiently timely.
234. 9E(1)(b)
NZ Law Society
235. 9E
FSCL
236. 9E
NZ Law Society
Recommends that this section instead say that the Code will take effect on the date the section comes into force, or alternatively, no longer than one year afterwards. Submits that the 2 year lead time for publishing the Responsible Lending Code seems excessive. Recommends that this be amended to require the Minister to “make reasonable efforts” to publish the code within 1 year. Recommends that principles come into force 3 months after the Bill receives Royal asset and no later than the 6 months transition period. Consumer credit providers in most cases should already have compliant processes and systems given that all lenders are aware of the direction of the principles since the Financial Summit in 2011. Submits that it is critical that the Responsible Lending Code is promulgated with the benefit of practical input from industry. As the Responsible Lending Code is not binding on industry, the process of consulting and obtaining industry input will help achieve the level of buy-in required to make voluntary compliance an industry norm. Also, It is important that retailers who act as lenders’ agents at point of sale should be included in Consultation.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. This suggestion would impose too much short term uncertainty, and distraction from preparing the Code.
Noted. Consultation on the Code will be with personal substantially affected, which will include any lenders which want to engage, and the Commerce Commission (plus consumer representatives).
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237. 9E
Save My Bacon
238. 9E
Cash Converters
239. 9E
Brent Hollows
240. 9G
NZ Law Society
Recommends that the Commerce Commission should be expressly included as a mandatory party to be consulted regarding preparation of the Responsible Lending Code. Strongly recommends that the Code of Responsible Lending is developed in consultation with market participants from across the credit spectrum. Supports a Code which recognises the differences between various products. Does not support MBIE developing the Responsible Lending Code. Supports a committee of stakeholders such as MBIE, Commerce Commission, 1st,2nd,3rd tier lenders, budget advisory services and the Law Commission as chair. Concerned that MBIE represented only one side of the finance transaction and cannot be impartial given its comments in the Exposure Draft submission summary. Submits that there is a risk that the industry may be less inclined to comply with amendments imposed without consultation.
Agree. Disagree. It is the role of MBIE to advise the Minister, and in doing so it consults with all interested parties.
Noted. Non-consulted amendments will only be minor amendments that do not materially affect the Code (section 9G(3)).
9H – Publication of Standard Terms 241. 9H–9J
Consumer NZ
242. 9H-9I
National Council of Women in New Zealand Financial Services
243. 9H – 9J
Strongly supports these sections, including access to information before accessing credit agreements. This will assist scrutiny of the market for both regulations and consumer organisations. Supports the requirement for lenders to publish standard terms and disclose costs. Recommends removing requirement to publish
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree.
Disagree. Increased transparency will improve 58
Federation
standard terms and disclosure of costs. The only way to comply with these provisions would be to disclose a significant range of rates and terms. This is unlikely to assist prospective borrows who will may not be able to tell which rates and terms will apply, and therefore is unlikely to promote “shopping around”; may be misleading; and will increase costs for lenders which will be passed on to borrowers. The Australian requirement was removed because it was deemed unworkable. Instead, should require credit providers to fully disclose all fees, interest rates and terms associated with the loan to the borrower prior to, or at the time of, them signing a loan agreement – which is effectively the law already. Debt assignees should be exempted from compliance with Clauses 9H and 9I. Debt collection agencies (who would be “creditors”) would be required to comply. This would be impractical because they are assigned different types of credit contracts, and would be unnecessary because these assignees only collect and do not lend.
244. 9H – 9I
ASB
Recommends amendment so that the requirement is for current information to be available on the lenders website and on request. This should be limited to consumer credit contracts only. Recommends that requirements should
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
the operation of the market. Some creditors already comply with these requirements online, and the intention is to extend this practice. We do need to be careful to minimise compliance costs, for example by allowing the cost of borrowing to be disclosed as a range. (See recommendation below). The obligation is not intended to apply to debt collectors (which do not lend consumer credit). Need to ensure wording does not have unintended consequences. 9I requires the creditor to provide all information about agreements offered by the lender. 9H definition of standard terms needs to consider that the creditor must have offered the terms of standard form contract to the borrower.
Noted. Part 1A is already restricted to creditors under a consumer credit contract, a buy-back transaction or credit contract to which part 3A applies. The intention is to provide protection for consumer credit contracts as well as to credit contracts for which security has been provided over consumer goods. 59
accommodate the position that current trends are to providing more flexible pricing of credit at an individual level reflecting individual risk profiles as opposed to standard costs.
245. 9H – 9I
Buddle Findlay
Submits that that the space required to prominently display terms and costs may be unrealistic and lenders may be obliged to display earlier terms applicable to existing contracts. Submits that customers can create a tailored loan agreement that fits their requirements. It is out of date to require the publication of a single set of “standard terms”. Submits that sophisticated lenders can be expected to price each transaction on its own individual merits.
246. 9H – 9I
Salvation Army
Submits that the requirement to update information at each business premise is onerous and will have little benefit to customers given fast product development and competitive pricing. This will delay innovation and increase costs and administration. As part of Part 1 cl 9H and 9I, this could include a requirement to display or provide information regarding budgeting and financial literacy services so consumers can manage their finances more efficiently. Lenders should ensure that loan information is translated into key languages, or translation services are made public as part of ensuring that borrowers are fully informed of the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
The intention of 9H and 9I is to publish standard form contracts not bespoke contracts. See the recommendation concerning the definition of “standard terms”. Agree on providing for electronic display. The intention is not to impose high compliance costs –publication of the costs of borrowing (9I) is only required in relation to agreements offered by the lender. Recommendation: Amend section 9H so that it is clear that disclosure will only apply to current offers in the market. “Display prominently” should include a mechanism for electronic display.
Disagree. Sections 9H and 9I are specific obligations in relation to the cost of credit. Disclosure of the name and contract details of the dispute resolution scheme of which the creditor is a member is required under amendments to Schedule 1 – key information for initial disclosure. Information relating to budgeting and financial literacy services is better placed within the Code as evidence of responsible lending.
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agreement and its obligations. These translation services could be connected to the existing translation services that are already used by Work and Income.
247. 9H-9I
New Zealand Debt Collectors Association
Submits that the requirement to display terms and conditions could lead to information overload for consumers as there are a large number of slightly different standard terms and conditions. This creates the potential for misleading consumers. Submits that this would be particularly difficult for debt purchase members.
248. 9H-9I
NZ Law Society
Recommends that clauses 9H and 9I should either: (a) be limited to supplying a copy of the terms and conditions or costs of borrowing that apply to a consumer’s credit facility, free of charge, upon request; or (b) not apply to lenders that are deemed to be a lender due to a transfer or assignment of a credit facility where the credit facility has been terminated, written off or cancelled. Submits that where these clauses refer to information being prescribed, it would be useful to refer to section 138 of the CCCFA as this section provides the regulation-making power. Submits that normally, greater transparency and ease of comparability between the offers of different market participants benefits the consumer because it helps the consumer to
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree on requiring a translation to be provided. This will create enforcement difficulties if the contract is made in a language other than English. This is a consideration for inclusion in the Code in relation to assisting the borrower to understand. Provision is intended for standard form contracts only and lenders will be able to reduce compliance costs through the display of a range of interest rates. This will reduce the likelihood of confusion. Under 9B, the lender will also have an obligation to assist the borrower to understand, further protecting the borrower from being provided with misleading information. The intention of 9H and 9I is to provide consumers with greater disclosure and facilitate comparison between lenders. Consumers therefore need to know that they can ask for the lenders’ standard terms. The provisions are not intended to extend to creditors who do not offer credit to consumers. (See recommendation above).
Disagree. A reference to the regulation making power is not consistent with the rest of the Act and is legally unnecessary. Consider that sections 9H and 9I relate to the provision of standard form contracts and the costs of borrowing so that customers are aware of the terms and costs associated with credit offered in the market. 9H and 9I are not intended 61
make better choices and to drive competition. However, in situations where the lender/ supplier is able to capitalise more on the information than the consumer, it can have unintended effects. Ultimately, if access to finance, not cost, is the key driver of consumer behaviour at this third tier, then the greater transparency is unlikely to be enough to cause consumers to shop around. Further, if lenders get confirmation of the fact that customer uptake in their tier is not determined by their rates, relative to their competitors, then such transparency would serve to give lenders confidence that they could put their rates up further without losing market share.
to apply to customised situations like “below the line” offers which have more beneficial terms for the consumer. Agree that the Commerce Commission should monitor the effects of the section so that it is not used to the detriment of consumers.
Submits that even in first and second tier markets there is scope for unintended outcomes. E.g. the requirement to publish costs in relation to all offers would take away the ability of lenders to win customers through “below the line” targeted offers of terms that are not visible to the market generally. Equally, in certain circumstances, perfect visibility of offers among lenders may create incentives and a mechanism for lenders to align on price.
249. 9H
DRSL
Recommends that if the changes go ahead, it would be useful for the Commerce Commission to monitor the effects to ensure there are no unintended consequences. Submits that the requirement for publication and disclosure of terms be more specific. For example, a “Terms and Conditions”
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Noted. Agree that terms and conditions of consumer credit contracts are often inaccessible. This is the 62
hyperlink on a website, clicking through to a summary of terms which includes highlights, illustrations of what happens if things go wrong and where to go for redress. These provisions can be equally applied to posters and publications in the provider’s business premises.
250. 9H
Commerce Commission
251. 9H
Gayatri Jaduram
252. 9H
ANZ
Terms are often weighted heavily in favour of the provider, are complex and lengthy, are not in the language of the debtor and are often inaccessible if on the website. “Publicly available” is imprecise and should be further defined. Submits that it is not necessary for lenders to display standard terms at their premises. This may be practically difficult given there may be more than one set of standard terms. An increasing number of households have interest access. Some lenders do not have business premises. Submits that the only requirement be for publication on the lender’s internet site. If the lender does not have an internet site, then standard terms must be displayed at their premises. Recommends that the Bill should allow lenders to publish information online or display it in business premises. Recommends that lenders should be required to provide information on standard terms when asked. Lenders could clearly display in business
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
reason for including 9H and 9I in the Bill. In addition, the lender responsibilities include a requirement on the lender to assist the borrower to make informed decisions in relation to the lender. The requirement for disclosure of disputes resolution scheme membership and contact details for the scheme is being added to Schedule 1 – information to be included in initial disclosure. These are separate from the terms and conditions under section 9H. Disagree. Section 9H(2) will provide context for what publically available means. The section will provide for electronic display of terms and conditions. Where a lender does not have a business premises, there is no obligation to display at the premises. The section states ‘if the lender operates from a business premises’ An ‘either or’ approach to information being made available physically or electronically does not achieve the objective of comparability and transparency for consumers. Agree that lenders should be able to clearly display that consumers can ask for information on standard terms. Recommendation: Amend both sections 9H and 9I to reflect the following: - If the lender operates a website, the standard terms and costs of borrowing must be prominently displayed on that website. 63
premises that consumers can ask for information about the specific terms and conditions of a product for free. Standard terms are published on the website; disclosure in braches is impractical given the wide range of products offered. 253. 9H(2)(b)
254. 9H
New Zealand Association of Credit Unions
Westpac New Zealand
Submits that it is not practical to physically display all various loan terms and condition agreements in a prominent place, unless the information is displayed in a summarised, structured and comparable manner. Recommends that the clause be amended to allow for the terms and conditions to be freely available (rather than prominently displayed) at the point of sale (rather than in the business premises). Should be amended to include an option for lenders to make standard terms and conditions available in electronic form.
- If the lender operates from a business premises accessible by the public, the lender must make available the standard terms and costs of borrowing at these premises (this can be done by the use of a computer or other electronic device which allows the consumer to print a copy). - The standard terms and costs of borrowing must be available at the time of request. - The standard terms and costs of borrowing must be available free of charge to the consumer. - The lender must prominently display a notice stating that standard terms and cost of borrowing are available on request.
Displaying all standard terms in branches will be impractical and unlikely to assist customers of a registered bank given the large number of product offerings with frequently changing terms and conditions: (a) Due to the significant amount of information captured, there is a risk that the information will not be able to be kept uniformly updated. (b) This will come at considerable cost, including environmental costs, as creditors dispose of standard terms that frequently become redundant. CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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(c) Such displays are unlikely to be helpful to consumers in any event. (d) There is a customer trend away from visiting branches. Displaying all standard terms on the internet, to a lesser extent, are also likely to be confusing as it will be difficult to identify the relevant standard terms and significant resources will be required to maintain and update online displays.
255. 9H
New Zealand Bankers’ Association
It is not clear from the proposed amendment what is meant by "standard terms" and "display". If this provision were to be included, these terms must be more carefully defined. Submits that it is important that the Bill allow for the provision of information in digital form. Recommends explicitly including an option which would allow lenders to make current standard terms and conditions available in electronic form.
256. 9H
Franklin Family Support Trust
257. 9H
NZ Federation of Business and Professional Women
If the Committee is nevertheless in favour of requiring that these terms be available in hard copy, NZBA suggests that the provision should be amended to allow for a model where information is provided on request. Supports this section and recommends that premises be widened to include mobile trucks where terms and conditions should be prominently and clearly displayed. Supports publication of standard terms and costs of borrowing on internet sites and on
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
“Premises” is not defined within the Act but the intention is for it to apply to all business premises regardless if this is a shop or a mobile truck. Consider that sections 9H and 9I could be amended to refer to business premises which are 65
premises. “Premises” should be widened to include mobile trucks where terms and conditions and fees should be prominently and clearly displayed. 258. 9H
FSCL
Supports this section. Concern that it will not have a direct impact on third tier borrowers. Many third tier lenders do not have a website. Third tier consumers may not have internet access, are unlikely to read or fully comprehend the fine print and are unlikely to shop around for payday credit.
259. 9H
NZDSA
260. 9H
Law for Change
261. 9H
New Zealand Association of Credit Unions
262. 9H
BNZ
Submits that it would like to see a behavioural analysis of the demand site of the credit market to understand consumer preferences and behaviours to best tailor guidance to the Code and disclosure regulations. Submits that the responsibility to publish standard terms will fall on 3rd party finance companies when NZDSA members do not provide finance themselves. Submits that this section will improve transparency for some consumers but not all. Borrowers with a limited understanding of English will be vulnerable. Recommends that the prescribed information should be standardised, limited in content, and include where the consumer can get further information. Recommends that there be more clarity in the Bill on what “standards terms” encompass.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
accessible to the public. Recommendation: Amend section 9H (and (I) to clarify that they apply to business premises which are accessible to the public. 9H and 9I are intended to enable a consumer to ask for the paperwork in relation to a loan so they are able to take it away. In addition, the lender responsibilities require a lender to assist the borrower to understand and add an additional layer of protection. Noted regarding a behavioural analysis.
Agree. Where a lender offers credit, they must provide disclosure of standard terms.
The 9B obligation on the lender to assist the borrower to understand will be beneficial for borrowers with a limited understanding of English. The Act provides for a regulation making power to prescribe the form and method in which information is disclosed (s138) 9H is intended to apply to standard form contracts only. Bespoke agreements are outside the intended scope.
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263. 9H
Save My Bacon
264. 9H(2)
Kiwibank
Submits that if “agreement” and “standard terms” encompass some business agreements, the bank will be required to publish the terms of those business agreements. This provision therefore is unworkable in the context of nonconsumer agreements that are not based on a standard form agreement. Also, it is unclear whether items like ‘letters of offer’ would be included within the definition of ‘standard terms’. Submits that this is problematic. It is unclear what documents will fall within “standard terms” as often variants of documents are used in different cases. Recommends that the definition of standard terms be amended to clarify that publication requirements do not apply to template legal documents that must be tailored to meet customer’s particular circumstances.
Recommendation: Amend the definition of standard terms to reflect the intention to publish ‘standard form agreements.’
Strongly supports the intent to increase transparency and competition and supports the requirement that a lender must supply standard terms free of charge when requested. Submits that the definition of standard terms is wide and would include specific terms and conditions tailored to customer’s agreements. This would require disclosure of a master agreement which covers a range of situations. Recommends that the word “display prominently and clearly” be amended to “have accessible” to provide for access to associated documents electronically on the premises such CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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as through tablets etc. This will reduce paper and utilise modern technology.
9I – Publication of the costs of borrowing 265. 9I
MTA
Submits that this section be deleted. This will add unnecessary costs and may mislead rather than inform consumers.
Disagree. All lenders who offer credit to a borrower will be required to make the costs of borrowing available to consumers.
Dealers have relationships with several finance companies to address a wide range of credit profiles. Publication of all rates will inform customers but not all consumers will qualify for all rates.
Lenders will have the ability to publish a range of rates.
Finance approval is at the discretion of the finance company, not the dealer. Submits that information is better addressed directly with the customer by either the dealer or finance company. 266. 9I
267. 9I
Commerce Commission
Gayatri Jaduram
Consumer should be able to ask for the costs of borrowing at the point of sale. If they cannot do this then they will not have the opportunity to compare the offer
“lenders’ fees” appears to have a similar meaning to “credit fees” as defined in section 5.
Agree. 9I(2)(a) and (b) should be consistent with “costs of borrowing” as defined.
Submits that publication be required on an internet site only. If a lender does not have an internet site, then the lender should be required to display the standard terms at their premises.
Recommendation: Amend section 9I(2)(a) and (b) to refer to costs of borrowing: credit fees, defaults fees and interest charges, including default interest charges. Disagree. For consumers who do not have access to the internet, the lender must make the cost of borrowing available for the consumer to view and take away a physical copy for comparison if requested.
Submits that interest rates may fluctuate relatively frequently. It would be impractical to
Allowing for electronic display (at premises and online) eliminates much of the issue with
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268. 9I
269. 9I
270. 9I(2)(b)
271. 9I(2)
BNZ
Save My Bacon
GE Capital
ANZ
display fluctuating rates at business premises. Submits that there needs to be more certainty around this obligation. The requirement to make publically available all the costs of borrowing in relation to every agreement is extremely wide. Submits that if ‘agreement’ encompasses business agreements where a GSA relates to consumer goods, there will be obvious difficulties for creditors in disclosing the costs of borrowing for those types of agreements because they are so bespoke. Submits that publishing borrowing costs is problematic as conventional lenders will differentially appraise the credit risk of a borrower and adjust their finance rate accordingly. In addition, the requirement to publish an annualised interest rate for very short-term lenders is meaningless. For shortterms loans, the cost of credit is more akin to a fee for a service than a return on money lent. Recommends that the requirement to display interest rates apply only when rates are certain. Submits that actual interest rates are dependent upon the borrowers’ circumstances when risk based pricing applies for GE Capital’s personal loan products). Displaying a range of rates create an expectation that loans will be available at the lower end of the range. Recommends deleting the requirement for lenders to publish lender’s fees and rates online and at a business premises.
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fluctuating rates. The intention of 9I is to make information on current products on offer in the market available to consumers so they are able to compare credit products.
Noted. Lenders will be able to publish a range of interest rates where these are dynamic. Allowing lenders to publish the costs of borrowing in electronic format will alleviate many of the problems with dynamic interest rates. Recommendation: Amend the Bill to allow lenders to publish a range of interest rates.
Disagree. The intention is to improve the information available to consumers individually, and to the market generally.
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272. 9I(2)
BNZ
Submits that whilst most of these could be made available at the request of the customer, displaying this wide range of information in store and only in paper form may create uncertainty and confusion amongst borrowers overwhelmed by the amount of information provided. Submits that there is a lack of clarity as to what would be considered “displaying prominently and clearly”. The Bill is also silent on the potential for needing to display historically offered rates and fees, as these may still be relevant to some existing customers, even though we are not offering these products to new customers.
Agree that lenders should be able to clearly display that consumers can ask for information on standard terms rather than adopting a wallpaper approach. Recommendation: amend sections 9H and 9I so lenders are able to prominently display for consumers to be aware that they can ask for a copy of the standard terms at no charge.
Submits that allowing the option for digital display in store and online makes sense for the consumer, rather than requiring banks to also disclose everything in paper form. The Government’s Government ICT Strategy and Action Plan to 2017 shares a similar outlook.
273. 9I(2)(b)
National Council of Women in New Zealand
Supports the submission of the NZBA on this point. Recommends that this subsection state “this lender must display prominently and clearly the lender’s fees and annual rates of interest in relation to every type of agreement referred to in subsection (1)”. This subsection should repeat the wording in s 9I(2)(a) to avoid any possibility that this subsection requires a lesser standard.
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Noted. The two subsections should read consistently and should also be consistent with the definition of the costs of borrowing. It is not the intention of this section to require the lender to disclose matters that go beyond the ‘costs of borrowing’ as defined. All lenders, including payday lenders will have to comply with initial disclosure requirements as 70
well as standing disclosure (9H and 9I). Concerned that payday lenders will continue to trade without fully disclosing rates, fees and charges given the lack of clarity in this subsection.
Pawnbrokers 274. 10
Financial Services Federation
275. 10
New Zealand Retailers Association
276. 10(2)
New Zealand Licensed Traders Association
Why should pawnbroker customers not be as fully informed about the costs of borrowing as with other forms of consumer finance? It is not obvious why the law should give pawnbrokers a competitive advantage over other forms of consumer finance. Supports the clause 10 amendment for an exemption for pawnbrokers, as a positive step in addressing prior anomalies.
A conflict exists over the definition of interest in the CCCFA and the Secondhand Dealers and Pawnbrokers Act 2004, which has never been dealt with. Creates inertia and some individuals take advantage and flout the law. Recommends that pawnbroking be exempted from all parts of the CCCFA.
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Disagree. The decision has been taken that disclosure under the Secondhand Dealers and Pawnbrokers Act is sufficient, and that CCCFA duplication is unnecessary. The other aspects of the CCCFA and the Bill will apply to pawnbrokers, including responsible lending. Noted. Officials advice is that section 10(2) would be better placed as section 15A of the CCCFA. Section 10(2)(a) as currently drafted also focuses on the goods being dealt with by the pawnbroker, and it would be more consistent with the approach of the CCCFA if it focused on the pawnbroking contract, rather than the particular goods. Recommendation: Request PCO to amend section 10(2) by moving it to a more appropriate place in the CCCFA, and aligning the language more closely with the CCCFA to ensure that its intent is clear. Disagree. Interest has the same meaning in both Acts. The SDPA does not contain another definition meaning that all charges are grouped together and labelled “interest”. Pawnbroking transactions should be subject to the responsible lending principles; however transactions are exempted from Part 2 due to 71
277. 10
Commerce Commission
278. 10
NZ Law Society
The Act should be clearer about how it applies to Pawnbrokers. The proposed amendment to section 10 is not clear and we are concerned it will exclude all pawnbroking transactions from many of the significant provisions of the Act. Recommend that the Bill exempt pawnbroking transactions from Part 2 of the Act where the pawnbroker’s only remedy is to sell the goods. Supports this change, as the Secondhand Dealers and Pawnbrokers Act provides stringent conditions for documentation, disclosure and termination of a pawn pledge. However, there could be some confusion with respect to the application of new Part 1A of the CCCFA to pawnbrokers, as a consequence of the extended definition of “advance” (cl 6(1)(c)(ii)), which appears to be intended to cover conditional purchases and buy-backs.
overlaps with disclosure obligations. Disagree. The intention of the bill is to exempt all pawnbroking transactions from Part 2 disclosure obligations due to the overlap with the disclosure provisions in the Secondhand Dealers and Pawnbrokers Act. Pawnbroking transactions will still be subject to the responsible lending provisions in Part 1A. Agree on the general point. However the definition of advance in the interpretation section includes money provided to a debtor, which covers a pawn transaction under the SDPA. Disagree that licensed pawnbrokers should be exempt from the new responsible lending provisions in Part 1A.
Recommends that this should be clarified by clearly exempting licensed pawnbrokers from new Part 1A of the CCCFA.
Consumer Credit Contracts 279. 11
Jonathan Flaws
Recommends amending this section by adding another subsection which states: “If either or both of sections 11(1)(a) or 11(1)(b) do not apply, a credit contract is also a consumer credit contract if the balance of section 11(1) applies and one or more of the debtors or guarantors is a natural person and security provided for the credit contract by that person includes the principal place of residence
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The Bill widens the definition of consumer credit contract and takes into account credit to obtain goods for multiple purposes. This will offer further protection to business if credit has been obtained and more than 50% has been used for personal, domestic or household purposes. Many business loans are secured by personal 72
of that person”.
280. 11
Commerce Commission
281. 11
Financial Services Federation
282. 11
EGCC Scheme
The same disclosure and responsible lending principles should apply if security is given over the primary residence of the borrower or guarantor, even if the borrower borrows for commercial purposes. Focus on protecting the personal, domestic and household interest of that person when credit is obtained which affects these interests. The debtor’s purpose in obtaining credit should determine whether a contract is a consumer credit contract. Recommend that the proposed amendment to s11 be removed. The Bill proposes that it will be the creditor’s purposes in providing credit that is relevant in determining whether a credit contract is a consumer credit contract. This has the potential to create unnecessary enforcement difficulties and water down the presumption in section 13 that a contract is a consumer credit contract. Intention of amending definition of “consumer credit contract” should be made clearer. It is not obvious exactly what is intended to be effected by the change. In most cases the creditor and the debtor’s intentions will be the same. Doubts the drafting achieves what the Explanatory Notes say is intended: the word “intended” is not linked by the drafting to the creditor in any way at present, but is simply left objective. Submits that the definition of a consumer credit contract should be clarified as to whether an electricity or gas account is a consumer credit contract.
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property. Making the suggested change would be widening the scope of the Act further than intended.
Agree. There is an unintended consequence in shifting the “intent” to the subjective intent of the lender. This section will be amended so that the debtor’s purpose in obtaining credit will determine whether a contract is a consumer credit contract. Recommendation: Ask PCO to amend new section 11 to retain the existing sense that the debtor’s intention in entering into the consumer credit contract is determinative.
Disagree. A contract for the deferred payment for a good or service may be a consumer credit contract if (among other criteria) a credit fee is payable. 73
The CCCFA expressly excludes contracts for the provision of services from the definition of consumer credit contract where the total agreed amount payable under the contract is to be paid within two months from the day the contract is made. Electricity and gas accounts would not be consumer credit contracts if they are paid by the due date.
283. 11
Buddle Findlay
Note however that credit fees and default fees are defined separately, and a fee that relates to enforcement of a credit contract is a default fee rather than a credit fee. The sorts of fees payable on a default that are referred to in the submission will be insufficient to turn an electricity or gas supply contract into a consumer credit contract under the CCCFA.
The CCCFA also provides such contracts may still be regarded as a consumer credit contract if there is an amount payable under the contract due to a ‘default’ in payment by the consumer. This means electricity and gas consumers who ‘default’ on their electricity or gas account may be covered by the protections in the CCCFA Submits there is inconsistency between this Agree that there is inconsistency between section and section 14. sections 11 and 14. Section 14 will be amended so that the word “primarily” is replaced with Section 14(1) refers to a contract being “wholly or predominantly”. Similar changes will "primarily" for specified purposes, whereas, need to be made across the entire Act (including proposed section 11(1)(b) refers to when a sections 8, 16 and 60) contract is "predominantly" for specified purposes. Query whether this is intended to Disagree with suggested drafting create a different standard or whether section recommendations. Do not consider this is an 14(1) should be amended. improvement on current drafting however consider that it could be better aligned with Recommend that 11(1A)(b) be amended to Australian provision. read: "in the case of the credit being used for more than two purposes, the predominant Recommendations: purpose is that which comprises the greatest Refer to PCO to align sections across the Act proportion". This will convey the distinction to reflect the move from a “primarily” test to between a majority purpose and the overriding a “predominantly” test. purpose not being undermined by other
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purposes in (1A)(1) and (2).
Ask PCO to review drafting of section 11 to align with the current Australian provision.
Recommend removing the reference to “goods and services” in section 11(1A)(b).
284. 11
Carol Fagan
Defining the creditor’s reason for entering into these contracts would at least be enlightening and may indicate to prospective debtors that there are complex issues behind the offers.
285. 11
BNZ
Supports the changes to the definition of “consumer credit contract” because the test is defined according to the reason why the creditor provides the credit rather than the reason why the debtor takes up the credit.
286. 11
BNZ
Submits that the continuing relevance of, or any required changes to, the declaration that can be obtained under section 14 of the CCCFA by a creditor to rebut the presumption that a credit contract is a consumer credit contract has been overlooked. Although the focus of the definition has changed, there still appears to be a need for the declaration. However, given the change in language to section 11, section 14 will need to be amended to also reflect this language change and this has not been done yet. Submits that there is an undesirable inconsistency between the CCCFA carve out of the Consumer Law Reform Bill uninvited direct
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. It is the debtor’s intention when entering into a credit contract that will be most relevant to determine whether a contract is a consumer credit contract. There is a recommendation above that the section be amended to reflect this. Noted. The focus on the creditor’s intention was an unintended consequence of the predominant purpose test, and it is being recommended that section 11 be amended to reflect that the debtor’s intention is relevant in determining whether a contract is a consumer credit contract. The need for sections 11(1)(b) and 14 to be consistent is noted. Recommendation: Amend section 14 to ensure that it is consistent with section 11(1)(b), as amended.
Disagree. The carve out in section 36L(4) of the Fair Trading Act provides that any consumer credit contract included in an uninvited direct
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sales provisions and the definition of “consumer” in the Consumer Law Reform Bill.
287. 11
NZ Law Society
288. 11
Damian Chesterman
289. 16
Commerce Commission
Recommends that the CCCFA carve out in the uninvited direct sales provisions should apply to any credit contract where the creditor complies with the CCCFA as if it was a consumer credit agreement, and not just to “consumer credit contracts” – this will deliver the policy intention of ensuring that customers who are sold products in a certain way receive the benefit of regulated disclosure and cooling off periods. Supports in principle the clause 11 amendment to section 11(1)(b) which switches the test for business purposes from the debtor’s intention to the creditor’s intention. The “predominant purpose” test will provide clarification in cases of mixed purpose. Recommends extending the definition of consumer to cover farmers who are borrowers and/or guarantors under credit contracts. Leases that are treated as consumer credit contracts under section 16 should be required to disclose the key information in a meaningful way. Disclosure under Schedule 1 is impractical as consumer leases (that are required by section 16 to be treated as consumer credit contracts) do not generally have an “unpaid balance” and “annual interest rate and credit fees”, and “full prepayment” is not applicable. We suggest that section 16 leases should be required to disclose information under Schedule 2 of the Act with the additional
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
sale agreement remains covered by the CCCFA. It was not intended to include credit contracts that are not consumer credit contracts under the CCCFA. There may be credit contracts that are not “consumer credit contracts” that are part of uninvited direct sale agreements under the Fair Trading Act, but these will be rare, and they will be covered by the cooling off period and cancellation rights under the Fair Trading Act rather than the CCCFA.
Noted. There is a recommendation being made that section 11(1)(b) should be amended to reflect that the debtor’s intention will be relevant to defining a consumer credit contract. Agree. Disagree. Credit contracts for farm debt are commonly commercial transactions. The intention of the Bill is to provide consumer protection. Noted. The key information in Schedule 1 is required to be disclosed ‘as applicable’ to consumer credit contracts, including finance-type leases. Schedule 2 sets out the key information for nonfinance-type leases (i.e. those operating leases defined as ‘consumer leases’ under the CCCFA), so Schedule 2 excludes credit elements, including credit fees. Schedule 2 is simpler than Schedule 1, but 76
requirement that the disclosure includes a statement of a debtor’s right to cancel the contract.
Schedule 2 is incomplete for credit purposes. It is unclear whether there are many non-financetype leases covered by Schedule 2. Most ‘consumer leases’ are in fact covered by section 16 (and therefore require Schedule 1 disclosure). No other submitter has raised concerns about compliance with Schedule 1 disclosure for section 16 leases.
Disclosure 290. General Disclosure
Families Commission
Submits that information provided to the public and lenders about credit contracts needs to be simple, brief, and in plain language. Submits there needs to be adequate enforcement of information disclosure.
291. General Disclosure
292. General- Disclosure
FSCL
Community Legal Advice Whangarei
The submitter has cited a number of studies supporting disclosure requirements and financial literacy. Submits that disclosure material only helps to a limited degree in the third tier payday lending market. Submits that walking a borrower through a contract to reach an informed decision and being aware of the full implications of entering into an agreement is a way to improve understanding. For disclosure to be effective the lender’s expectations and contract details need to be in plain English and provided up front.
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Agree. The obligation for enforcement of information disclosure lies with the Commerce Commission. The Bill gives the Commission enhanced enforcement powers that will apply to disclosure.
Agree – Lender responsibility contained in 9B(3)(b) requires lenders to assist the borrower to reach an informed decision as to whether or not to enter into the agreement.
Agree. By requiring initial disclosure of all the key information specified in Schedule 1 before the contract is entered into, borrowers will have better information available to them to enable an informed decision to be made. 77
293. General Disclosure
Tauranga Budget Advisory Service
294. General Disclosure 295. General Disclosure
Elizabeth Lambert
296. General – Disclosure
Save My Bacon
297. General Disclosure
Paul King
Mangere Budget Services Trust
Recommends that the right to seek independent advice via free budgeting services or Citizens Advice Bureau be disclosed to the client alongside their contract.
Disagree. Disclosure of the right to seek independent advice is likely to be considered evidence of compliance with the responsible lending principles and may therefore be suitable for inclusion within the Code. However it is not a suitable mandatory requirement in the legislation. Submits that the source of credit provided by the Disagree. This would be an unprecedented bank to consumers should be made transparent. requirement in consumer credit law. Submits that contracts are presented uniformly in Schedule 1 outlines he key information layout. Submit that a similar form be used as the Real which must be disclosed and a model Estate Institute has adopted. This will prevent lenders disclosure form is provided for in the CCCF from “hiding” key terms such as the right to Regulations 2004. In addition, a regulation cancellation in language that is not in plain English. making power is included in the Bill allow for the form and method of disclosure to be Recommend that crucial and mandatory disclosure be prescribed in particular cases. offered in the first language of the borrower. Responsible Lending will require lenders to Submits that relevant enforcement authorities be assist the borrower to make an informed responsible for producing standard disclosure forms decision and the Code will provide guidance in the main languages; Maori, Samoan, Tongan and on how lenders can do this. Cook Islands. These forms could be available on the website of the lender to access and use. Providing disclosure of information in the language of the borrower would be Submits that reliance on disclosure has its limits: consumers in the short-term loans market rarely read evidence of compliance and therefore the full terms and conditions of their loans. Simplified suitable for inclusion in the Code. and standardised disclosures regarding a loan’s key terms would better serve consumers in this area. Borrowers must be able to enforce against a creditor Disagree. Non-compliance with disclosure for non-compliant disclosure. If there is no disclosure requirements is a breach enforceable by the or non-compliant disclosure, no interest or fees Commerce Commission. Borrowers are also should be payable. entitled to statutory damages (which are capped), and lenders are prevented from enforcing undisclosed consumer credit
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298. General – Disclosure
Law for Change
Recommends disclosing the annual interest rate up front.
299. General Disclosure
Commerce Commission
The Act should prohibit the charging of undisclosed credit fees. There is no prohibition on charging a credit fee that has not been disclosed. The Commission has previously encountered creditors charging undisclosed credit fees but have been required to take action under the FTA to capture the conduct.
300. General – Disclosure
New Zealand Association of Credit Unions
Submits that consideration should be given to an online register (similar to the PDS regime under the Financial Markets Conduct Act) for credit terms, which will ensure convenient comparability and informed market participation. Recommends lenders be required to disclose the amount borrowed (the principal) and the total amount paid over the term of the loan, being the principal, interest and all fees. Submits that this is the most demonstrative insight to the true cost of borrowing.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
contracts. However mandatorily preventing interest and fees from being payable would be significantly more punitive, and inconsistent with the existing policy settings in the CCCFA. Noted. The annual interest rate must be disclosed under initial disclosure requirements currently (see Schedule 1 key information). Requiring disclosure before the contract is entered into will strengthen the value of this information for consumers. Disagree. Initial disclosure requires a description of the credit fees and charges including the amount if ascertainable or the method of calculating to be disclosed. There are civil remedies and offence provisions that apply to incomplete disclosure. There will also be no contractual basis for charging fees that are not provided for in the consumer credit contract. Disagree that there should be an on-line register of credit terms. Schedule 1 specifies the information required by initial disclosure. Currently this includes the initial unpaid balance (the principal), the total interest charges and a description of the credit fees and charges. In addition, new section 9H requires lenders to publish their standard form contracts, and new section 9I requires lenders to publish the costs of borrowing which includes credit fees, default fees and any 79
301. General – Disclosure
BNZ
Understands the initiative to disclose relevant key information, in most instances, before a contract is entered into. However, some of the information in Schedule 1 is specific to each customer so providing this information prior to the time the contract is made will slow down creditors and reduce their ability to respond effectively to customers’ time demands, which is certainly not to customers’ benefit. Submits therefore, that consideration needs to be given to all of the scenarios and product types for which disclosure will be given, and some flexibility allowing post-contract disclosure is desirable. BNZ supports the submission of the NZBA on this point.
302. General – Disclosure
New Zealand Bankers’ Association
Wishes to comment on the current legal requirement regarding the need to obtain customer consent to them receiving disclosure in electronic form. While not currently contained in this Bill, BNZ feels strongly that the transition away from paper is being handicapped by creditors’ having to obtain a customer’s express consent to electronic disclosure rather than being able to assume that they can receive electronic disclosure as the default position. Supports (in principle) moves to make disclosure information more useful for consumers. However, concerns about a number of the new disclosure requirements in the Bill which are impractical and will place requirements on banks that are unworkable.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
interest charges. Disagree. The intention of section 17 (initial disclosure) and Schedule 1 (key information) is to provide consumers with information before they enter into a credit contract. Initial disclosure may be made immediately before the consumer credit contract is entered into. There should not be terms which are uncertain at the time of signing. The Bill does include more flexibility for disclosure of variations of existing consumer credit contracts, such as credit limit increases for existing customers. This was in response to bank submissions on this point. The CCCFA already provides for borrowers to agree to electronic disclosure (section 35). This is a classic opt-in/opt-out issue. The submission suggests requiring borrowers to opt-out of electronic disclosure. An opt-in requirement provides better consumer protection in this case.
Disagree. Submissions have highlighted issues with applications over the phone for overdrafts and credit extensions. Where a customer has a credit facility currently, they will already have a credit contract and therefore the lender will only 80
be required to make variation disclosure, or, in the case of a revolving credit facility, continuing disclosure.
303. General – Disclosure
Motor Trade Finances
Recommends that the Act provide for full and consistent disclosure. Full and consistent disclosure will enable a consumer to not only distinguish between competitor offers but also between competing loan periods. Full and consistent disclosure takes away the need for the Act to define what may be included in any fee, for the Commission to regulate what is included in fees and for the Courts to be involved in considering whether an amount has been correctly included or excluded. Recommends that the Act be amended to provide multiple standards of mandatory disclosure: a. website: full range of fees b. web based calculator: interest rate, fees included c. loan document: single panel disclosing interest rate, fees (including default fees), cost per payment period, cost full term, default fees. See Appendices A and B attached to submission.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Where the lender has no existing credit contract, they will need to comply with section 17 initial disclosure before the contract is entered into as well as complying with the lender responsibilities to make reasonable inquiries so as to be satisfied that the borrower can make their payments and assist the borrower to make an informed decision. Disagree. The disclosure and unreasonable fees provisions are complementary. It is unrealistic to expect to be able to strengthen the disclosure provisions to the extent that the unreasonable fees provisions are unnecessary. Disclosure is useful in informing and protecting consumers, but it has its realworld limitations. The Bill enhances disclosure under the CCCFA, including by requiring standing disclosure of standard terms and costs of borrowing, and by providing for mandatory disclosure regulations. These initiatives may result in all or some of the outcomes MTF recommends in relation to disclosure, but they would not take away the need for unreasonable fees to also be regulated.
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Initial Disclosure 304. 17
Citizens Advice Bureau New Zealand
305. 17 306. 17
Consumer NZ NZ Federation of Family Budgeting Services
307. 17
Franklin Family Support Trust NZ Federation of Business and Professional Women
308. 17
309. 17
FSCL
310. 17
Financial Services Federation
311. 17
GE Capital
Supports disclosure before a contract is entered into. Delayed disclosure is particularly pernicious in relation to car finance whereby consumers effectively enter into two separate contracts, for the car and for the finance. Supports this section. Supports the requirement that disclosure of key information is made to every debtor before the contract is entered into. Supports the requirement to disclosure all relevant information before the contract is entered into. Supports the requirement to disclose all relevant information available before the contract is entered into. Supports this section. Recommends a requirement for creditors to provide a copy of the credit contract in the language of the borrower if English is a second language. Alternatively, this could be provided for in the Code. It is important that the borrower understand the credit contract before entering into the contract. Supports this change. However, this could be misused by defaulting borrowers claiming that disclosure was not made until after the contract was made. Recommends adding provision to make clear that minor non-compliance has no adverse consequences.
Recommends that this section be amended to allow verbal disclosure of key financial terms such as
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree.
Noted. The lender responsibilities require the lender to assist the borrower to reach an informed decision. Providing a copy of the contract in a language other than English would likely be evidence of assisting the borrower and is suitable for inclusion in the Code. Disagree. The remedy for non-disclosure is statutory damages under section 88, and they are reducible for non-prejudicial breaches (section 92). A free-pass for minor non-compliance would have to apply to all disclosure obligations (not just initial disclosure), and this would provide an unhelpful signal. Disagree. Allowing verbal disclosure as an alternative to written disclosure would
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interest rate and payment obligations (followed by full written disclosure). Submits that written disclosure prior to the agreement being entered into may be impracticable in certain circumstances such as loans originated over the telephone. Note 1012G of the Corporations Act 2001 (Australian) for allowing verbal disclosure where written disclosure is not reasonably practicable in relation to certain financial products.
defeat the purpose of the changes to initial disclosure. Lenders can still provide verbal disclosure before they provide written disclosure, as long as written disclosure is made before entering into the contract. Section 1012G of the Australian Corporations Act only applies to very limited financial products (basic deposits and non-cash payments). It does not apply to credit products. Credit over the phone:
312. 17
Westpac New Zealand
Submits that significant changes to lenders’ receivables platforms will be required and recommend that the application of section 17 be delayed for a further six months to allow sufficient time for changes to be made. In a range of circumstances it is impractical or unnecessary to provide initial disclosure before a contract is entered into. For example, an existing customer may phone their bank seeking an immediate decision on a temporary overdraft or extension of credit. Should continue to allow creditors to provide initial disclosure within five working days after a contract is entered into. If it is necessary to limit this, specific circumstances should be specified. For example, s17(2) can be amended to provide that disclosure may be made within five working days after the contract is entered into where the borrower is an existing customer of the lender, or where an assessment of the borrower's ability to repay has been completed and found to be positive.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Where a customer has a credit facility currently, they will already have a credit contract and therefore the lender will only be required to make variation disclosure, or continuing disclosure where it already applies. Variation disclosure has not applied to favourable variations (such as limit increases), and this is what is changed in the Bill (see sections 22 and 23). Where the lender has no existing credit contract, they will need to comply with section 17, initial disclosure, before the contract is entered into as well as complying with the lender responsibilities to make reasonable inquiries so as to be satisfied that the borrower can make their payments and assist the borrower to make an informed decision.
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313. 17
ASB
Submits that amendments are not needed to achieve the goals of the reform. Submits this creates unwarranted barriers to providing credit in non-face-to-face and/or point-ofsale environments.
314. 17
ANZ
315. 17
ANZ
Submits that requiring disclosure before a contract is made will mean that credit contracts predicated on what borrowers have agreed to borrow in terms of advances and payments that will need to be made will not be possible. Recommends lenders give initial disclosure after a credit contract is created. Disclosure before a credit contract is created limits how a consumer gets that credit through the phone or online and stops easy access to emergency credit. Supports strengthening fee disclosure provisions. Recommends standardising the names of fees, using fee categories identified in the CCCFA. Recommends clearly identifying which fee category under the CCCFA the fee relates to if standardisation is not possible.
316. 17
ANZ
Recommends a brief explanation of the purpose of fees to enable consumer understanding of why fees are charged. Amend initial disclosure provisions so it is consistent with the approach taken in section 22 of the Financial Advisers Act 2008. ‘every creditor under a consumer credit contract must disclose the key information set out in Schedule 1 applicable to the contract to every debtor under the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Prescribing the name of the fee would be inconsistent with the principlesbased nature of the legislation. Section 44 in the Bill requires consideration of the matters giving rise to the fee – therefore fees should relate to what they say they are for or may be considered unreasonable.
Disagree. The intention of initial disclosure is to inform consumers of their obligations before they enter into the credit contract. By allowing lenders to disclose information up to 5 days later defeats the purpose of the legislation.
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contract before the contract is entered into or if not practicable before, as soon as practicable after the contract is entered into, but no later than 5 working days after the contract is entered into.’ As an alternative, the Bill should include a requirement on lenders to provide a key information summary.
317. 17
318. 17
Nicola Wills
Buddle Findlay
A Key Information Summary could include: repayment amounts and frequency interest rates and default interest rates when we charge interest what happens if a customer doesn’t make their repayments. Submits that in circumstances where the credit contract is arranged or procured by the seller of goods, so that consumers can buy goods from the seller, the obligation should be that disclosure take place before any contract is entered into. This ensures consumers are aware of their obligations before they decide to buy goods.
Note that the Bill extends the regulation making power in the Act so that disclosure can be made in the form prescribed. That prescribed form could provide for a Key Information Summary along the lines suggested by the submitter. See comments in relation to the regulation making powers and disclosure (section 138).
Agree. Disclosure must be made before the contract is entered into. Disagree on one hour proposal. Requiring disclosure one hour before a contract is made would be impractical.
Recommends disclosure one hour before a credit contract is made. Therefore consumers will consider the terms of the credit contract first.
Amendments to Schedule 1 in the Bill will require lenders to disclose that they are a member of a dispute resolution scheme, as well as contact details of that scheme.
Recommends extending disclosure obligations to include clear simple and practical information about key consumer rights in plain English. (See submission for examples of what information should be included). Submits that there may not be any clear material benefit in requiring disclosure before the contract is
Disagree. Subsequent disclosure combined with a cooling off period is the status quo.
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entered into instead of allowing subsequent disclosure with a cooling off period.
319. 17(1)
NZ Law Society
Recommends that this be amended by adding “by the debtor”.
Commerce Commission
The Bill should clarify the creditor’s obligation to provide continuing disclosure in particular situations. Providing continuing disclosure to consumers when access to credit on a revolving credit contract has ceased but interest/fees continue to be charged on an outstanding amount is consistent with the purposes of the Act, however this is not dealt with explicitly as is the case in Australia.
Cancellation during the cooling off period is after-the-fact, and fully informing the borrower before the agreement is entered into is likely to provide better consumer protection outcomes. Disagree. Unclear why this amendment is necessary. The contract will not be a credit contract if it isn’t entered into by the debtor.
Continuing Disclosure 320. 18 and 21
321. 21
Financial Services Federation
322. 21
GE Capital
Noted. The difference between Australian and New Zealand law is that section 21(2)(b)(iii) of the CCCFA says continuing disclosure is not required where the debtor has breached the consumer credit contract and the creditor has commenced enforcement proceedings. The equivalent Australian provision does not apply to “continuing (or revolving) credit contracts”.
When enforcement proceeding are commenced it makes sense for ordinary disclosure rules to be suspended. Request disclosure will still apply. Section 21(1)(a) should remain unchanged so that 6 Disagree. It is helpful for borrowers to see monthly statements will continue not to be required the progress of their loan and monitor their for fixed rate loans where nothing has changed since payments, even if the payments do not the loan was established. change over time. For example, borrowers There is no benefit in receiving statements where may be prompted to consider refinancing at nothing has changed. a lower rate, or increasing their payments. Recommend the application of the section be delayed Disagree. Lenders should already have a further six months. One year from the Act coming these systems in place. 6 months is a into effect should allow a reasonable time for system reasonable timeframe. changes to be made, tested and implemented.
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323. 22-23
ANZ
Recommends replacing these sections with a single provision dealing with disclosure of changes to a consumer credit contract. Submits that changes should be able to be disclosed within 5 days of the change taking effect.
Agree. The default disclosure obligations for variations in sections 22 and 23 refer to when the change “takes effect”, rather than when the variation is “entered into”. The test for the new disclosure requirements in sections 22 and 23 should be consistent with the existing test.
324. 22
Financial Services Federation
325. 21-23
Buddle Findlay
326. 22-23
Westpac New Zealand
Strongly opposes this change. Sees no benefit in requiring lenders to incur cost by sending paper to borrowers, potentially weeks later, when the borrower has already voluntarily agreed to the change and most likely been given a copy at the time of signing too. In the case of debt collection payment arrangements, the majority of arrangements will change many times. Where the borrower has already agreed, or where the change reduces the borrower’s obligations, this change is impractical and administratively burdensome. Submits there is no obvious benefit to these disclosures. This may inundate consumers with information which will detract from the key information the CCCFA is trying to provide them with. It is not clear that there is a material problem that needs to be fixed. Where a variation to a consumer credit contract benefits a debtor, there should not be any need to make disclosure of that change. The proposed amendments will impose significant
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend sections 22(4) and 23(6) to refer to the changes taking effect. Disagree. The requirement to make variation disclosure already exists, and if the borrower is given a copy at the time of signing then that will be the variation disclosure. The amendment is to remove the exemptions for changes that are advantageous to the borrower. The disclosure obligation for these variations is softer – even as part of continuing disclosure which may be weeks later. But the problem budget advisers have identified is that it can be impossible to keep track of changes (or prove that payment arrangements have been entered into) if they are not recorded and disclosed. Extending the timeframe for variation disclosure to 15 days will be unnecessary where continuing disclosure applies.
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compliance obligations and costs on lenders which are out of proportion to any inadvertent and immaterial detriment to the debtor of not receiving disclosure. These amendments may also delay the implementation of changes, thereby delaying the customer receiving the benefit of the change. There does not appear to have been any explanation for or discussion of these amendments. The amendments should be removed from the Bill. Alternatively, the following changes should be made: in 22(4)(a) and 22(6)(a), the five working day timeframe can be extended to 15 working days given the longer timeframes applicable to continuing disclosure referred to in paragraph (b) of each of those subsections and 327. 22
Brent Hollows
328. 22
ASB
Supports continuing disclosure requirements. Does not support the recalculation of future costs involved in completing a variation disclosure each time a client requests suspending, increasing or decreasing weekly payments. These requests are received on a daily basis. Submits that increased disclosure of certain changes and reduced timeframes will increase costs, inconvenience and it is reasonable that justification through a cost/benefit analysis is provided before such changes are adopted. Advisers who sell credit related insurance have duties to disclose key provisions under the FAA. It is common practice to have a 30 day cooling period for these products; therefore sufficient consumer protection already exists.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Note the comments above regarding timing and the nature of variation disclosure under section 22. Regarding the more general point, having borrowers bound by consumer credit contracts (or credit-related insurance policies) before the terms of those agreements are made available to them is not justifiable on the basis that it saves costs for lenders.
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329. 22
330. 22(3)(d) 331. 23 332. 23
New Zealand Debt Collector’s Association
NZ Law Society Financial Services Federation Commerce Commission, Westpac New Zealand
333. 23
Save My Bacon
334. 23
Nicola Wills
Opposes this amendment as it will ultimately increase the cost of borrowing generally to the consumer as creditors will pass on the costs. It will also greatly add to the cost and practicality of repayment arrangements which may involve numerous communications. Recommends that assignees or transferees or debts should be exempted from compliance under this clause. Supports the deletion of this section. Strongly opposes this change for the same reasons as section 22. Refers to subsection (2) in paragraph 2. It should refer to subsection (3).
The cost to borrowers of being bound by terms they do not understand and that they had no opportunity to find out about is intuitively a greater cost than the cost to lenders of disclosing the terms of their agreements before they are entered into. Disagree. The problem that has been identified with keeping track of the changes made to consumer credit contracts is more acute when debt collectors are involved. Repayment arrangements should be recorded to provide certainty for both parties.
Agree Disagree. See comments on section 22. Agree.
Recommendation: Amend the Bill to refer to the correct section. Supports the disclosure of consumer credit contract Agree. The Bill does not make a change to “before the contract is entered into”. However, the the timing of variation disclosure. existing rules for the disclosure of variations (i.e., Disclosure of agreed changes is already allowing up to 5-working days from the date a change required before the change takes effect takes effect for disclosures to be made) should be (section 22). The 5 working day rule applies preserved. to disclosure of changes following an exercise of power (section 23). Both these provisions are preserved in the Bill. Submits that the lender responsibility principles have Disagree. Section 23 provides for disclosure nothing specific to say about actions in the exercise of after a unilateral power is exercised by the any contractual power after a contract has been creditor. Section 23 does not empower
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entered into.
335. 23(1)(d)
Consumer NZ
336. 23(3)
Commerce Commission
Recommends that the responsible lending principles should be extended to the exercise of a contractual power so that it is clear that lenders have a continuing obligation to ensure that the credit meets the borrower's objectives and the borrower can make payments without substantial hardship. Submits that increases to credit limits should not be made unilaterally by the creditor. This should be by agreement only in accordance with responsible lending.
There should be changes to the timing of disclosure of a contractual change. Currently a creditor is required to make disclosure of a change to a consumer credit within 5 working days of it taking effect. Consider that a consumer should be given the opportunity to consider the effect of the change and to exercise any rights of cancellation, prepayment or termination before the change takes effect.
lenders to make unilateral changes to the contract – the right must exist in the original credit contract. The effect of the Bill is to increase the disclosure obligations in these circumstances. Note the CCCFA currently exempts unilateral limit increases under existing contractual powers from variation disclosure. The banking industry has voluntarily moved to an opt-in approach to limit such increases through the NZBA Code of Practice and this will likely be reflected in the Code. There is no need to include this level of prescription in the Bill. Noted. The changes referred to in section 23 are unilateral changes made by lenders under the terms of the consumer credit contract. The Bill extends the disclosure obligations, but it does not amend the existing disclosure timeframe. Disclosure in advance could give the borrower the opportunity to make other arrangements, but it is probably not time critical. The powers a lender might unilaterally exercise will be subject to the new unfair contract term provisions added to the FTA.
Request Disclosure 337. 24
Financial Services Federation
Requiring a) certain continuing disclosure information; and b) “any disclosure statement …
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Request disclosure is an important tool for budget advisers and 90
provided … before the date on which the request is made” imposes unnecessary costs on lenders as most information will have been provided to borrowers under other provisions.
others assisting borrowers. Often borrowers do not have copies of the papers provided by the lender when the loan was made, or on-going statements.
If enacted, this section should be amended to make These amendments clarify the creditor’s clear that a lender can charge a fee to recover the obligation to provide that information if it is cost of providing information that is requested after it requested. has already been provided to the borrower. Section 24(3) already refers to the creditor A debtor or guarantor should be restricted to the charging a reasonable fee. Section 24(4) number of times they can request disclosure – already excludes information disclosed in perhaps to only once per annum, and/or perhaps a the previous 3 months. debtor or guarantor should not be permitted to request disclosure of something disclosed to them in Debt collection agencies should have access the previous 12 months. to information to prove the amount of the debt, and its terms and conditions. Further obligations on the request disclosure provision will cause debt collection agencies Note that new section 24(2)(g) should refer significant administrative challenges in obtaining this to a continuing disclosure statement, and information from the original credit provider. the information should be time-bounded in accordance with the request. In addition, this section should not apply if, under section 21, disclosure under section 18 if not required. Recommendations: Ask PCO to amend section 24(2)(g) to refer to a continuing disclosure statement, and information related to a reasonable time period requested by the debtor or guarantor. Ask PCO to ensure section 24(2)(G) does not apply if disclosure under CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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section 18 is not required.
Disclosure of guarantee 338. 25 339. 25
Financial Services Federation Consumer NZ
340. 25
Damian Chesterman
341. 25
Westpac New Zealand
342. 25 - 26
ANZ
Supports this change for same reasons as given in respect of section 17. Supports disclosure before the contract is entered into. Recommends a requirement for lenders to communicate in writing about default and enforcement action with the person actually making payment under a credit contract, even if that person is the guarantor and not the lender. At the end of (2), the reference to "contract" should be to "guarantee" as the relevant timing is the giving of the guarantee, not the entry into a consumer credit contract. Amend as follows: "...must be made before the contract guarantee is entered into." Variation disclosure to a guarantor should only be made when a change materially increases a customer’s obligations or the guarantor’s obligation. Eg. Where the loan amount or credit limit is increased or material changes are made to the customer’s repayment or the structure of the credit contract. The provisions should make guarantor disclosure more relevant. Section 25 should be amended to allow a creditor to disclose information to a guarantor within 5 working days. This is consistent with the obligation to make initial disclosure to the borrower. Submit that any concerns with how lenders provide information to guarantors should be addressed in the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted.
Disagree. Guarantors have particular disclosure rights under the CCCFA (sections 25 and 26). Guarantors also have rights to made request disclosure under section 24. The further steps proposed by the submitter would be impractical. Agree. Recommendation: Amend the Bill to reflect that disclosure is in relation to the guarantee, not the borrower’s contract. Disagree on only disclosing material changes. This would add a materiality test, and would limit the existing guarantee variation disclosure obligations under the CCCFA. Under the Bill, initial disclosure will be required before the contract is entered into. The CCCFA has a 15 working day limit for disclosure when a guarantee is given, and a 5 working day limit for guarantee variations. The Bill amends the 15 working day limit (changing it to before the guarantee is given), and does not amend the 5 working day limit for variations. This is consistent 92
Responsible Lending Code.
with initial disclosure and variation disclosure of consumer credit contracts. A reference to 15 working days is also retained under section 25(3), and this should be amended to 5 working days. Recommendation: Ask PCO to amend section 25(3) to refer to 5 working days of the contract being entered into.
Disclosure of transfer of credit contract 343. 26A
Financial Services Federation
Disclosure will impact: 1. Assignments of point of sale finance agreements, and collection companies’ purchases: With collection company purchases (purchases of blocks of delinquent consumer credit contracts), disclosure of the sale generally occurs more slowly than the point of sale finance agreement disclosure. Recommends the disclosure obligation is on the transferee because this is what happens in practice; or this section should permit disclosure to be made by either the transferor or the transferee. Recommends extending time frame to at least 20 working days.
Disagree. It is important for borrowers to know if their debt has been transferred to a collection agency. There is currently no requirement on the CCCFA for this disclosure to be made. Putting the transfer obligation on the transferor or the transferee would cloud the responsibility (and potential enforceability) of the obligation.
2. Securitisation funding structures: When lenders use consumer loan receivables to raise funds, they establish an entity and transfer bundles of receivables to the entity which issues bonds to investors on the security. Borrowers never know that their loan has been transferred to the securitisation Agree on securitisation funding structures. structures and back again. The FSF and the New The drafting proposed by FSF and the NZBA CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
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344. 26A (Securitisation)
Westpac New Zealand
345. 26A (Securitisation)
TCA
346. 26A (Securitisation)
ANZ
347. 26A (Securitisation)
Buddle Findlay
348. 26A (Securitisation)
BNZ
Zealand Bankers Association agree that compliance by securitisations with 26A would neither be possible nor desirable, and that securitisations should be carved out (see schedule attached to submission for draft text). An alternative is to make disclosure obligations only arise when the transferee actually wants to contact the borrower. Recommends an exception for registered bank securitisation and covered bond programmes.
is too detailed for the CCCFA, which is primarily principles-based legislation. This detail would be more appropriate in regulations. Recommendation: Ask PCO to amend the section to create an exception for securitisations and provide further detail of prescribed circumstances where the exception will apply in the regulations.
Supports the proposed exception developed by the NZBA. Recommends an exemption for fund raising special purpose entities and securitisation entities from disclosure when a transfer of a consumer credit contract is made for the purpose of a securitisation or covered bond arrangement. Recommends that this section be deleted. Alternatively, supports the draft that NZBA has provided to MBIE. Concern that disclosure is required for the transfer of home loans to securitisation pools. Submits that there is no benefit in consumers knowing of transfers to securitisation schemes. Recommends and supports an exception for securitisation. Concerned about the impact of this provision on securitisation programmes. BNZ endorses NZBA’s proposal to amend the Bill to carve out these types of transfers because they have no material effect on consumers and there is no change to the customer relationship between the bank and the borrower. The Bill as currently drafted would result in a requirement for banks to send out tens of thousands of letters to
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349. 26A (Securitisation)
350. 26A
New Zealand Bankers’ Association
Westpac New Zealand
customers each year. Further, the letters would create confusion for customers. Recommends that the current wording of this clause should be refined to exclude transfers into and out of securitisation pools. From a customer‘s perspective transfers resulting from securitisations have no material impact on their loan. If enacted this provision would require banks to write to homeowners every time their mortgage is transferred into and out of a securitisation pool. The impact of this will be significant on banks. Recommends a solution which would carve out these internal transfers, while leaving the remainder of the provision unchanged. The proposed drafting of this is included in Appendix 2 of the submission. This section is unnecessary: (a) The transfer of a loan is subject to the existing conditions of the loan. The exercise of rights under a loan by a creditor (the definition of which also includes a transferee such as a special purpose trust or company) is already regulated by the CCCFA in Part 5. (b) Where the transfer of a credit contract is unrelated to the funding programmes, there is a natural incentive on the new creditor to ensure that prompt notice of the transfer is given to the debtor. The new creditor will want to ensure that the debtor is paying the right person and similarly, because under s50(3)(b) of the Property Law Act, the transfer is subject to any equities that arise before the debtor has actual notice of the transfer and that will have priority over the rights of the transferee. For example, if the debtor reduced the loan balance by
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. It is important for borrowers to know if their debt has been transferred to a collection agency. There is currently no requirement on the CCCFA for this disclosure to be made. Putting the transfer obligation on the transferor or the transferee would cloud the responsibility (and potential enforceability) of the obligation.
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351. 26A
Consumer NZ
352. 26A
DRSL
making a payment to the transferor (that is, the original creditor) or applied a right of setoff against the original creditor, this will reduce the amount owing to the new creditor under the loan. Supports disclosure when a credit contract has been transferred. Suggests that when a new creditor has been assigned a financial product /asset, creditors should disclose their dispute resolution process and contact details of their external dispute resolution scheme to the debtor.
Agree. Agree. This should be aligned with current section 68 of the Bill – see recommended amendments which include disclosure of the DRS’ registration number. Recommendation: Add corresponding obligation to disclose details of DRS of a new creditor with transfer disclosure.
353. 26A
New Zealand Debt Collectors Association
This should apply to receivers who are required to continue operating the business and will likely need to continue with disclosure or act under the security, e.g. repossession. Supports the principles of this clause, but submits that the timeframe to comply with this requirement is impractical. Debt purchase members often need longer to integrate customer information into their collection systems and send notice. Recommends that clause 26A(1) be implemented without change, but the timeframe in clause 26A(2) be amended to 20 working days.
Disagree. Receivers are in the legal position of being agents of the company (or person) in receivership. They are not creditors in their own right. Agree that 5 working days provides sufficient time for disclosure to be made. Note that the disclosure obligation rests on the transferor. Recommendation: Ask PCO to increase the time limit for disclosure under this section from 5 working days to 10 working days.
Cooling off period 354. 27 355. 27
National Council of Women in New Zealand NZDSA
Supports an extended “cooling off” period of 5 days.
Noted.
Supports the extension of the cooling off period to 5 working days. This is consistent with the DSA Code of Practice obligation.
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356. 27
Citizens Advice Bureau New Zealand
357. 27
Buddle Findlay
358. 27
Financial Services Federation
359. 27
Nicola Wills
Supports extension of cooling off period to 5 days. CAB often seed clients who need assistance to understand contracts. Submits that this amendment will result in a minor benefit with potentially significant cost in terms of changes to established systems and processes. Questions whether the extension of 2 days will have a significant benefit to consumers.
Few borrowers exercise this right, and those that do typically do so quickly. The FSF is not aware of any empirical data showing that this change is actually required, however has no argument against it. Submits that this is not long enough given the notice requirements. Section 28 provides for notice to be given in person or by post. Notice may only be given in electronic form if the creditor consents. Recommends either a longer time period for cancellation or a change to s 28 so that notice may be given in electronic form (without the creditor’s consent).
360. 27
Save My Bacon
Submits that this change is unnecessary, particularly given the proposal to require consumer credit contracts to be fully disclosed before acceptance. Submits that in the short-term loan context (where a loan may only have a life of 7-days), a 5-working day “cooling off” period is nonsensical.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
The extension of the cooling off period to 5 working days makes it consistent with the cooling off periods for uninvited direct selling door to door and by telephone as well as extended warranties that are included in amendments to the Fair Trading Act currently being progressed through Parliament. Noted.
Disagree. The Bill extends the cooling off period from 3 working days to 5 working days. It can only be a relatively short period because the effect of the cooling off period is to unwind the transaction. Electronic notices under the CCCFA require the consent of the party receiving the notice. This is consistent with the Electronic Transactions Act 2002. Departing from this principle would affect the notice provisions throughout the CCCFA and the Bill. Disagree. If the cancellation right is exercised, the amount of interest and reasonable credit fees accrued remain due to the creditor (section 30). There will be less incentive for a debtor to cancel a shortterm loan, but that does not justify limiting the availability of the cooling off period in
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361. 27
Franklin Family Support Trust, NZ Federation of Business and Professional Women
362. 27
Consumer NZ
363. 27
New Zealand Association of Credit Unions
364. 30
365. 30
Financial Services Federation
Buddle Findlay
Recommends that the cooling period be 10 working days. Submits that the cooling period for insurance is 30 days. Recommends that the cooling period be extended to a minimum of 10 days. This will provide a sufficient period for consumers to consider purchasing decisions and provide written notice to creditors. Recommends that the cooling period be extended to 15 working days. This will allow a borrower more time to fully assess both the financial impact of their decision, especially in situations where ‘Third Party Introducers’ are involved. Acknowledges this may increase the difficulty of getting the funds returned if the cooling off period enacted. In this situation, lenders should be able to recover any actual costs and interest incurred as a result of the borrower cancelling the contract. Section 30(c)(i) refers to interest but does not clearly state that borrowers are liable for interest accruing prior to cancellation, in the same way that section 30(1)(d) presently does. Reference to “… amounts due to the debtor, including any advance paid by the debtor to the creditor” in s 30(c)(ii) seems backwards: advances are paid by the creditor to the debtor, and are due to the creditor not to the debtor. Does not understand what is intended by this. Recommend amending the subsection 30(c)(ii) to “including any repayments made by the debtor to the
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those cases. Disagree. The cooling off period can only be relatively short because the effect of the cooling off period is to unwind the transaction. The Bill increases the cooling off period to 5 working days, which is consistent with other consumer laws. The Door to Door Sales Act had a 7 day cooling off period. The uninvited direct sales provisions in the Fair Trading Act have continued with this period, but in the modernised form of 5 working days. There is also a 5 working day cooling off period for extended warranties in the FTA. There is no cooling period for credit-related insurance in the CCCFA.
Agree. Section 30 should be clear that the lender is entitled to retain interest, credit fees and costs incurred repairing any property returned to the lender, and that any other money paid by the borrower must be returned. The Bill could be clearer about how the calculation is made. Recommendation: Ask PCO to review the drafting of section 30 to ensure it is clear about the calculation of the amounts due to and by the creditor on the unwinding of a cancelled consumer credit contract so all
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creditor”.
366. 30(c)
BNZ
367. 30
Carol Fagan
368. 32
Financial Services Federation
Recommend that section 30(1)(d) is not deleted as the liability of a debtor to pay interest charges on the unpaid balance for the period during which the credit was provided should remain clear. Submits that the new section falls short of providing sufficient clarity. In particular, it no longer retains a clause detailing what the debtor and creditors are actually entitled to upon cancellation of the contract. This should be clarified in relation to its purpose and requirements. “Release every security interest taken in connection with the contract” should also automatically apply to termination of contracts where a mortgage is repaid in full (on a property). It should not be the debtor’s (who has completed their obligations) responsibility to apply to the lender for release of that security. Strongly opposes disclosure prescribed by regulations: The “safe harbour” forms are voluntary; If the intention is to prescribe mandatory disclosure forms, then Schedule 1 of the CCCFA would become unnecessary – and yet clause 68 of the Bill actually adds to Schedule 1; “one size may fit all” belief is misplaced – it will be complex and unhelpful; This effectively prescribes the form of consumer loan documents generally, a prospect which is abhorrent. The penalties for failure to make compliant disclosures already provides strong incentives to ensure disclosure is adequate; A prescribed form of disclosure may not necessarily provide the same level of clarity as
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parties are put back in the position in which they started (subject to some interest and reasonable expenses and costs).
Noted. This is beyond the scope of this section which applies to consumer credit contracts that are cancelled during the cooling off period.
Noted. The intention is to leave the safe harbour forms and Schedule 1 key information in place, but to be able to prescribe additional disclosure forms in particular cases (e.g. for short term low value loans). Any mandatory disclosure regulations will need to be an overlay on the existing rules, separate from the Schedule 1 key information requirements. The disclosure standards in section 32 should apply to such additional disclosure requirements that may be mandated by regulation, so the amendment to section 32 is necessary. But there also needs to be an underlying
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369. 32
370. 32
371. 32(1)(ba)
Commerce Commission
Westpac New Zealand
Consumer NZ
already provided by FSF members. If this change is pursued, recommends that it be restricted to prescribing that the loan document should include a section where all costs associated with the loan are contained in the one place. Concerned that the amendments to this section could be read to mean that the current model disclosure forms are mandatory when we understand that this was not the intention.
Clause 32 should be removed. Alternatively, the regulations should be consulted on and should not apply to tier one lenders. Many lenders incorporate the disclosure information in the contract itself. Provided this approach complies with the disclosure standards preparing a separate disclosure statement in a prescribed form will impose unnecessary compliance costs on lenders.
Supports this section. Submits that fees be disclosed in a standardised way. Submit that the proposal in the Ministry of Consumer Affairs Consumer Credit Law Review in 2000 be revisited to have a central independent agency collect
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obligation to provide disclosure information prescribed in regulations. This is missing in the Bill. The model disclosure form contained in the regulations is not a mandatory requirement. The Bill does not prescribe that a model disclosure form is used; however, this section gives the regulations flexibility to prescribe that a model disclosure form be used for certain types of loan products. Recommendation: Ask PCO to make the necessary amendments to ensure additional mandatory disclosure forms for particular types or classes of disclosure, lender or transaction may be prescribed in regulations. Noted. The Bill includes the potential for mandatory disclosure forms to be prescribed for specific types of products. It is not intended that the existing model forms should become mandatory, or that mandatory forms should have general application. Any disclosure regulations will be subject to the standard consultation processes. Noted. The Bill improves disclosure and the ability to compare information about credit products. The standard terms and costs of borrowing must be available online, if the lender has an internet site.
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372. 32(1)(ba)
Buddle Findlay
and publish information about credit products. This would assist comparison of products and would influence pricing and market behaviour. Recommend using a prescribed form. Therefore there is no need for schedule 1 and safe harbour provisions under section 34. Concern whether it is possible or desirable to mandate one single form of disclosure. Lenders should have flexibility to describe loan products that fits their particular systems.
373. 32(2)
Commerce Commission
At the very least, disclosure of key information required by the Act should be required to be made in a single document.
374. 40
Carol Fagan
375. 40
Financial Services Federation
376. 40
Community Legal Advice Whangarei
It can take years to get a hearing or mediation. For most family based borrowers there may be no ability to either fund on-going provision of legal representation or maintenance of the income stream associated with the default. Most FSF members support changes. Some members calculate default interest on the loan principal. For them, this change will reduce their ability to recover the costs a lender incurs due to borrower defaults, and may force them to increase default rates as a result. Supports clarification on the amount that default rates may be charged on, i.e. whether it is possible to charge default interest on the full amount of the loan.
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Comparison sites are likely to develop without needing to be referred to in the CCCFA. Disagree. The prescribed form will not replace the existing requirements of Schedule 1, or the model form safe harbour. The intention is that it is an additional disclosure requirement that may apply in particular cases. The regulation making power has the flexibility to prescribe additional mandatory disclosure forms that are suited to different credit products. Disagree. The obligation to provide clear and concise information still exists. However it may be impractical to require lenders to present disclosure statements in a single document – for example where a schedule of payments is attached. Noted.
Noted. Any increased default rates will have to be disclosed.
Agree.
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377. 40
Commerce Commission
The Bill does not address the situation where a creditor is able to call up the entire unpaid balance on the debtors’ default and then charge default interest on the entire unpaid balance. We suggest that the Act provide that “where the contract provides that the total advance falls due for payment immediately on the debtor’s default, default interest is payable only on the part of the unpaid balance that was due notwithstanding that provision”.
Agree. The Bill needs to better reflect the policy intention that default interest is only intended to apply to the amount in default and while the default continues. Lenders should not be able to avoid the effect of the amended section 40 by calling up all or part of the loan, so that more of the loan than the actual arrears is in default (and subject to default interest). Under the Property Law Act, acceleration is defined by referring to an amount becoming payable sooner than would be the case if there has not been a default. Section 83V has a similar mechanism in relation to the amount required to reinstate a credit contract following repossession. Creditors should still be able to exercise their right to accelerate their loan – but they should not be able to charge default interest on the whole amount on that basis. Recommendation: Ask PCO to amend section 40 to prevent lenders from charging default interest on an amount greater than the amount of the default by calling up all or part of the loan.
Fees 378. Fees - General
Save My Bacon
Submits that there is merit in the Government undertaking more a radical reform of the CCCFA as it relates to very short-terms loans by allowing flat-rate finance fees to be charged in place of interest. This approach would be easier for consumers to
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Fees are intended to reflect cost recovery only and a move toward flat-rate finance fees would be a fundamental shift away from the policy intention.
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379. General
Motor Trade Finances
understand and more consistent with our experience that consumers are focused on how much they have to (re)pay and when they have to (re)pay it, rather than a percentage interest rate. Submits that this Bill does not address the deficiencies in the existing sections 41-45 of the CCCFA. Lenders need absolute certainty in the application of legislation and cannot afford to rely on the evolution of case law over a period of many years. Borrowers need to be certain that the legislation is absolutely clear in its direction to the industry.
Noted. The intention of the amendments in the Bill (and the recommendations in this report) is to increase certainty and to clarify the principles underlying the existing unreasonable fee provisions in the CCCFA. The drafting will not realistically be litigation-proof, but it will be more certain than the current wording of the CCCFA.
Unreasonable Fees 380. Unreasonable Fees
ANZ
The Select Committee should ask for more comprehensive analysis before adopting changes. Amending fee provisions is unnecessary and will reintroduce uncertainty for lenders. Further guidance can be provided through the Sportzone Motorcycles cases if this case is appealed or the Code.
Noted. The objective of the amendments in the Bill is to reduce uncertainty for the regulator, lenders and consumers. The Code is intended to provide guidance on responsible lending, and a responsible lender will not charge unreasonable fees. However the Code cannot be relied on to legislate the rules. That would increase uncertainty.
The Code can provide guidance on what is an unreasonable fee or how the “reasonable standards of commercial practice” should be applied by lenders. This can explain what unreasonableness means for different types of fees within each category.
381. Unreasonable Fees
Mangere Budgeting Services Trust
Amending the provision will increase costs for lenders. Fees become unreasonable in terms of front end and back end fees, when a loan defaults.
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Noted. The unreasonable default fee section in the Bill requires the court to have regard to whether default fees exceed a 103
The frequency of charging default fees and methods by which a borrower is contacted when an account falls into default is not addressed in the Bill. Some lenders send 2-3 letters per week and charge $25 per letter.
382. Unreasonable Credit or Default Fees
383. Unreasonable Fees
Financial Services Federation
Citizens Advice Bureau New Zealand
Many changes have no apparent clear concept of what the changes are seeking to implement. The Bill does not take into account the High Court’s decision in Commerce Commission v Sportzone Motorcycles which introduces distinctions based on accounting concepts such as direct and indirect costs, and fixed and variable costs. None of the Bill’s provisions about credit or default fees should proceed, but that the subject should instead be referred back to the Ministry for extensive consultation with a view to evolving a clear and principled direction. Alternatively, FSF’s submissions on the specific clauses will address the Bill’s existing provisions about credit or default fees. Believes there should be regulatory guidelines which clearly set out what fees are ‘reasonable’. For fees and charges to be more transparent there needs to be: a) Regulatory guidelines about what fees are reasonable
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reasonable estimate of the creditor’s reasonable average costs related directly to the default/breach or enforcement. Responsible lending will also apply throughout the term of the consumer credit contract, including on default. A responsible lender will not charge for unnecessary default letters. Incurring the cost is also likely to be inconsistent with reasonable standards of commercial practice (see recommendation below on this point). Noted. The changes are seeking to redraft the existing provisions in a way that is clearer and more easily enforceable by the Commerce Commission. There is no underlying policy change to the existing unreasonable fee provisions that apply to default fees and ‘other’ credit fees under sections 44 and 44A under the Bill. Advice is being provided to the Committee on the Sportzone & MFT case.
Agree. The Commerce Commission has issued draft guidelines on unreasonable fees, and those guidelines could be reviewed and finalised when the Bill is passed. The Code may also refer to which fees will be unreasonable.
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b) An assurance that third party fees are genuine and not an attempt to circumvent the reasonableness test c) Greater safeguards around the sale of credit related insurance.
Agree that financial dispute resolution schemes should have jurisdiction over unreasonable fees – they do have jurisdiction in respect of statutory obligations (section 93 FSP Act). The Bill amends the definition of credit fee, so third party fees paid to associated parties will be credit fees, which are subject to the unreasonable fee requirement.
384. Unreasonable Fees
385. Unreasonable fees
Buddle Findlay
Community Legal Advice Whangarei
There is a need for greater clarity and consistency to facilitate “apples for apples” comparisons. There is doubt about whether a cost of capital, which (for banks at least) must be held to cover operational risk, would be included or whether a narrow cost accounts view is what is intended. It is also not clear whether inefficient lenders can charge more than efficient lenders given that the test of reasonable market practice is no longer relevant, only direct costs.
The Lender Responsibility Principles (and the Code) will apply to credit-related insurance. Disagree. The unreasonable fees tests are intended to apply to the direct costs of the lender. This is the narrower ‘costs’ view. It is correct that inefficient lenders can charge higher fees than more efficient lenders because their costs are higher. This is a significant difference between the different tiers of lenders.
There is uncertainty as to how section 42 will work alongside amended s 43, 44 and 44A and what effect Sportzone will have on the interpretation of the amended sections. There needs to be clear definitions of what is both “reasonable” and “fees”.
Section 42 (establishment fees) is not being amended by the Bill because the cost recovery principle is sufficiently clear under that section. Noted. Fees are defined in the CCCFA (and the Bill).
The effect of the practice of charging weekly administration fees that do not reflect the actual administration required seems to create another income stream and is not an accurate reflection of
“Reasonable” is an objective principle, and it is defined with reference to the direct costs incurred by the lender. The Bill is intended to make enforcement of the
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the reasonable cost of administering an account. 386. Unreasonable fees
New Zealand Bankers' Association
Strongly opposes the changes to the unreasonable fees provisions in the CCCFA. There is insufficient evidence of a problem with the current provisions, which are sufficient, particularly if read with the responsible lending principles. Disagrees with the assertion that the current provisions are unenforceable. Also, the process around the introduction of the current proposals has been rushed, without any robust testing of the proposed changes. This has resulted in a number of undesirable and/or unintended consequences by imposing a disproportionate burden on the wider industry. Submits that this: - may inadvertently create a price-control regime, akin to Part 4 Commerce Act. - Mean lenders have to create new complex costing models – difficult for large businesses. - Would ultimately cost consumers more.
unreasonable fees provisions more effective. Noted. The Commerce Commission has a different view to the submitters on the enforceability of the existing provisions. The existing limitation on unreasonable fees is intended to be a restriction on price – and to steer lenders towards recovering their costs through fees and earning their revenue through interest, which is more transparent than many fees. The Bill does not change this policy, but it seeks to apply the existing policy more clearly so enforcement can be improved.
Additionally, the law is still developing – currently before the courts in Sportzone case.
387. 44 and 44A
BNZ
Submits that any problems the Committee does believe exist, can be between addresses through changes to disclosure requirements, coupled with proper enforcement of existing provisions. Submits that there is a lack of clarity as to how creditors should approach the concept of fee reasonableness, including how to actually calculate costs and losses to determine whether a fee is reasonable. Opposes the introduction of new section 44 in its
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388. Unreasonable fees
389. 41-44A
Save My Bacon
Westpac New Zealand
current form. Throughout the policy development process, no compelling problem definition or empirical evidence has been put forward justifying amendments to the existing CCCFA protections for consumers. BNZ supports the NZBA submission on these points. BNZ would rather the current legislation improves disclosure so customers understand what they are signing, rather than creating a policy framework exerting vast control over product design and limiting innovation. Additional guidance on what is an “unreasonable” fee should be provided in the Code of Responsible Lending or by the Ministry of Consumer Affairs or Commerce Commission. Recommends the Government also consider the introduction of safe-harbour rules to provide a greater level of certainty for market participants. The objective of protecting consumers from irresponsible lenders would be better achieved through the enforcement of existing laws against unscrupulous lenders and by targeting reforms to specific areas. A better option is to facilitate consumer choice and competition between lenders. Supports exploring the NZBA's proposal to replace the regulation of the standard credit and default fees, commonly charged by lenders, with information disclosure requirements (with a back-stop prohibition on unreasonable fees for non-standard fees). Under that model, consumers will be able to easily compare the fees payable under each relevant financial product offered by different institutions.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The Code could provide guidance on unreasonable fees. The Code will not be a binding set of rules. Safe-harbour rules would be likely to lack the flexibility that lenders would prefer.
Noted. The CCFA already provides that lenders may not charge unreasonable fees. Some third tier lenders in particular charge exorbitant fees, and the existing CCCFA has been unsuccessful in removing patently unreasonable fees from the market. The Bill is also promoting better choice and competition between lenders through improved disclosure.
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No principled reasons have been advanced for the changes. The proposed changes represent a significant departure from the current flexible and robust approach. This will have negative impacts on lenders and borrowers. There appear to be serious shortcomings in the policy process, including: (a) The intention is to address the issue of "loan sharks" charging unreasonable fees, but there has been little or no analysis of whether the enforcement of the current regime can adequately address this issue or whether the proposed amendments to the unreasonable fees regime will in fact have a more favourable outcome; (b) No consideration of less invasive alternatives, including the extent to which market mechanisms can provide more efficient and cost effective solutions; and (c) No evaluation of the overall costs and benefits of the proposed amendments.
390. 41
Westpac New Zealand
A principled approach requires a fees regime that is flexible. The proposed changes will instead result in a regime which requires lenders to take a more accounting-based approach to the calculation of "direct" costs. The compliance burden will increase and there will be little room for innovation, which again will operate to the detriment of consumers of financial products. The one year limitation should be retained. It has not hindered the ability of the Commerce Commission to successfully manage investigations and prosecutions to date and there is no sound rationale for changing
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Disagree. In Commerce Commission v Bluestone the High Court held that the one year limitation period for unreasonable fees ran from when the agreement was signed, 108
the current provisions. It is much harder for a lender to know in advance which fees a Court may consider unreasonable than it is for it to know whether it has breached other consumer laws. This means that, although it has done its best to comply with the law, a lender faces a contingent liability in respect of every credit or default fee it imposes. The proposed three year limitation period running from the date of actual or constructive knowledge means that such contingent liabilities are potentially open ended and a claim can be brought in respect of a fee many years or even decades after it had been charged.
391. 41
Save My Bacon, Citizens Advice Bureau
If a knowledge-based limitation period is introduced, the issue of open ended liability should be addressed by also introducing a "long-stop" period after which no claims may be brought in respect of the particular imposition of a fee (as per the 15 year long-stop in Limitation Act, section 11(3)(b) and the ten year longstop in the Building Act, section 393(2)). Bearing in mind the number of contingent liabilities created by the unreasonable fees prohibition, a seven year longstop is appropriate. Submits that it is unlikely that many, if any, consumers in the short-term loan market would have the willingness or means to apply for a court order. There is merit in empowering the relevant financial services dispute resolution providers to facilitate remedies for consumers where unreasonable fees have been charged, with a right of appeal to the court.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
irrespective of the timing of the breach. The limitation period in that case prevented the Commerce Commission achieving a remedy for the affected borrowers. The new wording in the Bill increases consumers’ access to the protections in the CCCFA. It allows the 3 year limitation period to run from the date the unreasonable fee was charged, or on which it was disclosed in a way that made it reasonably discoverable. The contingent liability of the creditor is linked to the payment of the allegedly unreasonable fee. It is not open-ended.
Agree. Dispute resolution schemes have jurisdiction in respect of statutory obligations of their members (section 63(g) FSP Act). Not charging unreasonable credit fees and default fees is a statutory obligation under the CCCFA. The fact that there is recourse to dispute resolution schemes should be more transparent in the CCCFA.
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Recommendation: Ask PCO to add a new sign-post section to the CCCFA (section 87A) saying that nothing in that subpart limits the jurisdiction of dispute resolution schemes under the FSP Act in relation to the statutory obligations of their members under the CCCFA.
Prepayment Fees 392. 43
NZ Law Society
It is noted that the more detailed method required for calculation of prepayment fees requires that the loss be calculated only for losses resulting from differences in interest rates. It is not clear what difference in interest rates is referred to. Recommends that this be clarified. Options for formulae include references to the difference in base lending rates or the Consumers Price Index between the date of contracting and the date of prepayment.
Noted. The reference to differences in interest rates is taken from the definition of “break fee” in the Australian National Consumer Credit Protection Regulations 2010 (reg 79A) (which is the Australian equivalent to section 43). Lenders have the option of following the procedure for calculating prepayment losses in the CCCF Regulations, or setting out their own appropriate procedure in the consumer credit contract (section 54). The constraint on procedures set out by the lender is that the fee must be a reasonable estimate of the loss arising from the prepayment, and the principle is that the loss relates to movements in interest rates. This is consistent with the CCCF Regulations. Providing more detail about interest rates in section 43 would limit the scope for lenders to determine a reasonable estimate of their loss that is appropriate to their particular circumstances.
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393. 43
Financial Services Federation
Strongly opposes change so that whether a prepayment is a reasonable estimate of the creditor’s loss arising from the prepayment would in future only be a matter that a court must “have regard to”. This seems to involve an assumption that lenders may still be acting unreasonably even if they recover no more than – or maybe even less than – the losses that prepayments undoubtedly cause them. Seems to involve a view that factors other than interest rates may cause a prepayment fee to be unreasonable. However what these other factors may be is not addressed by the clause at all. Calculations using the “safe harbour” formula, which means that under s 54 a lender is taken to be charging a fee that is a reasonable estimate of their loss, will no longer be “safe” from challenge if s 43 is amended. Lenders may still be held to be acting unreasonably. Section 43 should be left unchanged.
Noted. The “have regard to” formulation is currently used for the unreasonableness tests for establishment fees, default fees and other credit fees (sections 42 and 44). The existing provision in section 43 of the CCCFA says a prepayment fee is unreasonable “if and only if” it exceeds the amount under the statutory test. It is not the intention to alter the existing test by introducing other factors apart from creditor’s losses in determining a reasonable prepayment (or partprepayment) fee. The “have regard to” language in section 43 could be replaced with language along the lines of “if any only if” on this basis. The inclusion of average reasonable administration costs in the prepayment fee is causing unnecessary complexity. It would be better if the administration costs are dealt with separately (as they are for full prepayments under sections 43(2) and 51 of the CCCFA). Section 43(3) under the Bill currently confirms that prepayment fees may include administration costs. It would be more helpful if it said creditors can also charge a fee to recover their reasonable administration costs, without that fee being part of a prepayment fee.
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The safe harbour in section 54 is only ‘safe’ to the extent that a prepayment fee is charged according to the formula in the CCCF Regs. The reasonable administration costs are not part of the safe harbour.
394. 43
Buddle Findlay
Recommend amending 43(3) so that a prepayment fee can include a creditor’s average reasonable administration costs in relation to the prepayment. Submits there may be uncertainty surrounding what is included in administration costs. Alternatively, the Code would provide guidance on this point. Submits this section raises the possibility that a lender could charge an amount less than a reasonable estimate of the creditor’s loss arising from the prepayment and it could still be declared unreasonable.
395. 43
BNZ
Supports the intent of the changes to clarify what is meant by a prepayment fee. However, this intention has not been achieved by the changes. The changes in terminology may actually introduce greater
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 43 by, 1. Removing “have regard to” and replacing it with language along het lines of “if and only if” from the existing section 43; 2. Amending section 43(3) to refer to the creditor being able to charge a fee to recover their reasonable administration costs, and 3. Restoring the reference to administrative costs in section 51(1) of the CCCFA. Noted. A clearer alternative is to keep the reasonable administration costs separate from the prepayment fee. See recommendation above regarding section 43(3) and reasonable administration costs (which is a defined term in section 43(4)). Replacing “have regard to” with language along the lines of the existing “if and only if” will also increase certainty for creditors. Noted. See comments and recommendations above. Disagree that section 43(2)(a) should refer 112
uncertainty. Recommends to make this section workable and relevant: a. ‘have regard to’ provides limited certainty and could lead Courts to look at other factors not in the Bill; b. Continues general problem of Bill referring to ‘credit contracts’ rather than ‘consumer credit contracts’. c. ‘Credit providers’ should be replaced with ‘creditors’. Section 43(2)(c)(ii) does not define interest rates so does not reflect banks’ current practice regarding how these fees are calculated.
396. 43(2)(c)(ii)
Westpac New Zealand
It is unclear whether this is intended to: limit the losses that may be recovered through prepayment fees to differences in interest rates only (that is, is a limiting clause); or mean that fees for recovery of any other prepayment losses are instead subject to s44, which deals with "other" credit fees and default fees (that is, is a definitional clause). If it is a limiting clause, it is problematic losses that it is entitled to recover under s51 and s54 (for example, losses suffered in turnaround periods for relending funds and/or as a result of excess lending capacity).
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
to “consumer credit contract”. Consider that reference to a “fixed rate contract” is more suitable and aligns with the CCCF Regulations 2004. Agree that “credit provider” should be replaced with “creditor” in section 43(2)(c). The reference in section 43(2)(c)(ii) to “differences in interest rates” is from the equivalent definition of “break fees” in the Australian National Consumer Credit Protection Regulations. Recommendations: “credit provider” should be replaced with “creditor” in section 43(2)(c) make other drafting improvements to section 43, such as referring to “fixed rate contract” instead of “fixed rate loan,” following the definition in the CCCF Regs. Noted. The intention is that the clause will limit the losses recovered through prepayment fees to differences in interest rates only. The formula in the CCCF Regulations (which is the safe harbour referred to in section 54) is calculated on that basis. This provision would narrow the prepayment fees recoverable by lenders, e.g. the time taken to re-lend moneys
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If it is definitional, it is problematic because prepayment fees will be regulated by the two different tests in s43 and s44. Further, it is unclear how prepayment fees regulated by s44 will be affected by the prepayment rules in s51 and s54.
397. 43(3)
Commerce Commission
43(2)(c)(ii) should be removed. The requirement in new s43(1) that in order for a fee to be not unreasonable it must relate to the "loss arising from the [full or part] prepayment" ensures a connection between the quantum of the loss (which may exceed just the difference in interest rates) and the fee charged. That approach also aligns with the test in s 44(1)(c) without requiring prepayment fees to be regulated under both s43 and s44. Recommends amending so that prepayment fees do not include administrative costs.
prepaid would not be an element covered under a prepayment fee. The Australian National Consumer Credit Protection Regulations also provide that the only fees recoverable on prepayment are break fees (defined with reference to differences in interest rates). Reasonable administration costs are separate in Australia (discharge fees), and (as recommended in this report) the Bill will separate prepayment fees from other credit fees that might be charged. Other credit fees will be subject to section 44.
Agree. CCCFA provides that average reasonable administration costs may be included in prepayment fees for part prepayments (section 43(1)), but excluded from full prepayments (section 43(2)). However average administrative costs for full prepayments are covered in section 51(1). The recommendation above is that average administration costs are kept separate from prepayment fees, and are therefore treated as “other credit fees,” rather than being included in prepayment fees.
Other credit fees and default fees 398. 44
Kiwibank
399. 44 and 44A
New Zealand Debt
There has not been satisfactory consultation. Submits that changes be postponed until a fully industry consultation process has been completed. The proposed sections do not resolve the uncertainty
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The Exposure Draft of the Bill proposed changes to the unreasonable fees provisions in the CCCFA, and the provisions in the Bill reflect submissions on the 114
Collectors Association
in the current legislation. The tests of ‘unreasonableness’ and ‘remoteness’ do not add clarity or transparency.
Exposure Draft. The Select Committee submission process is also a form of consultation.
Submits that there has been insufficient consultation with the consumer credit and finance industry at large in drafting these clauses.
400. 44 and 44A
Financial Services Federation
401. 44 and 44A
Commerce Commission
402. 44 and 44A
Commerce Commission
Recommends that these clauses should not be adopted without further industry and stakeholder consultation, and subsequent amendment. Following the Sportzone Motorcycles case it is essential that the entire subject of credit and default fees is revisited, and the Bill should proceed without these provisions until the situation can be properly assessed. FSF is keen to work with the Commerce Commission and other organisations to find a way forward.
We support the proposed split of section 44 into default fees and other credit fees. This reflects the Commissions experience and view that these fees are quite different. Default fees typically recover a creditor’s loss on default while other credit fees typically recover the creditor’s costs relating to the specific matter giving rise to the fee. The Act should be clear about whether creditors can recover opportunity cost through fees. A lack of clarity on this issue creates uncertainty for business and reduced the effectiveness of compliance and enforcement outcomes. Suggests that this could be done by defining “costs” to include or exclude opportunity costs.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The Sportzone case is consistent with the policy underpinning the Bill, under which credit fees should be directly related to creditors’ costs, and reasonable standards of commercial practice qualify the costs that may be recovered. See recommendation below regarding reasonable standards of commercial practice and section 44. Agree.
Noted. This point applies to the reference to reasonable average costs in section 44(1)(c), and financial loss in section 44A(c). The Commerce Commission is asking for certainty one way or another. The reference in section 44 to the creditor’s 115
reasonable average costs that relate directly to the matters giving rise to the fee and the relevant class of contract is already directed at actual accounting costs. The reference in section 44A to the creditor’s reasonable average costs including any financial loss suffered by the creditor is potentially confusing. Section 44A(c) could be redrafted to better separate costs and losses as distinct components of a default fee.
403. 44 and 44A
Commerce Commission
Parliament should either remove or confirm the effect of the “reasonable standards of commercial practice” test in section 44 of the CCCFA. Suggest confirming the effect by saying the test is a limiting factor on fees that might otherwise be reasonable (rather than an accommodating factor on fees that might otherwise be unreasonable).
Recommendation: Request PCO to amend section 44A(c) to more clearly separate the cost and loss components of the fee. Noted. The Bill currently removes the reasonable standards of commercial practice test from section 44. The High Court interpreted the test as a ‘limiting factor’ in Sportzone, providing context for the assessment of the reasonableness of the credit fees. A new subsection should be added to section 44 saying that, in determining whether average costs are reasonable, the court must have regard to reasonable standards of commercial practice. Recommendation: Ask PCO to amend section 44 by adding a new subsection to include reasonable standards of commercial practice in the context of determining the creditor’s reasonable average costs.
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404. 44
American Express
Submits that reasonable standards of commercial practice is relevant when considering the reasonableness of annual fees and other service charges for products when interest is not charged to consumers. This occurs on products where annual membership fees cover the benefits offered.
405. 44(1)
406. Section 44 and 44A
407. 44(2)(b) and 51(1)
Westpac New Zealand
Brent Hollows
Commerce Commission
The requirement that a Court have regard to reasonable standards of commercial practice should be retained. No rationale appears to have been advanced for this major change. The concept of commercial practice provides a very useful measure against which a Court can judge the reasonableness of a particular fee. That is, in a highly competitive environment, fees that are in-step with the rest of the market are unlikely to be unreasonable. The "commercial practice" must still be "reasonable", so lenders are not able to take advantage of this test to justify unreasonable practices. Does not support the removal of reasonable standards of commercial practice. Submits that the inclusion of comparable agreements in s 124 is not consistent with removing “reasonable commercial practice” as a standard. Support restricting the recovery of prepayment fees to fixed interest rate loans but concerned that this will create an unintended loophole that will allow
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Under section 44 of the CCCFA as it currently applies, creditors are only meant to recover costs and losses through credit fees. The intention is that creditors’ profits are recovered through interest, which is more transparently disclosed to borrowers than fees. The reasonable standards of commercial practice reference in section 44(1) of the existing CCCFA is not intended to undermine this intention (as confirmed in Sportzone). Noted. The Commerce Commission has advised that the current wording in the CCCFA has made the unreasonable fee provisions difficult to enforce. Following the suggestion of using the reasonable standards of commercial practice test to judge the reasonableness of a particular fee would be what the Commerce Commission has described as a ‘limiting factor,’ and the recommendation is this report is that the provision be redrafted to retain the test on that basis. Noted. We are recommending that a new subsection be added to the Bill so the reasonable standards of commercial practice are retained to assist determining creditors’ reasonable average costs. Noted. Prepayment fees (which are required to be “reasonable”) are defined by reference to fixed rates loans (section 117
creditors to charge unregulated prepayment fees on variable rate loans. A fee payable on a variable rate loan is not covered by s43 or s44. We suggest Parliament considers further amending the prepayment provisions to make it clear that a creditor may not recover a fee representing its purported loss on prepayment of a variable rate loan and clarify how creditors should calculate a reasonable estimate of loss on full prepayment of a fixed rate loan.
42(2)(b)). A fee on the prepayment of a variable rate loan will not be a ‘prepayment fee’ as defined, but it will be an ‘other credit fee’ that is subject to the reasonableness requirement in section 44. The Bill needs to ensure there is no loophole by making sure the exclusions from section 44 (under section 44(2)) are sufficiently narrow that they only apply to prepayment fees under section 43. Recommendation: Request PCO to ensure the exclusion in section 44(2)(b) only covers prepayment fees as defined in 43(2).
Third Party Fees 408. 45
Financial Services Federation
Not uncomfortable with the requirement that credit providers should not compel borrowers to take credit-related insurance or extended warranties from a particular provider.
Noted. The Bill only says the creditor cannot charge a “reasonable commission” if it requires insurance to be obtained from a particular insurer. This does not prevent insurance from being provided.
The requirement for the lender to provide the consumer with a range of products or providers could prove counter-productive as it creates barriers to the consumer taking out desirable insurance or extended warranty, and is therefore not in keeping with responsible lending behaviour.
However, repayment waivers and extended warranties are defined as being provided by the creditor so they are not the same as other insurance products (and therefore should not be included in s45(5))
Recommends considering whether references to “credit related insurance” or “extended warranty” should be expanded to cover any similar products. The experience with payment waivers suggests that
However, there are places in the Bill where repayment waivers need to be added to extended warranties. Both are defined terms in the CCCFA, and have similar
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they should be treated in the same manner as other insurance products.
409. 45
410. 45(5)
411. 45(6)
Nicola Wills
Commerce Commission
Kiwibank
Recommends that this would be a good opportunity to increase the jurisdiction of the Disputes Tribunal to $25,000. Recommends that the Motor Vehicles Disputes Tribunal be able to deal with issues under the CCCFA – this would be more efficient. The Bill should be more specific about what is meant by a “reasonable commission” on credit related insurance. Recommend that Parliament either cap commissions on credit-related insurance or repeal section 45(5). In Australia, commissions are capped at 20% of the premium. Recommends clarifying the section so that it only captures situations where the insurance itself is a mandatory requirement of acquiring the product/service and that insurance must also be obtained from the lender. Submits the current drafting captures circumstances where a creditor does not require a borrower to obtain insurance but if the borrower chooses to obtain insurance, it must be obtained from the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
effects. Recommendations: Ask PCO to ensure extended warranties are treated consistently in the Bill (e.g. a rebate for an extended warranty should be provided similar to new section 52A) Ask PCO to remove the reference to extended warranties in s 45(5) Disagree. Not in scope of the Bill to increase Disputes Tribunal jurisdiction, or to extend the current jurisdiction of the Motor Vehicle Disputes Tribunal.
Disagree. The reasonable commission test is in the CCCFA, and the Bill does not amend it. Reasonableness is an objective test. The Bill does prevent any commission in tied credit-related insurance situations (section 45(6)). Noted. Section 45(6) applies where the creditor requires the debtor to obtain credit-related insurance form a particular insurer, or an arrangement with that effect is in place. This would be a mandatory requirement. An ‘option’ to acquire insurance limited to a particular provider is still a tied arrangement where the creditor has a
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creditor or a particular insurer. 412. 45(6)
MTA
Submits that this subsection is unfair and should be deleted. Finance companies require customers to purchase insurance as a condition of credit approval. The dealer is a “creditor” within the Bill yet will only have one insurance supplier of insurance products. The dealer will not be able to earn commission, although the requirement to purchase insurance was set by the finance company. Submits there are inconsistencies, as if finance was not involved, the dealer would be able to claim commission. Fails to recognise that dealers and finance companies are functionally separate and independent businesses.
413. 45(6)
Sovereign
Questions whether a dealer would be in compliance with the section if it had relationships with several providers rather than a particular provider. Submits that the current drafting of s 45(6) will give rise to uncertainty, inconsistency and confusion. Submits that allowing the creditor to receive commission where the insurance is mandatory is arguably unreasonable. However, in situations where credit related insurance is optional, and arranged through a default provider of the creditor (and the debtor free to arrange insurance elsewhere), it is reasonable for the creditor to receive commission. However, this second scenario may also be caught by s 45.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
conflict of interest in potentially earning a commission on selling the insurance policy. Disagree. The dealer will be a creditor if it is a party to the consumer credit contract. If the dealer provides credit (rather than just acting as an agent) then it should be a creditor. The Bill removes the incentive for creditors to make revenue from commission on selling insurance as well as providing credit (and selling property such as motor vehicles). The potential loophole involving more than one insurer that is identified should be reversed. Noted. Where credit-related insurance is truly optional (and not a condition of the finance), the creditor will still be entitled to receive a commission. Recommendation: Ask PCO to amend section 45(6) to refer to “particular insurer or insurers” instead of “provider”.
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414. 45(6)(b)
Brent Hollows
415. 45(6)(b)
GE Capital
Recommends that s 45(6) be amended to draw clearer and tighter boundaries with respect to its meaning. If not to remove the second scenario from within its scope, then at least to ensure clarity and consistency. Submits that lenders should be able to obtain a commission when credit related insurance is voluntary. If borrowers go to the insurer directly, the premium would be the same. Many lenders offer CRI through one insurer, Protecta. Concerned that there is no policy reason why the creditor should not charge a reasonable commission when consumers choose to accept optional credit‐ related insurance. If a creditor promotes or offers optional credit‐ related insurance from only one provider; this does not prevent debtors from obtaining alternative cover. Questions whether this would be deemed an arrangement to which subsection (b) applies.
Noted. Section 45(6) only applies where borrowers are required to obtain insurance from particular insurers. Creditors will be able to continue to charge reasonable commission in cases where the creditrelated insurance is voluntary and they do not require debtors to obtain insurance from particular insurers, or where they do not have arrangements in place to that effect. Removing the conflict of interest when creditors require borrowers to buy creditrelated insurance will reduce the amount of unnecessary or overpriced insurance sold to consumers.
Recovery of Payments 416. 48
Commerce Commission
It is not clear whether this section applies to overpayments on consumer credit contracts, particularly whether it requires creditors to refund (rather than just ‘credit’) payment to debtors once the loan is repaid.
Agree. Consider that an overpayment may only be credited if there is an unpaid balance owing by the debtor to the creditor, and otherwise a refund must be given (for example, in the case of overpayment to a Mobile Truck) Recommendation: Amend section 48 to reflect the policy intention above.
Amount Required for Full Prepayment 417. 51
Financial Services
Questions why the ability of a lender to recover its
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Agree. Having different rules for the 121
Federation
418. 51(1)
Westpac New Zealand
419. 51(1)
Buddle Findlay
average administrative costs on a prepayment is deleted, when clause 25 explicitly assumes that a lender should continue to be able to recover its average administrative costs on a prepayment. Recommends that the ability should be reinserted into s 51.
Section 51(1) does not allow administration costs to be included in the amount required for full prepayment. This is inconsistent with new section 43(3), which provides that administration fees can be included in prepayment fees. (a) and (b) should be amended to clarify that administration costs may be included in full prepayment fees. Recommends s 51(1)(b) be amended to state “a reasonable full prepayment fee in accordance with section 43(1)(b). The proposed amendment will capture the ability to include the reasonable estimate of loss and the average reasonable administration costs.
420. 51(1)
New Zealand Association of Credit Unions
Recommend 51(3) merely refer to the creditor’s “reasonable administration costs”. The definition already incorporates the ability to average creditor’s costs, so the inclusion of “average” is redundant. Submits that practically, it is extremely difficult for any borrower to determine the ‘reasonableness’ of
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average administration costs for part and full prepayments under section 43 is unnecessarily complicated, and the Bill treats the administration costs the same. An alternative approach is to remove average administration costs from both section 43(1) and (2), to reinsert the average administration costs for full prepayments in section 51, and to leave the average administration costs to be dealt with under section 44. Recommendation: Ask PCO to amend sections 43 and 51 accordingly. Noted. The inconsistency identified is better resolved by separating prepayment fees and administration fees, as recommended above.
Noted. The intention in the Bill was to include the average reasonable administration costs in the prepayment fee. However this has proved to be confusing. The better alternative is to not include administration costs in section 43, and reinstate section 51(1)(b). This is the status quo for full prepayments. See recommendation above. Disagree. This would eliminate complexity for those consumer credit contracts where 122
fees and charges.
421. 54
Commerce Commission
Recommends eliminating prepayment fees completely for any consumer credit (non-mortgage lending) that is under $40,000, and making them not payable where a new credit contract has an overall duration of not more than 18 months or an existing credit contract has less than 18 months remaining until maturity. The CCCFA permits creditors to use their own procedures to calculate losses on prepayments on a common law basis, rather than applying the safeharbour approach under the CCCF Regulations (ref: Commerce Commission v Avanti). If this is not what Parliament intended, then it should consider: Explicitly setting out the principles that should be followed when calculating a reasonable estimate of loss. Capping prepayment fees at a proportion of the loan amount Requiring creditors to use a prescribed formula rather than providing a safe harbour.
prepayment fees are banned. However it would also prevent lenders from recovering losses that are legitimate, and ultimately losses would be passed on to other borrowers who are not making prepayments on fixed rate contracts.
Disagree. The CCCFA does permit creditors to use their own procedures to calculate prepayment losses. The safe harbour is optional. The amendments to section 43 (particularly providing that reasonable prepayment fees must result from differences in interest rates) will constrain the amount of prepayment fees that can be charged on fixed rate contracts. This is consistent with the principle of the safe harbour in the CCCF Regs. Capping prepayment fees or making the existing safe-harbour mandatory are quite intrusive options. There has been no consultation on these proposals.
Hardship 422. General - Hardship
Elizabeth Lambert
423. General - Hardship
FSCL
Submits that a Credit Contracts and Financial Services Tribunal be made financially accessible to consumers to adjudicate changes to contracts to benefit consumers. Supports that inclusion of processes and timeframes for a debtor to apply for relief on the grounds of
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Noted. The disputes tribunal and dispute resolution services that a creditor must be a member of are available to borrowers to attend at little or no expense. Noted. The test is two-fold. First there are the circumstances of unforeseen hardship 123
unforeseen hardship. Recommends an industry standard set of criteria to be used by lenders when considering hardship applications and for dispute resolution schemes and courts when determining whether a lender has acted reasonably in declining an application. This would help to provide clarity and certainty. The Kiwisaver scheme rules in Schedule 1 of the Kiwisaver Act 2006 are a good example of the certainty and clarity that could be provided. 424. General – Hardship
New Zealand Association of Credit Unions
425. General – Hardship
Community Legal Advice Whangarei
426. General – Hardship
BNZ
Supports the changes to the unforeseen hardship application process, especially the changed timelines. Recommends that the No Asset Procedure (NAP)should be amended so that a debtor cannot seek relief through NAP without having first made an application to their creditors for changes on the grounds of hardship, and that any changes made by lenders on the grounds of hardship should be taken into consideration in determining the outcome of an NAP application. The need for hardship applications to be considered by the creditor even if the debtor is in default would go some way to assisting those debtors with their financial issues to get agreement going forward. It is common for debtors to be embarrassed and only seek help when absolutely pressed. Supports the Bill’s amendments to hardship provisions, reflecting BNZ’s current practice as a responsible lender to allow applications to be made by customers who are up to two months in default.
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and examples are included in existing section 55. The circumstances have to have not been reasonably foreseeable. The second point is that the debtor still has to reasonably expect to meet their obligations if the term of the loan is extended, or payments postponed (section 56). The circumstances will vary on a case by case basis. A standard set of criteria would only cover some of the relevant issues. Noted. The NAP application process is outside the ambit of the Bill.
Noted.
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427. General - Hardship
Families Commission
428. General – Hardship
Save My Bacon
Supports the proposed new timeframes for acknowledgement of an application and providing written notice of a decision on the application. Supports that the provisions allow hardship applications up to 2 months after defaulting and limits the time that lenders have to respond to applications. Submits the biggest concern with granting hardship relief is preventing people from “gaming” the rules and avoiding moral hazard issues. Supports the proposal requiring borrowers to submit reasons and information for claiming hardship. Any time limits imposed on lenders should be linked to the time from which all information requests have been fully complied with by borrowers. Recommends that mutual good faith requirements should be included.
429. 55
DRSL
430. 55
Brent Hollows
431. 55
Citizens Advice Bureau New Zealand
Recommends that a new subsection within section 55 be added to direct all hardship enquiries in the first instance to one 0800/website enquiry. The enquiry would be redirected to the appropriate lender to consider, with recourse to the appropriate dispute resolution scheme per s 58(1)(b). Credit-related insurance should be mandatory unless the borrower is able to provide evidence of how payments can continue if hardship events occur. Supports allowance of hardship applications to be made when in default. However, the proposed time frame is out of step with Australian Consumer Law where an application can be made any time prior to court proceedings. Recommends that the Bill should
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Noted. The timing of decisions in section 57A(2) runs from when the information is provided. Note that the word “earlier” in section 57A(2) should be amended to “later”. A mutual good faith requirement would not materially change how the unforeseen hardship provisions will apply. Recommendation: Ask PCO to amend “earlier” to “later” in section 57A(2). Noted. The creation of a central 0800 number is a consideration for the dispute resolution schemes. It could be done without amending the CCCFA.
Disagree. This should be a matter for agreement between the lender and the borrower. Noted. A time limit has been introduced to limit the possibility of borrowers using unmeritorious hardship applications as a last minute method to delay repossession, or other enforcement.
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be amended in line with the Australian approach. Allowing borrowers to make hardship applications when in default will not act as an incentive to default on payments because: 1. Few clients know about the hardship provisions until they are in default and seek assistance. 2. Creditors can reject the application if they have reason to believe that the applicant has not made the best attempt to meet their payment obligations.
432. 55
433. 55 434. 55
North Shore Budget Service Inc
Franklin Family Support Trust Financial Services Federation
The hardship provisions do not affect the fact that the loan is still expected to be paid off in full eventually. The hardship safety net provisions need to be enhanced. By the time borrowers are aware of the hardship provisions it is too late. Need a stepped process to go through when arrears occur, by the lender which relies on disclosure. If action of disclosure is not done, the clock restarts- until the proper disclosure steps are completed. The Act and Commerce Commission leaflets do not provide information on what actions need to be taken to apply for hardship remedies. This should be specified.
Agree that many borrowers do not know about the hardship provisions and the Bill allows borrowers to bring applications after they are in default.
Agree that more information on unforeseen hardship rights needs to be provided to borrowers. Information on the unforeseen hardship provisions, and how an application for unforeseen hardship relief can be made, is included in new initial disclosure requirements under the Bill.
Supports the changes to hardship applications.
Responsible lending will apply during the term of a consumer credit contract, including on a default. It should be unnecessary to mandate additional disclosure on default. The creditor has every incentive to notify borrowers and manage defaults without it being mandated. Noted.
Agrees with the approach in s 55(1B)(a) to the effect that a debtor who makes a hardship application
Noted. The policy is to make hardship applications more useful for borrowers –
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cannot make another hardship application for 4 months, but 4 months is not long enough: 6 months might be more realistic.
435. 55(1)
Save My Bacon
436. General – Hardship
NZ Federation of Business and Professional Women
437. 55(1A)
Banking Ombudsman
438. 55(1A)
ANZ
Regardless of that, a second or subsequent hardship application should never be possible if it relates to events that occurred before the date on which a previous hardship application was made. Submits that if it is Parliament’s intent that these provisions should only apply in “unforeseen” cases of hardship, then this should be made clear. Submits that “unforeseen” must be given its ordinary meaning and would benefit from additional guidance. In the short-term loan market, there are situations where borrowers have claimed “unforeseen hardship” three days after a loan has been drawn down (which seems improbable). Borrowers have obligations to exercise care and to be accountable for the (poor) decisions they make. Supports these clauses and note that often hardship applications follow periods in hospital, burglary of personal goods or serious mental health concerns and that often vulnerable consumers are very wary or unable to make written application within time periods. Submits that this requirement may deter consumers not comfortable expressing themselves in writing. Currently, participants accept verbal requests for assistance and require the supply of information to assess the application. Recommends deleting this subsection. This will create a barrier to consumers seeking help.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
not to restrict their availability. The 4 month time limit does not apply to applications that are made on materially different grounds, but the hardship criteria themselves are quite specific and limited.
Agree. See section 57(1)(c). This section states that an application may not be made if the hardship was reasonably foreseeable and a lender may decline an application in this situation.
Noted. Demonstrating that hardship exists, and that it was unforeseen, is necessarily a technical test. The debtor is also required to seek a particular change to the consumer credit contract under existing section 56. It is therefore impractical for unforeseen hardship applications to be oral. A responsible lender will be able to provide assistance to borrowers in submitting a hardship application. An application in writing is a better method of communicating the information necessary to make a hardship assessment.
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Alternatively, amend the subsection so applications do not need to be in writing but a creditor must keep a record of an application being made and the reasons that have caused the unforeseen hardship.
439. 55(1A)
440. 57
441. 57
Westpac
Financial Services Federation
Buddle Findlay
ANZ currently encourages the application for hardship over the phone, by email, in person or through internet banking. Section 55(1A) should be deleted. A debtor should not be obliged to make a hardship application in writing. In Westpac's experience, customers who are facing financial difficulties will call the bank. Requiring written applications may make the hardship provisions inaccessible as some vulnerable customers will have reduced literacy skills. The term should not be 4 consecutive missed payments but a number of days in arrears such as 30. Payment terms vary considerably. To miss 4 payments could mean the debtor being in arrears for as long as one year.
The drafting of 55(1A)(b) should state that the application must set out the reasonable cause (e.g. illness, injury, loss of employment or end of a relationship) for the debtor’s inability to meet the debtor’s obligations under the consumer credit contract. Recommendation: Amend section 55(1A)(b) accordingly.
Disagree. This section sets out the time a loan may be in default before the borrower loses the right to make a hardship application. It is effectively the time limit for the borrower to seek help.
New Zealand needs to be careful not to replicate the Australian experience with regard to hardship, which is open to abuse by consumers and is causing an expansion in arrears.
The exposure draft provided 2 months, and lenders submitted that this was too long for short term loans. Loans with weekly payments were cited.
Accepts that debtor should be able to make hardship application even if in default, but section 57(1)(a)(ii) is unacceptable: if a borrower’s defaults are due to hardship, that should be evident to any reasonable borrower well before they have missed “4 or more consecutive periodic payments”. Submits that section 57(1)(a) now appears overly favourable to debtors. It is unlikely that many lenders will want to issue a repossession warning notice, as
The Bill provides a 2 month limit, or a lesser time if statutory notices have been issued or 4 payments have been missed.
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This provision is being mis-read, so the drafting needs to be reviewed. Recommendation: Ask PCO to redraft section 57(1)(a) to make the existing 128
442. 57
Kiwibank
443. 57
NZ Federation of Family Budgeting Services
444. 57
Gayatri Jaduram
that is a last step, so section 57(1)(a)(ii) is more likely to apply. Allowing a debtor to miss 3 consecutive payments before raising their problems with the lender appears to go too far (with monthly payments it could last nearly 4 months), and could be abused. Recommends a shorter period of time. Supports widening the grounds on which borrowers who are in default can claim hardship. Does not support that borrowers can claim hardship two weeks after receiving notice under s 119 of the Property Law Act. Submits that it is not appropriate to allow borrowers to take advantage of hardship provisions once a notice has been issued as a notice is a last resort. Supports the extension of the provision for hardship applications to be made within 2 months of default. This is a key provision to assist budget advisers to be effective in assisting clients. Recommends that an additional section is added so that a hardship application cannot be made where the debtor is in default or has been in default for over 2 weeks after receiving a ‘missed payment” or “reminder letter”. This will encourage lenders to send these letters and will increase borrowers’ awareness.
445. 57
Consumer NZ
Submit that hardship applications should be able to be made when the borrower is in default. People are not in a position to resolve financial problems in these situations. Recommend removing s57(1)(a).
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
intention clearer.
Disagree. The reference to Property Law Act Notices is intended to limit the rights for borrowers to make unforeseen hardship applications in less than 2 months. It is therefore an advantage to creditors. The drafting of section 57(1)(a) needs clarifying (see above). Agree.
Disagree. The starting point is that borrowers should have 2 months after default to make an unforeseen hardship application. In some circumstances 2 months might be too long, and the Bill takes this into account under the alternatives in section 57(1)(a). But under this suggestion the 2 month period would effectively never apply. Disagree. This provision allows consumers more time to make hardship applications after discovering that they are in default. This offers further protection to consumers without it being and open-ended opportunity.
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446. 57
Buddle Findlay
447. 57(1)(a)(ii)
Citizens Advice Bureau New Zealand
448. 57(1)(a)(ii)
Kiwibank
449. 57(3)
Westpac New Zealand
450. 57A
Financial Services Federation
Supports the change to enable a hardship application to be made even after the debtor has defaulted in a payment or caused a credit limit to be exceeded. Where daily payments are due this would mean that a debtor would become ineligible to apply for the hardship provisions after 4 days, which we doubt is the intent of this clause. Recommends amendment to make the time frames clearer: “4 or more weekly payments”.
Recommends allowing hardship claims where the borrower has been in default for up to 60 days. This period should apply to all customers as the time frame (4 consecutive payments) will differ depending on the structure of loan repayments. Section 57(3) should be deleted. The discretion to consider non-compliant applications should not be codified, because it can unintentionally lead to legal challenges to the lender's exercise of its statutory discretion (allegations that it was not exercised reasonably). The current flexible approach under which a lender may waive its rights under the statutory provisions should be retained. Accepts much of 57A, but the obligation in 57A(2)(b) to respond within 20 working days, even if the lender has not received the further information that it has requested, is unacceptable: it is not reasonable for any lender to be required to respond to such a claim when it has requested details necessary to allow it to process the claim, but has not been given the details requested. A more appropriate response would be to disadvantage the party that has failed to respond to a
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Agree.
Disagree. Daily payments are not typical. The test applies to unforeseen hardship, which are the types of situations specified in section 55. Unforeseen circumstances are unlikely to be relevant for daily loans. The potential changes under section 56 (extensions and postponements) are also unlikely to be practical for extremely short term loans. Noted. Two months after default is the maximum period, and the 4 payment period will only apply if it is less than 2 months.
Agree. The Lender Responsibility Principles will apply in any event, and section 57(3) does not add anything. Recommendation: Delete section 57(3).
Noted. The 20 working day limit applies if no further information is required. If further information is required, the limit is within 10 working days of receiving the information, or 20 working days of requesting the information if it is not provided.
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451. 57A
NZ Law Society
452. 57A(3)(b)
NZ Law Society
453. 57 & 57A
Carol Fagan
454. 57A
Westpac New Zealand
request for information. Recommends that the heading to this section should be amended to “Obligations of creditors in relation to [hardship] application” Recommends this be limited in time from receipt by the creditor of the debtor’s application, to the period which ends 10 days after the creditor has sent written notice to the debtor declining the application as set out in section 57A(1)(c)(iii). This is especially important in regard to changes in LVR where the Court can provide regulation in regard to mortgage modifications. Care needs to be taken that a situation that allows for both mortgage modification and foreclosure proceedings cannot occur simultaneously as has happened on many occasions in the US. The timeframes (5, 10 and 20 working days) should be removed or adapted to allow lenders to keep using more flexible processes. Whilst 20 working days for responding to a hardship application is usually enough, there are complex cases where more time is reasonably required. Further, this framework does not allow sufficient flexibility to respond to customer hardship in the most effective way (for example, phone calls). Vulnerable borrowers may also have reduced literacy skills which can inhibit their ability to respond to formal notices. Section 57A(1)(c)(iii)(A) should provide for the reasons to be provided only on request. This provision will create additional administrative compliance burdens for mainstream lenders where there are no indications of problems with current
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Section 57A is already within Subpart 8 “Changes on grounds of unforeseen hardship” Noted. The stay on enforcement action under section 57A(3)(b) is intended to apply while an unforeseen hardship application is being processed. The Bill is unclear on this timing point. Not clear where the 10 working days might come from. Recommendations: 57A(3)(b) should be replaced with a signpost to section 83G rather than creating a new statutory duty under this section. Disagree. The timeframes are introduced to provide certainty to both lenders and borrowers with regard to when an application must be filed and when a response on a hardship application can be expected. Note that requiring timeframes to be complied with is based on the Australian Consumer Credit Legislation Amendment (Enhancements) Act 2012. The provision of reasons improves transparency and will assist the Courts or dispute resolution services if they are asked to review a creditor’s decision on a hardship application. This is also based on the Australian law.
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practice. This also appears to inappropriately impose a public law duty on private business carrying out private functions. However, it is recognised that the provision of reasons is an important tool to incentivise lenders to give those applications proper consideration.
455. 57A
456. 57A
457. 57A
Consumer NZ
Banking Ombudsman
Buddle Findlay
Section 57A(3) should be removed. It is not clear from the Ministry's policy analysis whether fees charged by fringe lenders are deterring legitimate hardship applications to the extent that warrants these changes across the board. Support the introduction of specific timeframes within which creditors must respond to hardship applications. Does not support 57A(4). Charging fees is inconsistent with the intent of the hardship provisions. Supports the extension of the hardship protections to consumers who are in default. This may encourage earlier requests for assistance. Supports timeframes for considering hardship applications and the stay on commencing or continuing enforcement proceedings while an application is being considered. Submits the provisions strike the appropriate balance between interests of consumers and creditors. Recommends that it should be clarified when a previous application is deemed to have been made. As section 55 is currently drafted, a debtor is prevented from making another such application for "not less than 4 months after a previous application". Is the point in time from which this period is
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Section 57A(3) prohibits additional default interest or fees charged with respect to the application alone. Ordinary default interest and fees can continue to be charged. The Ministry has been advised that hardship applications fees are a disincentive for borrowers to exercise the right to make the application. Agree. The fee is only designed to cover the cost of documenting any agreed changes. It will be subject to the unreasonable fees provision in section 41. Agree.
Agreed. We recommend that the 4 month period applies from when the previous hardship application is made. This is consistent with the Australian Consumer Credit Enhancements Act 2012.
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458. 57A(1)(c)(ii)-(iii)
NZ Law Society
measured the date at which the debtor sent the application, the date the creditor received the application, the date at which the creditor acknowledged receipt of the application to the debtor,6 or from the date the creditor notifies the debtor that the application has been denied? Recommends that the words “delivered to the debtor’s last known address” be added to these clauses.
Recommendation: Ask PCO to amend section 55(1B) to make it clear the 4 month period runs from when an unforeseen hardship application is made.
Noted. The lack of a mechanism for serving notices should be remedied. There are service provisions in relation to disclosure (section 35), and being introduced in the Bill in relation to repossession (section 83ZH). Section 83ZH could also apply to unforeseen hardship applications. Recommendation: Ask PCO to provide that similar document service provisions as in section 83ZH apply to unforeseen hardship applications.
459. 57A(1)(c)(iii)
FSCL
460. 57A(1)(c)(iii)
Kiwibank
If FSCL’s submission on 58(1) is accepted, this subsection would include that if an unforeseen hardship application is declined, the borrower would be informed of their right to apply to the court or an approved dispute resolution scheme for a review of the creditor’s decision. Recommends the section include a qualification “to the extent practicable, the creditor’s reasons for declining the application” or “as allowed by law, the creditor’s reasons for declining the application”. Submits that providing written notice in the case of loans in the joint names of a husband and wife may involve breach privacy principles and confidentiality obligations.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. See recommendation below on section 58.
Disagree. The provision of reasons is intended to improve transparency. The obligation is to provide reasons for declining an application to the debtor who made the application. The information provided may need to be subject to the Privacy Act, but this is an insufficient ground for not providing the reasons at all.
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For example, one party’s individual account may discretionary spending on gambling. The creditor is unable to disclose the reason for declining the application without breaching the one party’s privacy. Amend this subsection to recognise the role of Dispute Resolution Schemes and advise debtors of any dispute resolution schemes the creditor belongs to.
461. 57A(1)(c)(iii)(B)
ANZ
462. 57A(2)(b)
Buddle Findlay
Submits that the creditor should not be expected to make a decision until it has received the necessary information.
463. 57A(3)
BNZ
Submits that the restriction prohibiting a creditor from charging default interest “in relation to an application” requires further clarification in the Bill. Practically, it will be difficult to stop and start default interest charges based on hardship application dates as these are automated system functions.
464. 57A(3)
BNZ
465. 57A(3)
Buddle Findlay
That a prohibition on default interest charges in relation to an application may also provide an incentive to borrowers to lodge an application under section 55 simply to obtain the benefit of this restriction. This provision may result in unmeritorious applications and therefore administrative delays in assisting customers with genuine applications. Submits that this section is open to abuse by debtors claiming hardship on vexatious grounds to forestall any enforcement action.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. Dispute resolution schemes have jurisdiction to consider hardship and it is proposed that the Bill makes this more explicit. Initial disclosure has been amended so that lenders must disclose the dispute resolution scheme they are a member of. Disagree. If further information requested has not been received, the lender will be less likely to accept the claim. There must be a final time limit to prevent borrowers from prolonging the process. This will prevent gaming the system. Noted. Ordinary default interest and fees can continue to apply. This section only prohibits a one-off default interest charge and/or fee charged to assess the hardship application itself. If these do not apply anyway (because they are difficult to start based on a hardship application date) then there will be no problem. Noted. Ordinary default fees and charges are allowed to be charged to reduce the incentive for gaming. Further, the time period in which a hardship application can be made is limited. Borrowers may not make more than one application in 4 months (unless grounds are different). The restriction on enforcement action while the application is being processed is the only constraint imposed on lenders.
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466. 58
467. 58
DRSL
Save My Bacon, Citizens Advice Bureau, FSCL, Families Commission
Financial hardship is a unique work stream linked to complaints that is best managed and operated by dispute resolution schemes as it is in other jurisdictions such as Australia and the United Kingdom.
Noted. Borrowers have the right to challenge creditors’ hardship decisions in the Disputes Tribunal or other Court. They also have recourse to dispute resolution schemes.
There is scope for dispute resolution schemes to be making orders, to expedite change in terms of the contract if appropriate which will unburden the court system.
Dispute resolution schemes can review the exercise of statutory obligations by their members, but they do not have the power to make changes to consumer credit contracts under section 58. Dispute resolution schemes provide a form of binding mediation service – they are not courts.
FDR has the jurisdiction, resources, skills and experience to be considering cases, such as unreasonable credit fees or default fees, alterations to terms of contract, applications for hardship, and reopening of contracts, that might otherwise go before a Court. Submits that it is unlikely that many, if any, consumers in the short-term loan market would have the willingness or means to apply for a court order. Recommends empowering the relevant financial services dispute resolution providers to facilitate remedies for consumers where unreasonable fees have been charged, with a right of appeal to the court.
The Bill is improving the profile of dispute resolution schemes by providing that initial disclosure requires creditors to include the details of the dispute resolution service they belong to. There is also a recommendation that a new section be added to the CCCFA to refer to the jurisdiction of dispute resolution schemes (section 87A). Section 63 of the FSP Act is also being amended to include more specific references to the statutory obligations in the CCCFA that are covered by dispute resolution schemes.
Consumer leases, credit-related insurance and buy-back transactions of land 468. 67
Financial Services Federation
Much of what has been said regarding clauses 9H - 9J above also applies here.
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Noted.
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469. 69
Citizens Advice Bureau New Zealand
Some credit providers require borrowers to take out insurance for goods or to protect against loss of income, regardless of their circumstances or whether a loan is secured. The Bill should explicitly prohibit credit providers from specifying which insurance company a debtor should purchase insurance from. The Bill should only permit credit providers to insist debtors take out insurance where the credit is otherwise not adequately secured. It also needs to be very clear when the sale of insurance is optional and that the consumer has provided active consent to purchasing insurance.
470. 70
Financial Services Federation
Credit insurance disclosure should be allowed after the loan is made as presently. The change proposed by the Bill would pose major problems for credit insurers as: (a) The Bill does not make clear what needs to be disclosed; (b) There would be a strong reliance on the retailer doing the disclosing on behalf of the insurer which is not ideal; (c) Currently disclosure within 15 working days afterwards allows the insurer/financier to send disclosures directly to the insured. This is usually done in conjunction with other documentation.
471. 70
ASB
Submits that decreasing disclosure timeframes for credit-related insurance requires further justification. See submission for section 22 (variation disclosure).
472. 70
ANZ
Recommends amending the clause to require
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The Bill offers further protection to consumers when a creditor requires insurance to be purchased from a particular provider. The responsible lender principles will apply to credit related insurance and lenders will need to make reasonable inquiries that the insurance meets the borrower’s requirements and objectives. The Code can also provide further guidance on what steps must be taken to ensure that lenders comply with the principles – such as emphasising that insurance is optional. Disagree. Disclosure of credit-related insurance 15 working days after the insurance is arranged gives the borrower no opportunity to assess whether to accept the policy. The Bill changes the timing, but it does not change what needs to be disclosed. Not all insurance premiums are within the definition of credit fees (which are required to be included in initial disclosure). Retailers signing-up consumer credit and credit-related insurance are responsible for disclosing both. Disagree. Disclosure is consistent with the existing variation disclosure requirement which requires disclosure before the variation takes effect. Disagree. Disclosure is consistent with the 136
473. 70
474. 70
Brent Hollows
New Zealand Bankers’ Association
disclosure of a copy of the terms of the credit related insurance to the insured within 5 working days of the date on which the credit-related insurance is arranged. This will be consistent with the initial disclosure requirements. Submits that it is more practical to require disclosure “before the credit-related insurance is arranged ” or “before the contract is entered into” instead of “before the date on which the credit related insurance is arranged.” Opposes this change, and has concerns that the practical impacts have not been fully considered. Current provisions, combined with the extended cooling-off period and the responsible lending obligations create sufficient protections for consumers, without the need for the proposed changes. A specific practical issue with the proposals is that they create limits to providing credit in a nonface-to-face environment.
initial disclosure requirement which requires disclosure before the contract is entered into.
Agree. Often credit-related insurance is arranged on the day and therefore before the day is impractical. Recommendation: Amend section 70 to align with initial disclosure wording. Disagree. The terms of credit-related insurance, repayment waivers and extended warranties often impose significant costs on the consumer and it is important that consumers have all this information available to them before they enter into the contract.
PART 3A – Repossession of consumer goods under credit contract 475. General
National Council of Women in New Zealand
Supports the reform and tightening of regulations around the repossession aspect of credit contracts.
Agree.
476. General
Commerce Commission
Non-compliance with repossession provisions should be an offence. Recommend that the Bill makes it an offence to repossess consumer goods other than in accordance with the Act. The behaviour of creditors who do not understand their obligations in relation to repossession are unlikely to change in the absence of a more effective enforcement toolkit.
Noted. The Bill does create offences for conducting repossessions in breach of the Act, in particular for entry on to private property in breach of the Act. Section 103 adds references to sections 83C, 83D, 83J, 83M, 83N and 83X to the list of offences under the CCCFA.
Under the NCCP in Australia, breaches of both “prepossession” and “post-possession” obligations are
The obligations that do not relate to entry on to private property have not been
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criminal offences. The Bill is inconsistent with the Australian approach. Post-repossession provisions are readily enforced by the Commission and fit well with current functions under the Act. 477. General
Citizens Advice Bureau New Zealand
478. General
NZ Federation of Family Budgeting Services
479. General
Citizens Advice Bureau New Zealand
480. General
FSCL
Repossession of items should have to be proportionate to the value of the loan. There is inadequate protection against excessive security demands. We see contracts whereby the security listed on the loan contract far exceeds the value of the loan. Supports the inclusion of this Part into the Credit Contracts Act. This will provide clarity and clearer remedies. We see examples where repossession agents and/or lenders repossess goods which they know are likely to have a lower realisable value than the cost of seizing and selling the goods. This has significant negative impact on the debtor, depriving them of a good that may have utility value to them, while placing them further in debt. Recommends adding a clause which exempts items from repossession where the costs of seizing and selling the goods would be disproportionate to the realisable value. Submits that lenders may circumvent the law reform on repossession by relying on the distress warrant provisions of the District Courts Act 1947 and District Court Rules 2009. A small number of lenders currently adopt this practice.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
added as offences because they are appropriately remedied civilly through damages and compensation. The Law Commission recommended that there should not be criminal offences for postrepossession obligations. Disagree. Assessing what is appropriate security is a matter of business judgment. Over-securing loans is better addressed through the Responsible Lending Code rather than by statute. Noted.
Disagree. Repossessing goods where the costs are disproportionate to the value of the goods is likely to breach the principles of responsible lending and is more appropriately dealt with in the Responsible Lending Code than primary legislation.
Noted. It is correct that a creditor which obtains a judgment against a borrower can apply for a distress warrant from the court, and that this would circumvent the protections of the Credit (Repossession) Act and the Bill. This is a time consuming
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Recommends that this avenue for bypassing consumer protection be closed off.
481. General
Citizens Advice Bureau New Zealand
482. General
Citizens Advice Bureau New Zealand
483. General
Families Commission
Supports introduction of an equity clause along the lines of the Australian model, which requires an additional order for a repossession to occur where more than 75% of the loan has been repaid. In some cases lenders and/or repossession agents have a greater financial interest in repossession due to fees that they charge, than they do in having the loan paid in full. Recommends that the Financial Dispute Resolution schemes be expanded to cover all aspects of Repossessions related to Consumer Credit Contracts. Disputes Resolution schemes have limitations, which are likely to limit their effectiveness in relation to repossession. In particular they have limits to their jurisdiction related to ‘commercial judgment’ which may limit what sort of complaints they are able to assess in relation to repossession. Consumers also need to have gone through the internal disputes resolution processes of the financial service provider before they are able to use the Disputes Resolution schemes. Many consumers get stymied at this first hurdle; particularly where a lender is skirting the boundaries of the law, or the dispute relates to the repossession agent of the lender. Dispute resolution schemes do not deal with
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
and expensive option for a creditor. Taking away the distress warrant procedure would have a wide effect, beyond the ambit of the Bill. There are already some consumer protections from the distress warrant procedure for household necessities (consistent with the Insolvency Act). Disagree. The Law Commission considered this issue. It decided not to recommend this kind of requirement because it was not satisfied that it would be an effective way of protecting borrowers, and it would impose additional costs that would be recovered from borrowers who have repaid the majority if their loans. Noted. The Bill already provides that dispute resolution scheme rules should provide for complaints about repossession (section 63(g) of the FSP Act). There is also a recommendation that a regulation-making power be added to the Bill increasing the scope for the government to influence the rules of dispute resolution schemes. Under this Bill, the Commerce Commission will have jurisdiction over the whole CCCFA, including repossession. However borrowers need to complain first to the lender to give lenders the chance to respond. Noted. The Bill already provides that 139
repossession, and it is unclear whether the schemes can deal with lenders when their agents have breached the Code. Recommend that this point is clarified. No agency is directly responsible for enforcing the law relating to repossession and therefore enforcement is left up to the individual. If enforcement is left to the borrower, enforcement will be ineffective.
484. General
485. General
Financial Services Federation
Financial Services Federation
Supports the relocation of repossession law into the CCCFA. The FSF is largely comfortable with the approach to either re-enact the corresponding provisions of the present Credit (Repossession) Act 1997 unchanged, or without much material change. Strongly submits that the opportunity for vexatious complaints by borrowers or abuse of the complaints and hardship process be minimised in the Bill to the greatest possible degree. The Bill appears to state that a complaint can only be resolved by escalation to the complaints body. Costs are all incurred by the lender, including the actual cost and the time to investigate and respond to a complaint. In most cases, FSF members have their own internal complaints process where they work with the borrower and if it reached deadlock or the borrower was dissatisfied with the result of that process, it
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dispute resolution scheme rules should provide for complaints about repossession (section 63(g) of the FSP Act). Creditors are also responsible for the acts of their agents (section 113 CCCFA, importing section 90 of the Commerce Act). Under this Bill, the Commerce Commission will have jurisdiction over the whole CCCFA, including repossession. Agree.
Disagree. Section 83G says the creditor may not take any enforcement action if a complaint or hardship application is unresolved. Escalation to a dispute resolution scheme is not the only option – but it is an option available to the borrower if the complaint cannot be settled by agreement. Creditors’ own internal complaints processes are expected to be the first point of reference for complaint resolution.
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486. General
Consumer NZ
487. General
New Zealand Association of Credit Unions
488. General
NZ Federation of Business and Professional Women, Franklin Family Support Trust
would be escalated to the creditor’s disputes resolution scheme. Supports the incorporation of repossession provisions in the Bill. Supports the requirement for repossession agents to be licensed and for the Commerce Commission to have responsibility for monitoring the repossession provisions. Strongly supports the repossession amendments under the Bill, but would like the inclusion of traditional ‘cultural icons’ such as Maori cloaks, Pacific Tapas and alike into the list of goods that may not serve as security.
Recommends that the use of dragnet inclusion by All Present and After Acquired Property (APAAP) clauses should be invalid. Attempting to repossess goods over which there is no valid security should be an offence under these new repossession provisions. Recommends that Contracts that contain power of attorney clauses that purport to allow the creditor to add other goods to the security should be disregarded as being unethical and irresponsible. Supports the suspension of enforcement proceedings whilst a hardship application is being decided.
Agree.
Disagree. The Bill requires that property be specifically identified at the time the credit contract is made. This will prevent cultural icon-type goods being unintentionally put at risk. The restricted goods under section 7A are limited to those where their loss would create physical hardship. It would be extremely difficult to define and adequately describe an additional cultural icon category. This might also unduly fetter property owners from using their property as they wish. Noted. The Bill already requires consumer goods subject to security interests to be “specifically identified”, and says creditors cannot use power of attorney clauses to add goods to their securities. These provisions effectively prohibit APAAP clauses in relation to consumer credit contracts. Breaching these provisions will be an offence under the Bill, and the purported security will be unenforceable (see recommendation on section 83B below).
Strongly supports the licensing of repossession agents.
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489. General
Community Legal Advice Whangarei
490. General
BNZ
491. General
NZ Law Society
Submits that drag net securities should not be used in consumer credit contracts. Experience shows us that such securities are frequently used inappropriately. Opposes the changes to the repossession process as contained in clause 43 of the Bill. The provisions contain inadequate protection for a bank seeking to enforce legitimate security held over goods.
Supports the inclusion of the repossession rules in the CCFS Bill. Recommends that the scope and application provisions should clearly set out the following points: a. If the credit contract does not both create a security interest and give the creditor a right to repossess, the creditor has no right to repossess goods. b. The repossession rights apply as between debtor and creditor whether or not the security interest is registered.
492. Part 3A, amendment to s5 “consumer goods” and amendment to s11.
Commerce Commission
The repossession provisions should apply to consumer credit contracts. The Bill does not apply seamlessly throughout the life of a consumer credit contract. Part 2 provisions that relate to disclosure, payment, interest and fees apply to a different class of contracts than the repossession provisions. Recommend that Part 3A is amended to apply to all consumer credit contracts regardless of the nature of the collateral.
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Disagree. The changes in the Bill closely reflect the recommendations of the Law Commission, and most of the provisions being introduced in the Bill are similar to the existing provisions in the Credit (Repossession) Act. Noted. Amendments recommended to the Bill deal with the issue of credit contracts being separate from the security interest. These contracts will need to be read together. Registration under the PPSA is a separate issue from the enforcement of the security interest under the CCCFA. The CCCFA does not need to repeat the provisions of the PPSA. Recommendation: Refer to PCO to consider whether an equivalent of 5(2) of the CRA may be required. Disagree. The CCCFA regulates consumer credit contracts, and is not primarily concerned with security interests. The Credit (Repossession) Act regulates security interests over consumer goods, and does not distinguish whether the underlying debt is from a consumer credit contract. Amending Part 3A as recommended would restrict the protections currently available under the Credit (Repossession) Act, so 142
some borrowers who have granted security interests over their consumer goods that are not otherwise covered by the CCCFA would lose coverage.
493. 83B(1)
Financial Services Federation
Submits that the section be reworded so that the new Part 3A would apply only to consumer credit contracts, because that would be consistent with the approach of the CCCFA in other respects, as almost all of the CCCFA presently applies only to consumer credit contracts.
494. 83
Carol Fagan
In the case of SMEs and farm businesses, personal and business property on the premises is often mixed. Only assets on the balance sheet schedule of assets should be able to be taken by receivers and a full detail of proceeds from those assets should be provided to the debtor – NOT an amalgamated total of proceeds. Small hand tools that have little recoverable value and are not detailed on the asset register should be able to be left with the debtor
495. 83B and 83C
Commerce Commission, Financial Services Federation
Parliament should clarify when the repossession provisions apply. Concerned that a creditor could avoid the operation of the repossession provisions by failing to specifically identify consumer goods in the contract or by failing to provide variation disclosure. Recommend that the creditor’s obligation to specifically identify consumer goods in a security agreement and to provide variation disclosure apply
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
This is contrary to the objective of increasing consumer protection under the Bill. Disagree. The CCCFA regulates consumer credit contracts, and is not primarily concerned with security interests. The Credit (Repossession) Act regulates security interests over consumer goods, and does not distinguish whether the underlying debt is from a consumer credit contract. Amending Part 3A as recommended would restrict the protections currently available under the Credit (Repossession) Act, so some borrowers who have granted security interests over their consumer goods that are not otherwise covered by the CCCFA would lose coverage. This is contrary to the objective of increasing consumer protection under the Bill. Agree. The requirement to specifically identify the consumer goods over which a security interest is granted is intended to be an obligation, rather than an indication of whether the particular credit contract is covered. Non-compliance is intended to be a breach, 143
to restrict the circumstances in which a creditor can repossess consumer goods rather than whether the repossession provisions apply. Concerned that 83(2) appears to be a pre-requisite to the application of part 3A rather than a pre-requisites to repossession.
496. 83B
497. 83B(1)
498. 83B
Westpac New Zealand
Westpac New Zealand
NZ Federation of Family Budgeting Services
The Bill does not cover security agreements that are separate from consumer credit contracts. Amend by adding section 83B(4): "(4) If a security interest is or may be taken in connection with a credit contract, the contract or arrangement that creates or provides for the security interest is to be treated as forming part of the credit contract for the purposes of this Part". The same issue a in relation to the definition of "repossession" and section 7A arises in relation to Part 3A generally. In section 83B(1), each paragraph should only apply where there is a security interest over the goods. However, this qualifier only currently applies to (a). (b) and (c) should be amended to be consistent with (a), as follows: "(b) enter premises for the purpose of repossessing consumer goods over which there is a security interest: (c) enter premises for the purpose of repossessing consumer goods over which there is a security interest when an occupier is not present". Supports the inclusion of “after acquired consumer goods”. This will address many of the issues experienced by consumer clients.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
rather than excluding the agreement from coverage under Part 3A. Recommendation: Amend section 83B to ensure there is a positive obligation on creditors to specifically identify consumer goods subject to a security interest, and non-compliance is an offence. Failure to comply prevents the repossession. Agree that the Bill should be amended to ensure contracts or arrangements creating security interests must be treated as being part of the credit contract. This may more appropriately be done through a separate section, rather than an addition to section 83B. Recommendation: Include an amendment to ensure references to credit contracts in Part 3A include security agreements. Note that section 83B(1) is an ‘application’ section, rather than creating actual legal rights or obligations. It needs to be clear that it only applies to consumer goods subject to security interests. Recommendation: Amend section 83B to ensure that it is clear that Part 3A only applies to consumer goods which are subject to a security interest. Noted.
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499. 83B
Carol Fagan
500. 83B(2)
Westpac New Zealand
501. 83B(2)
Financial Services Federation
Certain factors of the Act should apply to Receiver’s and their agent on possession of property. It is often the Receiver’s plan to take possession of property when the owner is absent. Receivers should also be prevented from making pre-possession inquiries on a tenanted building as the possible interests of the tenants in purchasing property that could come under Receivership. Such inquiry can lead to departure of the tenant even if no further action occurs. The owner/debtor is left with an untenanted property which can accelerate other problems. While the Personal Property Securities Act makes it clear that a security interest in personal property continues in the proceeds of that property, it is not clear that this will be permitted under (2). This should be clarified. (3) should be renumbered as(4) and a new (3) inserted as follows: "(3) Nothing in subsection (2) limits the continuation of a security interest in proceeds as set out in s45 of the Personal Property Securities Act 1999". Recommends redrafting so that the goods are “specifically identified in the credit contract or in an agreed variation to it” to align with s 44 of the PPSA. The section is currently narrower than section 44 and is internally inconsistent. Paragraph (B) requires lender and borrower to have agreed to “change the contract” and at the same time paragraph (A) requires the goods to “have been specifically identified in the credit contract.” If the goods were “specifically identified in the credit contract” then there would be no need to agree to “change the contract” subsequently.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Receivers operate under the Receiverships Act 1993. The Credit (Repossession) Act and the CCCFA apply to creditors (and their agents). Receivers are the agents of the debtor rather than the creditor (section 6 Receiverships Act). They therefore fall outside the CCCFA, and the Bill.
Disagree. It is not necessary for section 83B to refer to proceeds of sale.
Disagree that the discussion of section 44 is helpful. Section 44 is about automatic attachment to new assets, and doesn’t apply to security over consumer goods. The idea is that any after acquired property subject to a security agreement needs to be specifically identified in an actual variation agreement. There could be a problem with the sequence of paragraphs (A) and (B). This is being referred to PCO for its consideration (below). 145
502. 83B(2)
Financial Services Federation
The intention of section 83B(2) seems to be that consumer goods cannot be repossessed unless they are adequately described in the security document. The section does not say that at present, and needs to be redrafted or it will simply be ineffective.
Agree. The requirement to specifically identify the consumer goods over which a security interest is granted is intended to be an obligation, rather than an indication of whether the particular credit contract is covered. Non-compliance is intended to be a breach, rather than an exclusion from coverage.
503. 83B(2)(a)
504. 83B(2)(b)(i)
505. 83B(2)(b)(i)
NZ Law Society
Gayatri Jaduram
Gayatri Jaduram
Recommends that the meaning of “specifically identified” in proposed section 83B(2)a) should be clarified to reduce the risk of confusion. E.g. should the consumer goods be identified by class, or should they be individually tagged and listed? Recommends that goods should be able to be identified by category with the possible exception of those subject to a purchase money security interest (PMSI) where the creditor will indeed have knowledge of the item. Submits there may be confusion as to what is specifically identified. Recommends amending this to read “described so they can be identified as specific goods”
Recommends swapping (A) and (B) as the “goods”
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 83B to ensure there is a positive obligation on creditors to specifically identify consumer goods subject to a security interest, and non-compliance is actionable. Agree. “Specifically identified” needs to be tighter – we are trying to limit the right for the creditor to unilaterally add new collateral. There is a useful test in section 36(1)(b) of the PPSA, which refers to an “adequate description of the collateral by item or kind that enables the collateral to be identified.” The reference to ‘kind’ is too general for the purposes of credit repossession, but otherwise the PPSA test would be appropriate. Recommendation: Amend the Bill to ensure the reference to goods being “specifically identified” refers to goods being identified by item so as to be identified. Noted. This seems logical, but the order of 146
referred to in A relates to the change to the contract in (B).
506. 83C
Citizens Advice Bureau New Zealand
Particularly concerned at the flagrant abuse of the “at risk” clause which this Bill does nothing to remedy. Some repossession agents use the section which enables them to repossess goods if they are “at risk” to avoid sending prepossession notices. They know the likelihood of their debtors seeking redress through the court is very low. Bureaux report that this clause is being systematically abused by some repossession agents who use this for virtually all their repossessions. There should be external oversight before the at risk clause can be invoked, for example the Repossession Agent should be required to provide a signed statement to a Justice of the Peace outlining the reasons for believing that the goods are “at risk” prior to the repossession.
507. 83C
Commerce Commission
508. 83(3)(1)(c)
Gayatri Jaduram
At the very least the Repossession Agent should have to provide a signed statement to the borrower at the time of the repossession outlining why they consider the goods to be “at risk” and the rights of the borrower to contest this. “Reasonable grounds” in relation to at risk goods is imprecise and should be further defined.
Recommends that this section should not require compliance with all of the principles but should be clearly limited to principles which relate to
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
the two paragraphs is a very technical drafting point. Recommendation: Refer the drafting point to PCO to consider whether it is valid. Noted. The Bill proposes much more accessible remedies for debtors, including ones affected by this kind of abuse, including damage remedies. The suggested JP system is unlikely to be a significant check. The Bill (and the Credit (Repossession) Act before it) put the onus on the creditor of proving that the grounds for believing the goods were at risk were reasonable (section 83C(4)).
Noted. Ultimately little is to be gained by further definition. Possible that guidance on the concept can be provided in the Code. Agree. The responsible lending principles relating to the granting of credit are not relevant to repossession. 147
repossession (9B(3)(e)-(f)).
509. 83D
National Council of Women in New Zealand
Supports that creditors will be required to observe strict procedures and provide written notice at each step before, during and after repossession of goods.
510. 83D
GE Capital, Brent Hollows
Recommends that a longer expiry period than 28 days would be more appropriate.
511. 83D(4)
512. 83D(4)
Brent Hollows
New Zealand Association of Credit Unions
The 28 day expiry period should be 60 days. The shorter period may result in additional cost to borrowers where the notice expires prior to repossession being effected, whether by virtue of difficulty in locating goods, remote location, or otherwise. The cost of issuing further notices will ultimately be borne by the borrower. The expiry of the repossession warning notice should be extended to 43 days given that NZ Post are not delivering mail every day. As the notice will expire 28 days after it is served and it must be given to the debtor 15 days before repossession, this leaves 13 days to complete repossession. A longer time period will provide more time to remedy default and is more responsible. Submits that the 15 day grace period after delivery of the repossession notice only leaves 13 days before expiration of the notice, which is often insufficient time to repossess, particularly if the debtors are uncooperative.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 83C so it only refers to the responsible lending principles/lender responsibilities relevant to repossession. Noted.
Agree. Various submissions have pointed out that the 28 day expiry period for repossession warning notices is too tight. If the repossession warning notice expires before a creditor is able to effect repossession in respect of the identified property then the creditor will have to issue another repossession warning notice to repossess the goods. Too short a time period will inconvenience the creditor, and potentially cost the debtor for the reissuing of the notice. Section 83D(3)(e) specifies that the repossession warning notice must be given to the debtor and every guarantor of the debtor in relation to the relevant contract at least 15 days before repossession occurs. The 15 day minimum notice period does not need to be amended. Recommendation: Amend the period in section 83D(4) from 28 days to 60 days.
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Recommends that the repossession notice expiry period be extended to whichever occurs first: 1. The situation is resolved and the debt is settled; or 2. Alternative arrangements have been made; or 3. 60 days. 513. 83D(4)
BNZ
514. 83D
Carol Fagan
515. 83D(3)
Financial Services Federation
516. 83D(4)
Financial Services Federation
Submits that this gives the bank just 12 days to effect repossession. Given that assets like yachts and cars are very mobile, this will be difficult to achieve. This makes the process quite circular and onerous as creditors would have to start the 28 day process all over again. This section should require that notices be served within a specific number of days prior to repossession or receivership action. In the case of cross guarantees, serving of notices on one property several months prior to taking action on a guarantors property should not entitle un-notified further action against the guarantor’s property. An additional notice of repossession should be required within a set number of days before access is made to a property guaranteeing an original repossession. The FSF submits there should continue to be a prescribed form of repossession warning notice, as presently under the Credit (Repossession) Act.
This section is undesirable, and should be deleted from the Bill. It is quite common for repossessions not to be effected within 4 weeks of a notice being served, for example because the car (or other goods to which the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. Repossession warning notices will be required to be served on guarantors under section 83D(1). Repossession warning notices will not be able to remain on foot for several months. Disagree that an additional repossession warning notice for guarantors should be added to the Bill. Disagree. The CCCFA schedules set out key information required in various forms (e.g. disclosure). Section 83D(3) follows the same approach. Regulation making powers allow a form to be prescribed if necessary. Disagree. It was a specific recommendation of the Law Commission that repossession warning notices should expire. Otherwise they remain in place indefinitely – providing a permanent right for the creditor to repossess consumer
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notice relates) has been hidden by the defaulting borrower.
517. 83E
Westpac New Zealand
The process of re-serving an expired notice in those circumstances will cause delay and extra cost to the security enforcement process. This will result in lenders charging higher default fees to recover those higher costs; and will incentivise defaulting borrowers to hide financed goods to an even greater extent than already occurs. The provisions in the CRA that relate to the voluntary return of consumer goods apply in the context of a secured credit sale. There is no such restriction of application in section 83E. Accordingly, section 83E can apply equally where there is no credit sale. To achieve this, the language should refer to the voluntary "delivery" of consumer goods rather than the voluntary "return" of consumer goods. Similar amendments will be required in other sections in Part 3A.
goods at any time.
Agree. The ‘return’ language is not intended to limit section 83E to secured credit sales. The same point applies to ‘repossession’ itself, where a creditor never had ‘possession’ in the first place. We have decided to still refer to ‘repossession’ because it is the generally accepted term for this type of transaction. However we should deal with the ‘return’ language in this section to deal with any uncertainty.
518. 83E
GE Capital
Recommendation: Amend section 83E so it is not implicitly limited to credit sales where goods are ‘returned’ to the creditor. Recommends that creditors have discretion as to Disagree. The debtor’s right to voluntarily whether or not to accept voluntary surrenders. return goods only applies if a repossession warning notice has been issued. The In situations where consumer goods with no economic return is deemed to be a repossession for value are surrendered, e.g. wrecked motor vehicles or the purposes of disposing of the goods. vehicles with substantial unpaid road user charges, The effects of the provision will include the creditor will be worse off especially where there creditors more carefully considering issuing
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are no prospects of recovery of the underlying debt. 519. 83E 520. 83E(2)
Tauranga Budget Advisory Service Financial Services Federation
Supports this section and submits that it is fair and reasonable. Submits that the voluntary return of goods should be possible where all persons with an interest in the goods or in the accessions agree. The FSF appreciates why this section makes a voluntary return of goods impossible where the goods include accessions.
521. 83F
Financial Services Federation
522. 83G 523. 83G
DRSL Gayatri Jaduram
524. 83G(1)
Buddle Findlay
525. 83G
Westpac New Zealand
Recommends that this section cross reference s 129(1) of PPSA, in the same way that proposed section 83D(1) does. Recommends that this section should state “every creditor intending to repossess an accession to consumer goods …” Part 3A of the proposed CCCFA is intended to relate only to consumer goods, and section 109 of the PPSA relates to things other than consumer goods. Agrees with this section in general. Vexatious complaints could be made to delay or put on hold enforcement action at the cost of the lender. Submits that there is the potential for this to be subject to abuse. Recommends that there should be provisions prohibiting the making of vexatious complaints, and also inserting an onus on the debtor to act reasonably to expedite and not delay resolution of the complaint. Section 83G may cause valid repossessions to be
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
repossession warning notices when the consumer goods have no economic value. Noted. Disagree. Requiring the agreement of all persons with an interest in the goods (including the creditor) would remove the self-help remedy otherwise available to debtors. Accessions are technically difficult to deal with, and the Bill excludes goods that are accessions from the voluntary surrender right. (An example of an accession is an engine in a car.) Agree. Part 3A only applies to securities over consumer goods. Recommendation: Amend section 83F to ensure it only applies to consumer goods.
Agree. Noted, but concern can be mitigated by the timely resolution of the consumer’s complaint. Complaints that have no legal or factual basis can be rejected. Claims that are rejected can be dealt with quickly by the creditor (or a disputes resolution scheme). It might be possible to institute a time limit for the complaints, but such a period would be difficult to apply across the board, given the length of
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delayed by unmeritorious complaints. There is always a risk that the goods that are to be repossessed will be moved to another location or damaged, limiting the creditor's ability to recover the debt. The creditor may not have "reasonable grounds" for believing the goods are at risk at the time the complaint is made so is not permitted to take possession.
526. 83G
Brent Hollows
Recommend changes to avoid spurious claims and unnecessary delay and cost. This can be done, for example, by: (a) Introducing a time limit on bringing complaints following receipt of a repossession warning notice (for example, of five days); and/or (b) Creating penalties for intentionally making complaints which are unmeritorious or otherwise an abuse of process. This section is open to debtor abuse as a complaint without merit will curtail valid repossession.
time that it might take the debtor to secure advice. Penalties would be inappropriate as they may discourage legitimate use of what is an important consumer protection device. The time when a borrower can make a hardship application is limited (section 57). However the intention of the Bill is to shift the balance between creditor and debtor rights in relation to repossession more in favour of the debtor, and limiting borrowers’ rights to make general complaints about repossession would be inconsistent with that intention.
Submits there should be a debtor penalty for an unsubstantiated complaint or a false claim of hardship.
527. 83G
NZ Law Society
Submits that hardship or complaints should be initiated before expiry of the repossession warning notice. Submits that this section in effect renders repossession impossible or at least highly expensive to the creditor. Recommends that the section should clearly state that the debtor may not make a complaint to the Dispute Resolution Service if the complaint is frivolous or vexatious, so that it is clear to debtors that there is
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528. 83G 529. 83G
National Council of Women in New Zealand Financial Services Federation
reduced incentive to game the system by filing a complaint. Supports that debtors have more choice for repayment options and avenues for redress. Recommends that this section should only apply to complaints made before enforcement action has begun and subsection (2) should be deleted fully. This will prevent abuse of the section by undeserving borrowers who have not thought to make a complaint until enforcement action is taken against them. Recommends that this section should state that a borrower cannot make a second complaint unless it relates to events occurring after the first complaint was made. There is nothing to prevent a borrower who has unsuccessfully made a complaint from immediately making another complaint on learning that their earlier complaint has been unsuccessful.
530. 83G(1)-(2)
BNZ
531. 83G
Franklin Family Support Trust
532. 83G
Families Commission
Australian experience shows that the average number of days in arrears has increased substantially due to abuses of complaints and hardship provisions. The Bill provides for no limit on how often the debtor can complain and require the creditor to attend a dispute resolution process; so effectively a debtor could perpetually stall a perfectly valid repossession. Welcomes the suspension of enforcement proceedings while a hardship application is being decided. Recommends extending the time limit to 21 days instead of 14 days. Some borrowers will take longer to accept that they are going to lose their property if they do not take
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. Disagree. The complaint must be about the enforcement action, and a creditor should be prevented from selling repossessed goods if a complaint about the repossession is outstanding. Agree that the equivalent of section 55(1B) (in relation to repeat hardship applications) should be added to section 83G. Recommendation: Add an equivalent provision to section 55(1B) so borrowers are limited in making repeated complaints to restrict creditors’ ability to enforce their loans.
Noted.
Disagree. 14 days after rejecting a complaint is the time the creditor has to wait before recommencing enforcement action. It is a reasonable compromise period.
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533. 83G(3)
534. 83G(4)
Financial Services Federation, Buddle Findlay
DRSL
action and raise the matter with their lender or dispute resolution scheme. This should be redrafted to state “the creditor may repossess the goods”.
This section truncates the time for a debtor to make a complaint to a dispute resolution scheme from 3 months to 14 days. Vexatious or frivolous complaints aside, whilst a dispute resolution scheme makes every endeavour to resolve complaints as early as possible, the process is directed to a large degree by the complainant. It is possible that the complaint can take up to 3 months for a final decision to be made at the dispute resolution scheme. At the margins it may be a process the debtor could use to frustrate a creditor’s rights to repossess.
535. 83G(4)
FSCL
536. 83G(4)
Financial Services Federation
It is suggested that dispute resolution schemes could “fast track” a decision within say 5 working days. Supports the role of dispute resolution schemes in the case of repossession of consumer goods under a credit contract. This section should place a clear obligation on borrowers to co-operate with the lender’s dispute resolution scheme and not delay matters. This section gives borrowers no incentive to co-operate with the lender’s dispute resolution scheme. Supports that this subsection only gives a borrower 14
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. Recommendation: Amend section 83G to reflect that it is the creditor effecting the repossession. Disagree. The main purpose of this section is to extend the period of the stay on enforcement after a creditor rejects a complaint. It does not stop a debtor referring a complaint to a dispute resolution service after 14 days – but there would be a risk that the creditor proceeds with enforcement action. The fast tracking of complaints should a matter for particular schemes to consider when reviewing their rules or practices.
Agree.
Disagree. The dispute resolution schemes are responsible for managing their cases, including setting timeframes for borrowers to provide information. Noted on the 14 day limit. This is a limit on the stay of enforcement after a complaint
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days to refer the complaint to the lender’s dispute resolution scheme. 537. 83G(6)(b)
Financial Services Federation
This section should refer to “repossession warning notice” as it does elsewhere in Part 3A.
is rejected by a creditor. It does not stop borrowers from making subsequent complaints to a dispute resolution scheme. Disagree. Section 83G(6) does however require amendment. For the purposes of section 83G, enforcement action needs to include: Giving a repossession warning notice; Entering premises under section 83J; and Exercising any powers (e.g. duty to offer goods for sale) after the repossession of consumer goods. A post-repossession notice should not be captured under the meaning of ‘enforcement action’.
538. 83G(7)
Westpac New Zealand
Now that s83D provides that a repossession warning notice has a limited lifespan of 28 days, it should be made clear in s83G(7) that the days taken to resolve the complaint are not included in that 28 day period. Section 83G(7) should be amended as follows: "(7) To avoid doubt: (i) the creditor or the creditor's agent may, subject to this Part and to any terms on which the complaint was resolved, take, or continue, the enforcement action referred to in subsection (1) from the time that the complaint has been resolved or (in the case of an unsuccessful application under s55) the application has been decided; and
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 83G(6) so enforcement action covers these actions. Agree. Note the recommendation to extend the 28 day period in section 83D to 60 days. Even with the extension to 60 days, there is merit in the suggestion to preserve the repossession warning notice while any complaint (or hardship application) is resolved. A borrower who has made a complaint or hardship application will be aware of any pending repossession. There seems to be no value in requiring the
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(ii) the period from (and including) the date on which the complaint was received or application made to (and including) the date on which the complaint was resolved or (in the case of an unsuccessful application under s55) the application has been decided shall not be counted for the purposes of determining whether a repossession warning notice has expired under s83D".
539. 83H
Gayatri Jaduram
Submits that other disabling devices such as vehicle wheel clamps are not caught by this section. Submits that if provisions control the use of disabling devices, then items such as vehicle clamps, which contain many disabling features, should be covered. This clause should apply to assets from receivership sale where goods are taken and disposed of without the debtor having any recourse or right to repurchase or have associates repurchase, particularly family transport. Personal items contained in vehicles should be returned prior to sale of the vehicle.
540. 83H
Carol Fagan
541. 83H
NZ Law Society
Creditors should be able to locate goods when the debtor falls into arrears in order to reasonably assess whether they are at risk because they have been moved from their known location.
542. 83H(1)
Financial Services Federation
Subsection (1) states that the section will only apply where a loan contract expressly states certain things. It would be easy to avoid the section altogether by not stating those things. It seems somewhat odd that the regime for disabling devices envisaged by proposed subsection (2) is quite
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creditor to issue a new repossession warning notice because of the time taken to resolve a dispute, and to pass the cost on to the borrower. Recommendation: Amend the Bill to freeze the 28(60) day time period under section 83D(4) from running while any enforcement action is stayed under section 83G. Disagree. Wheel clamping is usually an issue with car park owners, rather than creditors. It is outside the policy of the Bill.
Disagree. Receivers operate under the Receiverships Act 1993. The Credit (Repossession) Act and the CCCFA apply to creditors (and their agents). Receivers are the agents of the debtor rather than the creditor (section 6 Receiverships Act). They therefore fall outside the CCCFA, and the Bill. Noted. Creditors can do this under section 83H, but the creditor must notify the borrower that the tracking device will be activated. Agree that the application of section 83H needs to be carefully considered. It is intended to create enforceable obligations on creditors using disabling devices as a form of ‘security’ for their loans. The regime is more light-handed than for 156
different from that applicable to repossessions generally. Suggests that paragraph (a) of the definition of “disabling device” in subsection (4) be deleted. The warning to debtors seems benign and should deserve praise, not regulation.
543. 83I(2)
Financial Services Federation
Suggests that the word “hold” is deleted and replaced with the word “use”. The prevention of holding duplicate keys particularly by motor vehicle financiers would prevent a debtor voluntarily giving the lender to the keys at the beginning of the repossession process, which may well be a sensible thing for the debtor to do. Holding duplicate set of keys from day one of a loan may facilitate repossession to the benefit of all concerned in terms of cost savings etc. It is use of the keys that should be regulated, not custody of them.
544. 83J – 83M
Franklin Family Support Trust
545. 83J
Financial Services Federation, GE Capital
Supports these sections to provide protection to consumers from punitive attempts to repossess goods. The list of required items to be produced on entry is unnecessarily long, and should be revisited and abbreviated. The additional cost of the paperwork
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
full repossession. Disagree on the warning point. The control is on activating the disabling device, and triggering a warning would not be activation. Recommendation: Review the drafting to ensure section 83H creates enforceable obligations on creditors using disabling devices, and is not easy to avoid as suggested by the submitter. Disagree. The intention is to prevent lenders from holding keys from day 1 and using the fact that they have keys as leverage in dealing with the borrower. However the intention is not to prevent borrowers from giving the lender keys as part of the repossession process. The implication in section 83I(2) that keys can only be held after the goods have been repossessed is too narrow. Recommendation: Amend section 83I to provide that the creditor may hold keys voluntarily surrendered by the debtor after a repossession warning notice has been served. Noted.
Noted. The list can be simplified, but each of the core documents is part of the essential paper trail necessary to establish 157
will be borne by the borrower.
546. 83J
Commerce Commission
Suggests that there might reasonably be some limits on the creditor’s duty to keep providing documents to the debtor. Section 83J states that a creditor must provide entry documents on entry and “at any subsequent time”. This suggests that the debtor can keep asking for documents during the repossession process and the creditor is required to provide them. This would seem to be (potentially) a fairly onerous obligation for creditors. Prior to entry documents on the right to enter must be produced and a copy provided.
547. 83J
Carol Fagan
548. 83J (1)(b)
Financial Services Federation
It seems unnecessary to require a borrower to be given another copy of the credit contract. They will already have had at least one copy given to them and are entitled to request another copy. The borrower is unlikely to read the contract before repossession occurs.
549. 83J(1)(f)
Financial Services Federation
Suggests that the agent be required to leave an inventory of what has been taken, not of what might have been taken.
the repossession is lawful. Recommendation: Review drafting to remove any duplication from section 83J. Agree. It is important that the documents be available at the time of and after the repossession, to enable resolution of legitimate disputes. This duty could be limited and simplified. Recommendation: Amend section 83J to ensure the duty does not extend to repeated provision of the same information. Noted. The right to enter is evidenced in the documents which must be produced on entry. Disagree. The copy of the contract is primarily for budget advisers and others who can potentially help the borrower, and assess the validity of actions by repossession agents. Critically the contract will also include the list of specifically identified items the creditor is entitled to repossess. Immediate access to the terms of the contract can be a problem, and request disclosure is too slow if time is of the essence. Disagree. The inventory is to be produced on entry of the premises. The postrepossession notice will state what has been taken.
An inventory of the “goods to be taken” will be of no
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use to either the lender or the borrower and may even be misleading.
550. 83J(1)(g)
Financial Services Federation
The debtor will already have received the same information in the repossession warning notice as a result of section 83D and Schedule 3A. Strongly objects to the requirement that the borrower be provided with a written statement setting out where the goods will be stored, for security reasons.
Agree. It is not clear that it is necessary if other information is provided. Recommendation: Amend section 83J(1)(g) to delete the reference to where the goods will be stored.
551. 83L
Financial Services Federation
552. 83L
Gayatri Jaduram
553. 83M(2)
Financial Services Federation
This section should be amended to clarify that repossession is still possible where the goods are “at risk”, even if the debtor has made a complaint that has not been “resolved”. This will ensure consistency with other provisions such as section 83C (1). Submits that this section may not be required as the exercise of the right to repossess or enter premises is an enforcement action under s 83G. Submits that this subsection should be deleted so that this cannot be used by a borrower to delay repossession. If the creditor or their agent has to return to effect repossession another day because it has not been completed before 9 pm once commenced, this will add cost to the borrower and also provide the borrower with the opportunity to hide the goods required to be repossessed.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. Section 83L is unnecessary as a substantive provision because the issue is already covered by section 83G. The intention is for section 83L to be a ‘signpost’, rather than an operative provision. Recommendation: Amend section 83L so it is more clearly a sign-post provision, rather than appearing to be a substantive provision. Disagree. Repossession agents will need to time their repossessions so they can leave by 9.00pm. Otherwise repossession agents will be able to stay in the premises after 9.00pm, and the bright-line is fudged. Note that the Credit (Repossession) Act prohibits repossessions on public holidays, and this has been omitted from section 83M. It should be included.
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554. 83N
Financial Services Federation
Submits that this provision and section 99B be combined. There is unnecessary overlap between these two provisions. Supports that no repossession action can be taken by a lender who is not registered and that lenders must not use repossession agents unless they are either licensed or hold a certificate of approval under the Private Security Personnel and Private Investigators Act 2010.
Recommendation: amend 83M to restore the prohibition against exercising the right to enter residential premises on a holiday. Disagree. Section 99B has a wider application than section 83N, and also deals with what happens when a creditor becomes registered. Section 83N deals with two issues – creditors which may not be registered, and the requirement for repossession agents to be licensed. The present drafting conflates these points, and they should be more clearly separated. The reference to repossession agents carrying out repossessions also creates a gap in section 83N, because the section does not deal with creditors exercising repossession rights themselves. In that case the creditor needs to be licensed (or to hold a certificate of approval).
555. 83N
556. 83N
Franklin Family Support Trust, National Council of Women in New Zealand Carol Fagan
Strongly supports this requirement.
Recommendation: Amend section 83N to more clearly separate the rules for unregistered creditors and unlicensed repossession agents. The section should also cover the situation where a creditor exercises its repossession rights itself, rather than through an agent. Noted.
There should be provision for de‐licensing of agents who act in an irresponsible or overly aggressive
Noted. There are complaints processes in the Private Security Personnel and Private
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557. 83P
558. 83P
GE Capital
Brent Hollows
559. 83P(1)
Financial Services Federation
560. 83P
NZ Law Society
manner with a facility to register complaints. The ability for agents to act in a manner of assault and hide behind “using reasonable force” should also be addressed. ‘Reasonable Force” should be defined and prevent physical injury of persons being removed. The 7 day notice requirement of this section may be problematic where goods are recovered from remote locations.
Investigators Act that will apply to repossession agents, and being de-licensed is one of the remedies. Repossession agents have no right to use reasonable force against any person. Agree that 7 days is not long enough for a post-repossession notice to be delivered. However the 21 day notice period in the Credit (Repossession) Act is too long.
For example, a motor vehicle repossessed in Nelson would need to be sent to Christchurch to be auctioned. Vehicle transport is not available on a daily basis, in which case by the time a valuation is completed, and costs incurred are known, the seven days’ notice period is likely to have expired.
The post repossession notice reports to the borrower on where they stand following the repossession. The creditor will be able to make an estimate of the value of the goods repossessed quite quickly.
Recommends that this time period be amended to 1015 days.
Recommendation: Amend the notice period in section 83P to 14 days.
Submits that sending a post possession notice within 7 days is too short. Lenders must wait for the repossession agent’s invoice and NZ Post does not deliver mail every day. Submits that a post repossession notice should be served within 21 days. 7 days is too short a time, and there may be good reasons why a lender cannot always react that quickly following repossession. It must first receive a report from its repossession agent for example, and that take more than 7 days. Recommends that, for consistency with other notice provisions, the definition of post-repossession notice should be moved from proposed section 5(5) to this section, or removed altogether.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. This is a technical drafting issue. Most of the repossession-related definitions are in section 5(5). This is consistent with integrating the Credit (Repossession) Act into the CCCFA.
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561. 83P(1)
Financial Services Federation
562. 83P
Commerce Commission, Gayatri Jaduram, Financial Services Federation
563. 83P(2)(b)
Financial Services Federation
564. 83Q
Westpac New Zealand
Recommends that 7 days period begins after – “the later of the repossession or any later date on which the creditor becomes entitled to take enforcement action under section 83G, where that section applies”;
Disagree. If goods have been repossessed and the borrower makes a complaint, the post-repossession notice should still be provided, even though the enforcement powers will be stayed because of the complaint. The post-repossession notice is likely to be relevant to resolving any complaint.
This will address the contradiction in 83G (3) that the creditor must not take any further enforcement action following repossession if the goods are at risk. However, 83P (1) states that “A creditor must serve a Note the recommendation above regarding post-repossession notice on the debtor and every the notice period. other person referred to in section 83D (1) within 7 days of the repossession.” Submits that the reference to Schedule 3A is incorrect. Agree. It should read Schedule 3B. Recommendation: Ask PCO to amend accordingly. Recommends that there should be a prescribed form Disagree. The CCCFA schedules set out key for this notice. A prescribed form would make information required in various forms (e.g. disclosure). Section 83P(2)(b) follows the Schedule 3B unnecessary. same approach. The effect of section 21A(2) of the CRA should be Disagree. No practical examples have been replicated in the Bill. 21A does not require a creditor provided of perishable goods that might to give a post-possession notice in certain sensibly be repossessed. circumstances such as if the consumer goods were perishable or will decline substantially in value if not disposed of immediately. It follows that if no postpossession notice is required, the 15 day stand down period for selling the goods does not apply (as the 15 days runs from the date of service of the postpossession notice). It will benefit debtors for such provisions to be included as it will allow value to be realised from consumer goods that might otherwise diminish in value or become worthless.
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565. 83Q(2)(a)
566. 83S
567. 83T 568. 83T
569. 83U
Commerce Commission
Commerce Commission
Brent Hollows Carol Fagan
NZ Law Society
Section states “after the consumer goods have been taken”. This should say “after the consumer goods have been repossessed”. The Bill requires creditors to offer repossessed goods for sale, but there are no consequences for a creditor failing to comply with this requirement. Interest and costs cease to accrue after repossessed goods are sold (section 83G), but creditors can delay tis clause having effect by holding on to repossessed goods.
Supports the term “commercially reasonable” The creditor should be required to give the debtor reasonable notice of the proposed sale and, if by auction or tender, the debtor should be entitled to bid or tender.
Recommends that “valuer” should be defined with reference to a person who carries on the business of valuation of goods of the relevant category, to avoid
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Agree. Recommendation: Ask PCO to amend accordingly. Noted. The Court has discretion under section 94A to make a wide range of orders on a breach of Part 3A. Section 83S is not an offence because the “as soon as reasonably practicable” element of the obligation is not appropriate for a criminal offence. The proposal to stop fees and interest from accruing after goods are repossessed (rather than sold) would be a fundamental change because it would apply before the debt has been repaid (whether partially or fully). Noted. Section 83T(2) and (3) does exactly this. Note that this section should be aligned with the wording in s 176 of the Property Law Act and require the creditor to take reasonable care to obtain the best price reasonably obtainable for the goods at the time of sale. Recommendation: Amend to align the wording of section 83T with the Property Law Act. Disagree. There is no such definition in the existing Credit (Repossession) Act, from which this provision is taken. The valuation
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spurious valuations leading to disputes.
570. 83V
571. 83W
572. 83ZA
573. 83ZC
Commerce Commission
Westpac New Zealand
Commerce Commission
Brent Hollows
“Amount required to reinstate agreement” (section 83V), seems to have a similar meaning to “unpaid balance and credit fees” as defined in section 5 “other charges and reasonable costs and expenses” (section 83V), seems to have a similar meaning to “credit fees”
For consistency with the other provisions relating to reinstatement and settlement, s83W(a) should refer to the performance of secured obligations as well as the payment of the amount required to reinstate the agreement.
Refers to “the register” without defining what that register is. Presumably it is the Personal Property Securities Register (PPSR). We suggest that if this is the case it should be made explicit Recommends that this time period be amended to 1015 days.
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is for the borrower’s information, and it is up to the borrower to decide whether a registered valuer is desirable. Agree we need to be careful to use existing defined terms as much as possible. This is an issue with integrating the Credit (Repossession) Act into the CCCFA. Note that the unpaid balance is the amount owing, while the amount required to reinstate the agreement only clears arrears and costs. The unpaid balance is relevant to settling the agreements under section 83W, which is different. Recommendation: Ask PCO to check the language used in section 83V to ensure the integration of the Credit (Repossession) Act concepts into the CCCFA is optimal. Agree. The costs of repossession and other costs incurred by the creditor should also be included in the accrued obligations (similar to the amount required to reinstate the agreement). Recommendation: Amend section 83W to refer to the performance of accrued obligations as well as paying the amount required to reinstate the agreement. Agree. Recommendation: Amend accordingly. Disagree. It is not unreasonable for a creditor to report to the owner on the sale
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of repossessed assets in a week.
574. 83ZC
GE Capital
575. 83ZC
Commerce Commission
576. 83ZC
Carol Fagan
577. 83ZD
578. 83ZD
Commerce Commission
BNZ
Submits that sending a notice of sale within 7 days is too short. Lenders must wait for the auctioneer’s invoice and NZ Post does not deliver mail every day. Submits that reducing the period to 7 days may create problems as the creditor may not have received payment or an invoice of costs from the auction house carrying out the sale of consumer goods on behalf of the creditor. “The amount of the costs and expenses of and incidental to the sale”, (section 83ZC) seems to have a similar meaning to “credit fees” The debtor must give an itemised statement of account – not an amalgamated sales figure – on sale of repossessed goods or assets. This provides transparency in the repossession and sale of multiple items which must be only those items documented on the asset schedule of a Receivership Balance Sheet.
Refers to a “financing statement” without making it clear that it is a “financing statement” under the PPSR. We suggest that if this is the case it should be made explicit.
Currently banks can apply any surplus to any other credit contracts that we have with the debtor, whether they are in default or not. New section 83ZD seems to extinguish this right to roll all our credit contracts up if one defaults in order to recover all monies owing.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The more specific wording is clearer than relying on a very general definition. Noted. The Bill (and the equivalent provision in the CRA) refers to “the gross proceeds of sale.” Agree that an itemised statement would be useful to increase transparency when more than one item is repossessed and sold. Recommendation: Amend section 83ZC to provide for the gross proceeds of sale to be itemised. Noted. Section 83ZD(2) refers to the PPSA. Recommendation: Check with PCO whether the reference to a financing statement in section 83ZD(1) is sufficiently clear. Disagree. Section 83ZD does not change the existing words used in section 34 of the Credit (Repossession) Act. It therefore neither extinguishes nor adds to any existing rights.
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579. 83ZD
NZ Law Society
580. 83ZG
Brent Hollows
581. 83ZH
582. 83ZH
Financial Services Federation
Damian Chesterman
Recommends that this should be switched in order with section 83ZC, and should then be amended to include in the creditor’s notice the amount to be paid to other secured parties. This would lead to greater certainty for the debtor as to the amount of money he/she would either receive or be required to pay. Does not support that interest cannot be charged after the sale of goods. This is a cost to lenders which is passed onto borrowers by way of interest rates. Submits that it is inequitable as this applies from the sale of the first item, even if other items of security are not sold. Submits that service of notice via email should be allowed. Email is increasingly main form of contact between lenders and borrowers. New Zealand Post announced on 23 October that they are intending to reduce mail deliveries from 6 days per week to 3 in 2015 so posting of notices will cause delays in borrowers receiving them therefore other forms of service should be allowed for now to futureproof the Bill. Recommends that notice relating to default and enforcement must be personally served and that email and fax are not good enough. Recommends that there should be a prohibition from contracting out of this requirement.
583. 83ZH
Carol Fagan
This needs to be more specific. Serving a notice in the middle of a road and not any specific address, or mailing to a former address of a debtor is no guarantee that these notices have been served or received.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Sections 83ZC and 83ZD closely follow the existing provisions of the Credit (Repossession) Act, and there is no obvious reason to change them.
Disagree. This is an existing provision in the Credit (Repossession) Act, and carrying it forward is a key part of the policy of the Law Commission repossession report.
Agree. There is value in physical documents being left at the premises when repossession occurs. However the arguments in support of electronic documents being an option for other sorts of notices are persuasive. Section 32 of the CCCFA provides for electronic service of disclosure documents, and a similar provision could apply to repossessionrelated documents. Recommendation: Include the option for electronic service of notices on agreement with the debtor. However, this should not apply to repossession warning notices, or the documents required to be presented on entry under section 83J. Disagree. The Bill includes conventional service provisions. Leaving a notice in the middle of the road would not qualify as valid service under these provisions.
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584. 83ZH(5)
NZ Law Society
Recommends that, in view of the proposed reduction in postal delivery services, deemed delivery should occur on the fifth day after the day on which the notice is posted.
Disagree. The fourth day after a notice is posted is still a relatively generous amount of time for a letter to be delivered.
Submits that Court remedies will significantly disadvantage vulnerable borrowers given the cost and complexity involved.
Disagree. The Bill provides that dispute resolution schemes must hear complaints about repossession (section 63(g) of the FSP Act). Debtors can take a complaint to a dispute resolution scheme. Only final decisions can be appealed to the courts.
Enforcement and Remedies 585. 85
586. 87
587. 87A
East Auckland Home and Budget Services
Commerce Commission
FSCL
Submits that the option to resolve disputes through dispute resolution services will be sidestepped by lenders who will prefer going to Court. Appears to have removed the statutory jurisdiction for the Disputes Tribunal to consider hardship applications. This removes a significant protection for debtors. If they are required to file hardship applications in the District Court it will significantly increase their costs which is likely to be prohibitive for many debtors.
Recommend that approved dispute resolution schemes be recognised in Part 4 of the Act (enforcement and remedies): A dispute resolution scheme approved under section 53 of the FSP (Registration and Dispute Resolution) Act may consider complaints about credit providers who are members of the scheme and make the equivalent of orders under sections 90, 93, 94A, 120 and 122 of the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The effect of section 87(2) of the CCCFA is to restrict the jurisdiction of the Disputes Tribunal in relation to hardship remedies under section 58 and 59 to loans of less than $15,000 – not remedies of less than $15,000, which is the test that applies in other cases. Repealing section 87(2) is intended to extend the jurisdiction of the Disputes Tribunal, but sections 58 and 59 still need to be covered. Recommendation: Amend the Bill to add references to sections 58 and 59 in section 87(1). Noted. Dispute resolution schemes are an alternative forum that is more accessible to borrowers. They have jurisdiction in respect of creditors’ statutory obligations. Note that dispute resolution schemes provide a form of binding mediation service – they are not courts. The power to 167
Act. This would be a comprehensive way of ensuring the approved dispute resolution scheme rules will cover all new matters in the amended CCCFA without having to go through specific rule changes and rule change approvals. All dispute resolution schemes will have a consistent and clear mandate to comprehensively cover complaints that might arise under the CCCFA.
588. 88-90
Financial Services Federation
Prefers a damages regime based on actual loss which operates in tandem with criminal law.
589. 89
Consumer NZ
590. 89
Commerce Commission
Do not support that statutory damages have not been amended. The existing amount of $3000 is low and provides a weak incentive for creditors to comply with the Act. Statutory damages are too low and are not currently an effective compliance tool. Consider that the effectiveness of the statutory damages regime has been compromised to the point where applying for statutory damages is hardly worthwhile for debtors, or for the commission on behalf of debtors. Recommend that the minimum amount of statutory damages should be increased in order to encourage debtors to take their own action and to encourage
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make the orders that courts can make is not available to them. They do however have the power to provide other remedies when they decide complaints are justified. There is a recommendation that a new section be added to the CCCFA to refer to the jurisdiction of dispute resolution schemes (section 87A). Section 63 of the FSP Act is also being amended to include more specific references to the statutory obligations in the CCCFA that are covered by dispute resolution schemes. A regulation-making power is also being recommended to prescribe the content of dispute resolution scheme rules by regulation. Noted. This submission is a commentary on existing statutory damages regime. No policy mandate to remove it. Noted. Statutory damages apply so borrowers are reimbursed interest and credit fees if a creditor breaches its disclosure obligations. For most purposes the amount of statutory damages is capped at $3,000 or 5% of the relevant advance. Statutory damages are independent of any actual loss or damage. Borrowers can ‘claim’ the damages without necessarily going to Court, and they can set-off statutory damages against amounts owed to the creditor. To that extent they are a self-help remedy. 168
creditors to comply with the disclosure provisions. The amount of $3,000 or 5% is low, so it is a relatively weak incentive for creditors to make disclosures. The self-help nature of the remedy makes it appropriate to cap the amount of the statutory damages, but the amount could usefully be increased since it was set in 2003.
591. 89(1)(a) and (b)
592. 90(3)
Commerce Commission
Westpac New Zealand
We believe the reference to “interest charges and credit fees” should be “interest charges, credit fees and default fees”.
The current limitation period should be retained (same reasons as given under s 41). This can be achieved by adding the following the new section 90(3A): "(3A) Despite subsection 3, no application under this section may be made after the expiry of seven years from the date of the act or omission on which the application is based".
Recommendation: The $3,000 caps on statutory damages in section 89 are increased to $6,000. Agree. The definitions in the CCCFA provide that interest charges include default interest, while credit fees expressly exclude default fees. Not including default fees in the amount of statutory damages potentially undermines the effect of sections 88 – 90. Recommendation: Include references to credit fees and default fees in section 89(1)(a) and (b). Disagree. The proposed limitation period is consistent with the Fair Trading Act (“within 3 years of the matter giving rise to the contravention being discovered or ought reasonably to have been discovered.”) The disclosure failures that are relevant to statutory damages are unlikely to be hidden defects where discoverability is a
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593. 93
594. 94(1)(aa)(i)(B)
595. 94A
596. 94A(4)
597. 95(2)
Commerce Commission
Commerce Commission
Families Commission
NZ Law Society
Westpac New Zealand
Seems to allow a Court to grant orders under section 93 if a creditor fails to comply with the Responsible Lending Code even though compliance with the code is not mandatory. The reference to the code needs to be removed from this section.
Should refer to a “consumer credit contract” not a “consumer contract”.
Submits that the new section refers throughout to “the lender”. It should refer to “the lender or the lender’s agent” as in other sections of the Act. Submits that it would be useful to clarify that it is not the intent of this provision to allow an inferior court to vary or discharge a judgment from a superior court. Further, there needs to be clarity on whether courts of equal standing should be able to vary judgments.
Same submission as 41 and 90(3). In terms of
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
difficult issue. Agree. It is not intended for the Code to be binding. The Code is intended to provide guidance and evidence of compliance with the principles. Recommendation: Remove the reference to the Responsible Lending Code from section 93(aa). Agree. Should also refer to buy-back transactions for completeness. Recommendation: Amend section 94(1) to refer to consumer credit contract or buyback transaction as appropriate. Agree. Recommendation: Include reference to the creditor’s agent in section 94A(1). Noted. What is intended is to provide a form of set-off against a debt or residual debt if there is an order for damages for breach of a repossession obligation. It should not matter if the debt recovery order is form a superior court – the lesser court is just providing for the judgement to be satisfied (probably partially) because of the breach. Recommendation: Amend section 94A(4) to focus on satisfying judgements by way of set-off, rather than discharging or varying judgements. Noted. The current provision in section
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applications for reduction or annulment in respect of unreasonable credit and default fee, see the comments on s41. In terms of other applications, see the submissions in respect of s90(3). In terms of a long-stop provision if the new limitation period is introduced, the following new s95(2A) should be added: "(2A) Despite subsection 2, no application for an order under s93 may be made after the expiry of seven years from the date of the act or omission on which the application is based".
598. 99
Commerce Commission
Should be amended to make it clear that fees that accrued during the period of non-disclosure cannot be charged after disclosure is made.
95(2) is ambiguous because it refers to 3 years from the time when the matter giving rise to the application occurred, This has been taken as referring to when an agreement was entered into, even though the borrower was unaware that they will attempt to enforce their rights at a later time. The recommendation in the submission would retain this starting point. The reference in the Bill to discoverability, and reasonable discoverability, is conventional for a limitation period. Disagree. This is a difficult issue. Statutory damages apply in similar circumstances (i.e. disclosure breaches), and the amount of interest and fees that may be recovered as statutory damages is capped. Statutory damages and the prohibition on enforcement under section 99 need to sit together. Statutory damages are punitive damages, and section 99 deals with ‘enforcement’ in relation to court action and the enforcement of securities. If ‘remedial’ disclosure was not possible and past interest and fees were never recoverable, then lenders could not recover establishment fees, or other fees and interest, beyond the scope of the statutory damages. This would be inconsistent with the statutory damages cap, and the better way to deal with the
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599. 99
Buddle Findlay
600. 99B(1B)
Commerce Commission
601. 99B(4)
602. 101
603. 101 604. 102 605. 102 606. 102
607. 103
Financial Services Federation
Financial Services Federation Commerce Commission Financial Services Federation Commerce Commission Commerce Commission
Commerce Commission
situation is to increase the amount of the statutory damages cap (as recommended above). Queries the need for these additions as paragraph (a) Noted. Existing sections 99(1)((b) and (c) of the current section presently prohibits enforcement are also arguably redundant given the of the contract. prohibition on enforcement, but the approach in section 99 is to be expansive on the prohibition on enforcement. Should say “payable to a third party”. Agree. The heading of section 45 (on third party fees) refers to fees “passed on”, but the body of the section says “payable”.
Submits that the lender’s dispute resolution scheme should be added to the notice requirements. For further details, see FSF’s submission on 83N.
Recommends that the term “the costs of the lease” be defined. “costs of the lease” has not been defined. Recommends that the term “the costs of the buy-back transaction” be defined. “costs of the buy-back transaction” is not defined. Refers to “money due under the lease”. It should refer to “money due under the buy-back transaction.
The current level of penalties is not sufficient to promote compliance. Concerned that some creditors consider breaches of the Act to be a cost of business
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Recommendation: Amend section 99B(1B) accordingly. Agree. Good idea. Recommendation: Add the mane and contact details of the disputes resolution scheme that the creditor is a member of in section 99B(4). Agree. Recommendation: Refer to PCO for advice on drafting points.
Agree. Recommendation: Ask PCO to amend accordingly. Agree. Recommendation: Align penalties for
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608. 103(1A)
609. 105
Commerce Commission
Westpac New Zealand
610. 105
BNZ
611. 105
Buddle Findlay
and some creditors come to attention more than once in relation to breaches of the Act. Recommend bringing the penalties in line with other NZ and Australian consumer protection statutes. For example, penalties under the FTA are set to increase under the CLRB to a maximum of $200,000 for an individual and $600,000 for a company compared with $30,000 under the CCCFA. The offence of obstructing a creditor lawfully repossessing goods should be removed. This provision is at odds with the overarching consumer protection purpose of the Act. Commission staff are not trained to deal with situations involving obstruction or disturbance of the peace. Consider that if such an offence is retained that it would be best enforced by the Police. Same submission as 41 and 90(3). See submissions in respect of s 90(3). In terms of a long-stop provision if the new limitation period is introduced, the following new s105A should be added: "(105A) Despite s105, no proceedings under s103 may be commenced after the expiry of seven years from the date of the act or omission on which the proceedings are based".
Supports this as appropriate because it is in line with the Fair Trading Act and the Limitation Act. Submits that the reference to section 14 of the Summary Proceedings Act 1957 is in the current section. However this reference is redundant as the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
CCCFA offences in section 103 with new penalties for offences in the Fair Trading Act (i.e. $200,000 for an individual and $600,000 for a company).
Agree. The offence is currently included in the Credit (Repossession) Act, but does not necessarily need to be incorporated in the CCCFA. Note the Law Commission did not recommend current section 19 of the Credit (Repossession) Act be repealed. Recommendation: Remove section 103(1A) from the Bill. Noted. The Bill deals with the limitation period running from the time the contravention was discovered or ought reasonably to have been discovered. Section 105 related to offences, but is otherwise similar to section 95 which relates to civil remedies. Offences under the CCCFA are unlikely to be hidden, but they may only become apparent when a creditor exercises a latent power under a consumer credit contract. Agree. Agree. The correct reference is to section 25 of the Criminal Procedure Act 2011.
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section was repealed, with effect from 1 July 2013, by the Summary Proceedings Amendment Act (No 2) 2011.
612. 108
Brent Hollows
613. 108
Commerce Commission
Queries the alteration of the language as to when the period runs from. As the late knowledge date gives rise to a period of three years in which proceedings can be commenced, we wonder whether it would be clearer to incorporate the same approach as the Limitation Act. Submits that the penalties on lenders for “getting it wrong” for even an honest mistake are too harsh.
We are not clear about what is likely to be “minor misconduct” in this section. In particular what would be minor misconduct that resulted in a buy-back transaction being reopened? We are also not clear what is meant by a conviction under the Act “involving dishonesty” given that most of the Act offence provisions are strict liability.
The amended section 105 effectively incorporates a “late knowledge date” which is similar to the approach in the Limitation Act. However the Limitation Act only applies to civil proceedings, so it is not directly applicable to section 105 offences. Recommendation: Amend section 105 to refer to section 25 of the Criminal Procedure Act 2011. Disagree. The elements in section 108 include the creditor “getting it wrong” and the Court being persuaded that the creditor is not a fit and proper person. A creditor which makes an honest mistake is unlikely to be held to not be a fit and proper person because of that mistake. Agree. A better alternative is the test in section 107 of the Sentencing Act 2002 (i.e. the direct or indirect consequences of an order would be out of all proportion to the gravity of the offence”). Recommendation: Amend section 108(1A) to refer to a test similar to section 107 of the Sentencing Act 2002. Agree the reference to dishonesty is incorrect. Recommendation: Amend section 108(1A)(a)(ii) to refer to offences against this Act or a crime involving dishonesty.
614. 108
Franklin Family Support
Submits that the contents of this section be widely
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Noted. Comments are correct. 174
Trust, NZ Federation of Business and Professional Women
disseminated to third tier lenders, mobile truck owners and to door to door salesmen of consumer goods on credit. Such lenders must be aware of their need to comply with the principles if they are to stay in business.
615. 108(1)(a)(v) 616. 111
Consumer NZ Consumer NZ
Implementation of orders from a District Court following breaches of the principles needs to be well implemented and adequate resources must be in place if consumers are to be protected. Supports this subsection. Strongly supports the Commerce Commission being given responsibility to monitor the conduct of creditors and creditors’ agents under the repossession provisions of the Act.
Noted. Noted.
Oppression 617. Oppression
Elizabeth Lambert
Submits that oppression is focused on the state of mind of the consumer at the time of the signing of the contract. Consumers do not consider the contract onerous at the time and usually believe that they are able to make payments. Recommends that this provision allow the consumer to renegotiate the contract and prevent the ultimate sanction of the creditor which is to repossess goods.
618. Oppression
Families Commission
Supports that oppressive behaviour will be more effectively regulated.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The expanded guidelines in the Bill set out a number of factors that the court must have regard to when reopening a credit contract. This focuses on the circumstances surrounding the contract rather than the borrower’s state of mind. Amended disclosure requirements in the Bill will assist borrowers in assessing whether they can afford payments. The responsible lending principles also provide that a lender must be satisfied payments can be made without the borrower suffering substantial hardship. Noted.
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Submits there has been insufficient enforcement of oppressive behaviour in the past and relying on borrowers to take action is unlikely to be effective.
619. Oppression
Carol Fagan
620. Oppression
Community Legal Advice Whangarei
621. Oppression
Community Legal Advice Whangarei FSCL
622. Oppression
Submits research which states that most borrowers will feel powerless to take action against lenders. In the current process, provision to apply for relief in unforeseen hardship and allowing the Courts to reopen oppressive credit contracts have not provided the desired level of protection for consumers. Again the technicalities of UCC law allow the support of legalese to fall on the side of the lenders. It would be helpful if “unjust” were incorporated into the Act as it is easier for consumers to understand.
Most consumers do not have the ability or funds to appeal to the Court for relief. Recommends that approved dispute resolution schemes are recognised in these sections. Borrowers will not have ready access to justice as the cost of challenging a loan to a Court outweighs the benefit. Allowing consumers access to a dispute resolution scheme means access to free independent and fair investigation.
623. Oppression
Save My Bacon
Recommends that the standard that must be reached before a contract can be reopened on the grounds of “oppression” or as “unjust” needs to be high,
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Oppression is (and remains) a self-help remedy, so it has not been a provision readily enforceable by the regulator. The Bill should improve this situation because the test is being clarified, and the responsibility not to be oppressive is being added as a lender responsibility.
Disagree. “Unjust” may be plainer English, however it is does not have a wide ranging definition. The definition of “oppressive” together with the amendments to s 124 give the Courts scope to evaluate particular situations. Noted. Dispute resolution schemes are an alternative forum that is more accessible to borrowers. They have jurisdiction in respect of creditors’ statutory obligations, and one of the effects of responsible lending is to make a duty not to be oppressive a new statutory duty. Note that dispute resolution schemes are not courts, and the reopening remedy for oppressive credit contracts will not be available to them. They do however have other remedies. Disagree. The existing threshold under section 124 has been set too high.
176
624. Oppression
Save My Bacon
625. Oppression
BNZ
626. 119
FSCL
627. 124
ANZ
628. 124
ANZ
629. 124
Westpac
630. 124(1)(g)
ANZ
otherwise these provisions have the potential to create considerable uncertainty for lenders. Recommends that the Government also consider “safe harbour” style legislation to protect lenders that have acted in a transparent and reasonable manner and where borrowers have willingly entered into arrangements on an informed basis. The more certainty that can be provided in this regard the better. Sees a strong policy ground for compliance with the code to mean either: 1. Be a safe harbour for creditors, or 2. Presumption in favour of the creditor that if complied with Code, did not act oppressively. Supports this section to avoid doubt that another “contract or arrangement” includes a guarantee. Does not support the extended guidelines to reopen a credit contract and recommends keeping the existing CCCFA provisions. Alternatively, only include section 124(1)(b) so that the Court must have regard to whether the lender has complied with the principles. Submits that the guidelines should only apply to consumer credit contracts. If additional guidelines are required, they should specifically be restricted to consumer credit contracts, and should be limited to new s124(b), which allows the Court to have regard to whether the lender has complied with the lender responsibility principles. Particularly concerned with s 124(1)(g) where the Court has regard to comparable agreements. Benchmarking is impractical in the banking sector are contracts are custom-made.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. Compliance with responsible lending principles will be a relevant consideration in determining whether oppression has occurred. However compliance with the principles cannot be a presumption against oppression as there are other relevant factors in the guidelines that must be taken into account.
Noted. See amendment to section 119(4). Noted. The test (including the underlying definition of “oppressive”) has not been fundamentally altered. For the most part, the guidelines are a restatement of existing case law and legislation. The intention of the amendments is to lower the bar on existing tests. Disagree. Oppression is currently a remedy that is available to SMEs and other nonconsumer debtors who are not party to consumer credit contracts. The intention of the Bill is to improve the protection available to all parties currently protected by the oppression remedy. This ground is pro-competitive. The current definition of “oppressive” includes reference to reasonable standards of commercial practice. The costs and terms
177
631. 124(1)(g)
Westpac
The proposed guidelines include consideration of the amount payable by the debtor and the costs of borrowing under comparable agreements. This is contrary to the position taken by the Ministry of Consumer Affairs that it will not seek to impose caps on interest rates. It is burdensome and unworkable to expect a creditor to maintain a detailed knowledge of the terms of other lenders and whether those terms might be regarded as more or less onerous than its own.
632. 124
633. 124
Jonathan Flaws
FSCL
Recommends including a provision stating “Whether, having been provided by the lender with information under section 9B(3)(b)(iv), the borrower has read that information and confirmed comprehension of that information.” This will indicate that the borrower has a degree of self- responsibility in entering into a loan agreement. This may encourage responsible lenders to be more proactive in ensuring that their borrower’s do more than just receive the information provided and will encourage borrowers to review and understand information to avoid it counting against them when claiming an oppressive contract. Recommends that the Guidelines should also apply to guarantors as indebted persons.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
of borrowing from other creditors in the market are relevant to this assessment. The “comparable” ground is similar to the “comparable transactions” ground in the equivalent provision of the Australian National Consumer Credit Protection Act (section 76(2)(a) of the Credit Code). Consider that it is better to refer to "the terms of arrangements under which the debtor, lessee, or occupier could have obtained the same or substantially similar credit or finance from a person other than the creditor, lessor, or transferee ..." Recommendation: Amend reference to “comparable” arrangements to refer to the same or substantially similar credit. Disagree. The amendments intend to lower the threshold for oppression to provide further protection to the borrower. The obligations of the CCCFA are aimed at imposing obligations on lenders, not borrowers. Section 9B(4) of the responsible lending principles tempers the obligations on lenders by enabling lenders to rely on information provided by borrowers.
Agree. Section 119(4) is being added by the Bill, and it says a guarantee is “another 178
contract or arrangement” which is treated as being part of the relevant credit contract. Note “indebted person” is a concept which doesn’t fit with leases or buy-backs, and the section 124 guidelines should apply to these transactions as well as credit.
634. 124
Woodhouse Law
635. 124
Banking Ombudsman, Consumer NZ
636. 124
Westpac New Zealand
Supports amendments to s 124 but the Bill does not go far enough. The courts seem loathe to using the reopening provisions. Recommends that the Bill give courts a directive to re-open credit contracts, not just consumer credit contracts, where there are unjustifiably high fees, interest rates (including penalty/default rates) and/or other unfair conduct by lenders. Supports expanded guidelines. This will make the law more assessable and assist dispute resolution schemes in assessing complaints. The amendments to s124 should not be made: (a) No issues have arisen with s124. A consistent body of law has been developed which sets out what constitutes oppression in this context. These standards already adequately address concerns regarding the practice of "unscrupulous lenders". Further prescription is unnecessary. (b) S 124 applies to all credit contracts, yet many of the proposed guidelines should properly apply in relation to consumer credit contracts, consumer leases and buy-back transactions. The Australian National Credit Code only applies to consumer credit or credit provided for certain investments in
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 124 to ensure that it covers debtors, lessees and occupiers. Noted. The intention of the amendments is to lower the bar on existing tests and make this remedy more accessible to borrowers. The reopening of contracts is a discretionary power held by the court and is exercised based on the particular circumstances surrounding the contract. Noted.
Disagree. The current law has been generally been ineffective in protecting consumers and other borrowers. The new guidelines will be more transparent than existing case law, which will improve accessibility for affected borrowers. The courts are directed to only have regard to guidelines to the extent applicable in the particular circumstances. Guidelines referring to responsible lending principles will only apply to consumer credit contracts. 179
residential property. The only additional guideline that is necessary is whether the creditor has complied with the lender responsibility principles ((1)(b)). Including guidelines that go beyond the lender responsibility principles risks effectively imposing additional obligations on creditors. Obligations of this type should be carefully considered and, if appropriate to be imposed, should be incorporated as direct positive statutory obligations. Further, many of these matters are beyond the creditor's control (such as the relative bargaining power of the parties, the characteristics of the borrower or his or her representative, whether or not the borrower has chosen to obtain legal advice and pressure or influence applied to the borrower by a third party). Such guidelines will place an unfair burden on all creditors.
637. 124
Brent Hollows
Submits that statutory damages should be in line with the expanded list of what may be considered oppression. (c) Submits that the oppression bar has been lowered without a corresponding lowering of the oppression penalty. This is oppressive to lenders.
638. 124
BNZ
Concerned that lowering the threshold of “oppressive” is likely to lead to an increased number of unsubstantiated complaints.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Responsible lending principles will only apply to consumer credit contracts. The guidelines in section 124 are more detailed than the responsible lending principles, although there are overlaps between the principles and the guidelines. Factors such as relative bargaining power and obtaining legal advice are relevant factors in existing case law. They are also found in the equivalent provision of the Australian National Consumer Credit Protection Act (section 76 of the Credit Code). The enhanced oppression test is incorporated as a direct statutory obligation through section 9B(3)(f). Responsible lenders will be expected to have regard to debtors’ characteristics and understand their customer’s personal circumstances. Disagree. The problem with the existing test is that the bar has been set too high. Statutory damages are capped (section 88 CCCFA). The remedy for oppression is reopening the credit contract. Statutory damages are unlikely to be an adequate remedy in cases of oppression. Disagree. If complaints are unsubstantiated then the lender will win (as they usually do now). The 180
Recommends further policy examination is required in respect of the new section 124(1)(e) and the wording: “whether, before entering into the agreement, the borrower obtained legal or other professional advice in relation to that arrangement”. This provision could potentially encourage consumers not to seek legal advice in order to assist a possible future claim of oppressiveness. Further, this clause may be interpreted as imposing a positive obligation on creditors to always advise consumers they should seek legal advice.
inconvenience of borrowers exercising their rights is not a reason to withhold those rights. Whether a borrower obtains legal or other professional advice is a relevant factor in existing case law. This reference does not materially alter the assessment that already takes place and doesn’t place a positive statutory obligation on creditors to advise borrowers to obtain legal advice. It would be perverse for a borrower to position him or herself to make an oppression claim when they enter into a loan.
639. 124
NZ Law Society
Recommends that the Bill should make it clear that a borrower’s first port of call for a complaint as to whether an agreement is oppressive should be made under the Financial Service Providers (Registration and Dispute Resolution) Act – as long as the dispute is The decision of where to pursue a claim under the scheme’s financial limit for disputes. should be left to the borrower. Amendments to disclosure requirements will raise borrower awareness of Dispute Resolution Schemes being an available option. Note that Dispute Resolution Schemes are not courts, and the reopening remedy for oppressive credit contracts will not be available to them. They do however have other remedies. Concerned that the amendments will apply to all Disagree. The issue of coverage of the business-to-business credit contracts despite the oppression remedy has been carefully Guidelines being more focussed on a “reasonable considered. Section 124 does not currently consumer”. There is the potential for the extended distinguish between consumer and nonGuidelines to cause significant disruption to the consumer credit contracts, and the commercial finance market, particularly in the SME decision has been taken that it would be market. counter-productive to introduce this distinction.
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181
640. 124
Gayatri Jaduram
641. 124(1)(e)
NZ Law Society
642. 124(1)(j)
Buddle Findlay
The Ministry of Consumer Affairs has considered the potential for the Guidelines to apply only to consumer credit contracts. However, it was concerned that the distinction would further complicate the area and change the basis of the oppression remedy. The Law Society considers that the distinction is workable and is justified. It could be achieved by limiting the Guidelines to consumer credit contracts. Recommends separate guidelines for consumer credit contracts and other credit contracts. Recommends that the word “independent” be inserted before the words “legal or other professional advice”. Questions whether the intention of section 124(1)(j) is to create a lower threshold than the lending responsibilities in section 9B(3) such that compliance with the responsibilities will ensure at least this element of section 124 is met. The nature of the language used in section 124(1)(j) is imposing a much more basic requirement on the presentation of the information. Submits that the clause is very similar to the amended definition for transparent under the Consumer Law Reform Bill. However section 124(1)(j) does not have the qualifier of "reasonably" in relation to plain language. We also note the similarity of section 124(1)(j) to the requirements of section 32(1)(c) (an existing, unamended paragraph). Submits there needs to be greater clarity on this.
The amendment will improve protection for SMEs and other non-consumer debtors which would not have been provided if a differential test had been introduced.
Agree. Recommendation: Amend section 124(1)(e) accordingly. Noted. Agree that the wording of section 9B(3) should be matched in section 124(1)(j). It would be an anomaly if the oppression standard was lower than the responsible lending standard. This is not the intention. Recommendation: Amend section 124(1)(j) to make the legibility etc. requirements consistent with the relevant lender responsibilities in section 9B(3).
Regulation Making Powers 643. 138
ANZ
Recommends removing the requirement that the Regulations prescribe the form and content of
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The amendment to section 138 provides a mechanism for prescribing the 182
disclosure statements. The CCCFA should allow creditors to have flexibility provided that minimum information is disclosed as set out in Schedule 1.
644. 138 645. 138(1)(d)
646. 138 Voluntary targeted rates schemes
Westpac New Zealand ANZ
Greater Wellington Regional Council
Alternatively, supports a new section 138(1A) which allows for regulations to prescribe different requirements for different types or classes of disclosure, lender or transaction. See comments in relation to clause 22 (s 32). Recommend that this section is expanded to prescribe any class of change for which disclosure under sections 22 to 26 is not required.
Requests under section 138(1) that the Governor General by Order in Council, amends the compliance requirements for councils that operate “opt in” or “voluntary” targeted rate schemes Requests a regulation reducing the compliance requirements to annual statements for councils Requests a regulation to enable council rating processes for opt-in or voluntary targeted rates remain in compliance with the CCCFA. Requests a regulation exempting councils from hardship provisions. Requests a regulation that councils are exempted from the requirement to join a dispute resolution scheme. The FSP requirement is unnecessary for the
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
form and content of disclosure forms over and above those required at present. The existing flexibility in relation to disclosure of the key information in Schedule 1 is being retained. See recommendation in relation to section 32 above. Noted. Disagree. The particular regulation making power is only intended in relation to section 23(5). Recommendation: amend the empowering provision in 138(1)(d) to reflect the intention that it is only in relation to a change of class under 23(5). Noted. The regulation-making power in section 138 is being amended to better facilitate an exemption for local authorities providing voluntary targeted rates schemes from impractical disclosure requirements (section 138(1)(ab)). Local government bodies providing voluntary targeted rate schemes will still be creditors under the CCCFA, and it remains appropriate that borrowers under such schemes should have access to dispute resolution services, the same as borrowers from any other creditor. Local authorities will still be required to join dispute resolution schemes. Note that the exemption power in section 183
council sector as ratepayers are well versed in the process of setting and collecting rates.
138(1)(ab) would apply generally, subject to terms and conditions. It would be better practice if the exemption was from any specific provision or provisions under the Act, so more targeted regulations are contemplated. Recommendation: Amend section 138(1)(ab) to refer to any provision or provisions of the Act.
Schedule 1 647. Schedule 1
Westpac New Zealand
648. Schedule 1
FSCL, Consumer NZ
649. Schedule 1
Brent Hollows
(q)(iii) requires the lender to disclose whether, if the creditor's rights under the security were to be exercised, the debtor will remain indebted to the creditor. This requires the value of any collateral to be assessed (which may impose additional costs to ensure the valuation is accurate at the time the disclosure is given). Nevertheless, the valuation may not remain accurate, particularly for personal property items that devalue rapidly such as cars. The disclosure statement may give a misleading impression that selling the collateral will be sufficient to discharge the debt. This requirement should be removed. Strongly supports the amendment to disclose to a borrower the name and contact details of the dispute resolution scheme of which a creditor is a member. Submits that the “standard right to cancel form” should not be removed. This was a useful form which should have been amended from 3 days to 5 days.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Noted. The intention is to require creditors to disclose whether the debtor will be liable for any shortfall after the creditor exercises its rights under the security. It is not intended that the creditor should be required to disclose the estimated value of the secured property. Recommendation: Amend paragraph (q)(iii) to make it clear that it is referring to any potential shortfall after the creditor’s rights are exercised. Noted.
Disagree. It is necessary to prioritise the information disclosed to borrowers. Given the general understanding that borrowers very rarely exercise their cancellation right during the cooling off period, other information (such as information about dispute resolution) is considered more 184
650. Schedule 1
East Auckland Home and Budget Service, CBNZ Inc
651. Schedule 1
ANZ
We recommend that there is a requirement for the borrower to be provided with plain language disclosure about Dispute Resolution Schemes and how to access the scheme. This should be provided in the native language of the borrower. Alternatively, this should be provided for in the Code. Recommends simplifying the disclosure of information about the security to be taken under a credit contract. Recommends amending disclosure to require only the right to sell a particular asset, rather than disclosing all rights a creditor will have under that security agreement.
652. Schedule 1 (q)(iv)
653. Existing schedules 1, 2 and 3 and existing schedule 2 of the Credit Contracts and Consumer Finance
Financial Services Federation
Commerce Commission
As an alternative, permit disclosure to be met by a lender requiring the security provider obtain legal advice about the nature and extent of obligations under the security agreement. Recommends that this paragraph be clarified. Is the paragraph “what the consequences would be if the debtor were to give a security interest...” intended to mean: “what the consequences would be if the debtor were to give a security interest to a third party over the same goods...”? Disclosure statements should be revised. The current disclosure requirements are not effective in providing more vulnerable consumers with easy access to key information about their loans. Recommends that the model disclosure statements in the CCCF Regs should be revised and made easier to read.
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
important. Noted. The Bill will require lenders to include information about dispute resolution services in their initial disclosure documents and hardship notices.
Agree. The key consequences intended to be covered by paragraph (q)(iv) are those that could apply if the debtor breaches the contract. The wording of the paragraph could be tightened. Recommendation: Amend paragraph (q)(iv) so it only refers to the consequences if the debtor breaches the contract.
Noted. The consequences are intended to relate to the potential breach of any security given by the debtor to the creditor – not to a third party. See recommendation above.
Noted. The CCCFA Regulations will need to be amended to take into account changes in the Bill. Additional mandatory disclosure forms with key information targeted for more vulnerable consumers will be able to be developed under the provisions
185
Regulations (2004)
introduced by the Bill.
PART 2 – Amendments to Financial Service Providers (Registration and Dispute Resolution) Act 2008 654. General
Jonathan Flaws
Recommends amending the FAA to require that a registered Financial Advisor may not provide advice on a consumer credit contract under the definition of a category 2 product, unless that Adviser is a member of an approved credit industry body that requires ongoing annual professional development.
655. General
Financial Services Federation
Generally supports this part of the Bill. Particularly, the proposals to give the FMA wider powers in respect of offshore financiers seeking registration in New Zealand under the FSP (Registration and Dispute Resolution) Act and s 14, to the effect that offshore offences should disqualify a party from registration in New Zealand if they are comparable to New Zealand offences that already disqualify a person from registration.
656. General
FSCL
657. General
Families Commission
Supports the changes to registration and dispute resolution schemes and no longer requiring the Minister to maintain a reserve scheme. Submits that dispute resolution schemes are not fully integrated into a coherent approach to enforcement. The scheme does not apply to repossession agents. Notes that a complaint must be made to the lender before complaining to a dispute resolution scheme. Submits that vulnerable borrowers are often unable to do this without support. Recommend that dispute resolution schemes are given authority to report lenders to the Commerce
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The FSP Act requires financial service providers to be registered, and to be members of dispute resolution schemes. Requiring them to be members of an approved credit industry body would be an additional intervention which has not been consulted on. Agree.
Agree.
Noted. Debtors can take a claim to the Disputes Tribunal against a repossession agent. Repossession agents will be required to be licensed under the Private Security Personnel and Private Investigators Act. The Commerce Commission will also have authority to monitor the conduct of creditors and their repossession agents. Requiring complaints to be made to 186
Commission when they persistently or seriously breach lending rules.
lenders in the first instance is a dispute resolution scheme rule. Borrowers need to approach the lender first about their issues to give the borrower a chance of reply. Agree that schemes should be required to report consumer credit complaints to the Commerce Commission.
658. General
659. 2A
NZ Law Society
Westpac New Zealand
Concerned that the FMA’s powers to decline registration and to deregister a financial services provider are broader than is necessary. The FMA is given a very broad-reaching power that could be exercised in many different scenarios. Recommends that, on the basis of the current Regulatory Impact Statement, the powers should be amended so that the FMA can only decline registration or deregister a financial services provider if the FMA is not satisfied on reasonable grounds that the financial services provider: a. provides or intends to provide financial services to any person in New Zealand; or b. provides or intends to provide financial services to any person from a place of business in New Zealand. However, a better approach would be to seek further advice from officials as to whether there is justification for a broader power. The purposes suggest that the FSPA does more than it actually does. For example, it is unclear how far
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Recommendation: Amend section 67 of the FSP Act to require dispute resolution schemes to report a series of material consumer credit complaints to the Commerce Commission. Noted. Agree that the FMA’s powers should be anchored in the policy objectives of the relevant part of the Bill, rather than being open-ended. Recommendation: Ask PCO to add a new purpose provision for the new powers being added in sections 15A and 18A, referring to the policy objectives of preventing registration of FSPs that have (or is likely to have) the effect of creating a false or misleading appearance about where financial services will be provided from, or damaging the integrity or reputation of New Zealand financial markets, law or regulatory arrangements. The new purpose clause should then qualify the exercise of the powers under sections 15A and 18A. Disagree. The purpose relates to the intended effect of the FSP Act and the 187
660. 4
Commerce Commission
661. 11
Franklin Family Support Trust, NZ Federation of Business and Professional Women
662. 11
Community Law Centre Whangarei
completing the registration process and joining a dispute resolution scheme go to achieving the stated purposes (for example, promoting informed participation in financial markets or promoting efficient financial markets). The purposes should be rephrased to be more relevant to what the FSPA does. The definition of “creditor” in the FSP Act should be the same as the definition of “creditor” in the CCCF Act. All persons who provide credit under a credit contract are required to be registered. There appears to be a loophole which allows some creditors to avoid registration where they have had their loan books assigned to them. Recommend that the Committee take this opportunity to address any inconsistency in the application of the Acts to avoid any confusion. Recommend that this clause cover companies which buy old debt from closed finance companies and pursue consumers for recovery. Such companies state they do not need to belong to a dispute resolution service as they are not currently in the business of extending credit. Debt collectors should be required to belong to a dispute resolution scheme.
dispute resolution scheme facilities.
Agree. All creditors under consumer credit contracts in the CCCFA should be covered by FSP Act dispute resolution. The Bill improves this coverage, but there are two gaps: 1. The definition of creditor in the CCCFA includes persons who may provide credit, and transferees and assignees; and 2. The Bill does not address the exclusion of creditors which do not charge interest but may charge credit fees under the definition of “credit contract”. Payday lenders could readily take advantage of this exclusion, because they tend to charge fees rather than interest. Recommendation: Request PCO to ensure the consumer credit covered by the FSP Act matches the definition of creditor in the CCCFA (i.e. may provide credit, and including transferees and assignees), and that credit contracts where credit fees but no interest are charged are not excluded under the FSP Act. [Note that assignees under securitisation arrangements will need to be exempted under regulations on the same basis as for
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188
663. 11
National Council of Women in New Zealand
664. 11
DRSL
665. 15A
NZ Law Society
666. 23
NZ Law Society
667. 27
Westpac New Zealand
Supports the licensing of financial service providers and the improved oversight by the courts of dispute resolution. Suggests that specific consideration be given to providing for situations where finance providers have been placed in receivership or liquidation. Dispute resolution providers and consumers will be unsure about who or how to deal with complaints that arose with scheme members whilst they were members, when the” member” has since gone into receivership or liquidation. Recommends this section should clarify that the Registrar must proceed with an application if the FMA chooses not to consider an application, or considers an application but does not choose to exercise its powers. Further, section 15A should stipulate timeframes within which the FMA must decide whether to consider an application, and if it considers an application, how long that process should take. To date, the power in section 23 of the FSPA to declare responsible financial service providers has not been exercised. This reflects the fact that there is industry confusion as to what the power would enable a business to do if it were to be recognised in this way. There has been no guidance from the FMA or Registrar as to its use. It would be useful to have a clarification of this power. If the Registrar exercised this power under (2), it can cause significant reputational damage to the affected
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
the transfer disclosure requirements under section 26A of the Bill. The FSP Act already has a regulation-making power in section 44.] Agree.
Noted. However the FSP Act is not the place to override general insolvency law.
Noted. Amendments to section 15A based on the Law Society submission are already being recommended (see General above). Additional stipulations would add unnecessary detail.
Noted. Consider this section is unnecessary. Recommendation: Repeal section 23.
Disagree. This is consistent with the powers of the Registrar of Companies under the
189
registered person when, at that time, the registered person has not been found to have breached the FSPA or be deregistrable. Alternatively, if over-used, it may dilute the effect of a warning where there have been clear breaches of financial laws and consumers should properly be warned against dealing with that person. In those circumstances, the FMA currently addresses this risk by publishing warnings. This power should either be removed or the provision amended to provide some limitations or guidelines on its use. Recommends this section should be updated to deal with the circumstances in which a warning needs to be inserted or removed.
668. 29
NZ Law Society
669. 31
NZ Law Society
Recommends this be amended to permit the register to be searched for warnings.
670. 34(4)
Commerce Commission
The Registrar should be able to share information with the Commerce Commission. There may well be circumstance where the Registrar has information about a FSP that is relevant to a Commission investigation. Currently the Commission would only be able to obtain that information by issuing a notice under section 98 of the Commerce Act, and then only if it knows that the Registrar has information that may be relevant to the Commission. Suggests the Registrar and/or FMA pay special
671. 49F & 49G
DRSL
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Companies and Limited Partnerships Act.
Disagree. The policy for warning notices is that the Registrar may insert a note if he or she thinks it is appropriate (section 27(2)). The Registrar is likely to insert a note in significant cases.
Noted. We do not consider this search functionality to be necessary at this time, and note that this search criterion could be added through regulations at a later point if necessary. Agree. Recommendation: Amend section 34(4) to enable Registrar and dispute resolution schemes to share information with the Commerce Commission.
Noted. An additional purpose clause and
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672. 49F & 49G
DRSL
attention to foreign originated applicants’ bona fides when they are applying to become a FSP or perhaps putting up a bond with FMA. DRSL is obliged to consider complaints that arose with scheme members after these members have subsequently voluntarily terminated membership, de registered from the Registrar and/or wound up/liquidated, or have been struck off the New Zealand Companies Register.
amendments to section 15A and 18A to clarify the scope of the FMA’s powers are already recommended. Noted. However the FSP Act is not the place to override general insolvency law.
Whilst some company wind ups are bona fide and directors acknowledge and will meet on-going liability, some terminations, de registrations and wind ups will be to avoid creditors, including claims by their customers with FDR decisions.
673. 52
674. 61
Westpac New Zealand
Westpac New Zealand
A dispute resolution scheme can apply to the District Court for orders, however, there is little that can be done to enforce or order foreign owned organisations (da) should either be removed or amended to clarify its intent or a comment included in the Committee's report that the provision is not intended to discourage tailored dispute resolution schemes. It is understood that the requirement under (da) is not intended to discourage schemes that are tailored to particular types of financial service provider. The language is unclear on the point. As currently drafted, each member of the scheme is also responsible for the other members' compliance with the provision. This is not correct and cannot have been intended.
Disagree. It is intended that the necessity of having at least one scheme that covers all types of providers should be a consideration when approving a scheme. The provision allows for tailored schemes to be approved, provided that there are other approved schemes that cover all types of financial service providers. Noted. The confusion arises from the use of “members’.” This does not seem to be a very likely reading of section 61, but the Bill can easily be amended to remove any ambiguity. Recommendation: Ask PCO to ensure that
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191
675. 63(g)
Consumer NZ
676. 64
Commerce Commission
677. 76(c) (not covered
DRSL
Recommends that this section stipulate that dispute resolution schemes hear complaints relating to breaches of the responsible lending principles and unreasonable lenders’ fees.
Dispute Resolution Schemes should be required to report to the Commission if they receive a series of material complaints against a credit provider. Under section 64, DRSs are required to report to licencing authorities if they receive a series of material complaints about a particular licenced provider. The only licencing authorities are the FMA and the RBNZ. As the body charged with enforcing the CCCFA, material complaints about a particular creditor should be required to be reported to the Commission. This will add to the Commission’s ability to fulfil its functions under s111 of the Act and will assist it in monitoring trade practices in credit markets. Recommends that the Commerce Commission should
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
each scheme member is only responsible for its own compliance under section 61(b). While we agree that the schemes should hear these types of complaints, we now consider that it would be better for the Credit Contracts and Financial Services Act to explicitly acknowledge that they can have jurisdiction, rather than requiring coverage of specific types of complaints in this Act. A regulation-making power under this section would provide a more flexible method of ensuring that all of the schemes adjudicate these types of complaints. The existing section 63(g) needs to be retained. Recommendation: Amend the Bill to remove the changes to section 63(g) of the FSP Act and add a new subsection allowing for additional requirements for, or terms to be implied into, scheme rules by regulations. Agree. Recommendation already made to amend section 67 of the FSP Act to require dispute resolution schemes to report consumer credit complaints to the Commerce Commission.
Noted. Section 76 is being repealed 192
in the Bill)
678. 76(d) (not covered in the Bill) 679. 78
680. 78A
be added specifically as a “relevant licensing authority” as they are the regulator in respect of the CCCFA.
DRSL Franklin Family Support Trust, NZ Federation of Business and Professional Women Securities Industry Association
Dispute resolution providers are restricted in cooperating with the Commerce Commission by this technicality. Change Securities Commission to Financial Markets Authority Recommends that members of those schemes should also be listed on the internet site of the Ministry. Supports this section. Recommends that all of s 78A be repealed. Submits that with the removal of the ‘reserve scheme’ from the legislation, unable to envisage circumstances under which the Ministry will incur costs under the relevant Part of the FSP Act that would warrant or justify this section. Any costs that may incur should be met from general taxation or other funds the government makes available to the Ministry, and not from a levy.
because it applies to the reserve scheme. A requirement for dispute resolution schemes to report consumer credit complaints to the Commerce Commission has been recommended for section 67.
Noted. Section 76 is being repealed because it applies to the reserve scheme. Disagree. They are already listed on the FSP register. Multiple lists will cause confusion.
Noted. We are doing further work on whether the levy making power is still required. Options include removing the levy making power or amending the purposes of the levy.
Schedules 681. Schedules
Nicola Wills
Recommends that the schedules setting out the form of disclosure, pre and post-repossession notices be rewritten in plain English. It would also make sense to enable these forms to be changed by Regulation. Submits that in their current form they are too wordy and legalistic. A much simpler format with perhaps links to a website with more detailed information would be better.
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Agree. The Bill includes a regulation making power for prescribing the particular matters and form of statements that must be used to meet any of the requirements for publication, disclosure, notice or other provision of information. This power would cover disclosure, pre and post-possession notices. 193
682. Schedules
BNZ
Also perhaps a link to a translation of the form into other languages. All of the schedules apply to “consumer credit contracts”; however, some of the provisions in these schedules are relevant to credit contracts covered by Part 3A. For example, where securities are taken over consumer goods. This means the schedules (for example, disclosure requirements under those schedules) will apply to non-consumer contracts that are still caught by Part 3A. There appears to be no rationale for this scope creep and we do not know if this was intentional because it is not mentioned in the Bill’s Explanatory Note.
Agree. Schedule 1 has not been updated to reflect the incorporation of the credit repossession provisions. Recommendation: Amend Schedule 1 and new Schedules 3A and 3B to reflect that they will apply to all credit contracts as applicable.
Schedule 1 - New Schedule 1AA inserted 683. Schedule 1AA
Brent Hollows
Submits that the existing provisions in the CCCFA should continue to apply to existing loans until they are repaid. Existing agreements will be subject to new provisions from when the Bill comes into force. Therefore, lenders will be unable to repossess all security items on existing agreements and new disclosure requirements and duties on lenders are not covered in pricing for existing agreements under the CCCFA.
684. Schedule 1AA 2(2)(f
BNZ
The transition provisions state that it is only to fees “incurred” on or after the commencement date. Our question is whether this means the changes only
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Disagree. The request disclosure and variation disclosure provisions can apply to existing agreements because the disclosure will be in the future. Agree that the Part 3A repossession provisions applying to existing agreements will be a problem, especially the new excluded assets provision and tightening the rules for specifically describing consumer goods subject to security interests. The Part 3A repossession provisions should therefore not apply to existing agreements. Recommendation: Delete clause 2(2)(d) from Schedule 1AA in the Bill. Agree. The new unreasonable fees provisions should only apply to consumer credit contracts entered into after the 194
685. Schedule 1AA 2(2)(f)
ANZ
apply to new fees, or to new and existing fees only charged after the commencement date? Recommends deleting subsection 2(2)(f). Applying fee changes to existing contracts is impractical and would create significant uncertainty to lenders and borrowers.
amendments come into force. Recommendation: Ask PCO to delete clause 2(2)(f).
Schedule 2 - New Schedule 3A and Schedule 3B inserted 686.
Financial Services Federation
This schedule is unnecessary. The FSP submits there should continue to be a prescribed form of repossession warning notice, as there is presently under the Credit (Repossession) Act; It is not desirable for the prescribed form of repossession warning notice to inform defaulting borrowers that repossession cannot proceed if they make a complaint to the lender’s dispute resolution scheme. This schedule features a number of items that seem neither necessary nor in some cases desirable, for example, text requiring defaulting borrowers to be informed that repossession cannot proceed if they make a complaint to the lender’s dispute resolution scheme. That will inevitably result in numerous unsubstantiated complaints being made simply to prevent repossessions, and is also undesirable as it may give less reputable lenders incentives to ignore the repossession warning notice requirement altogether, by following a liberal interpretation of the goods being “at risk”.
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Note. Decision is whether to follow the CCCFA “key information “approach to disclosure, or to provide a prescribed form. A key recommendation of the Law Commission was that borrowers (and lenders) should be provided with checklists for valid repossessions. These schedules are part of that. The current CRA prescribed forms are clearly unsatisfactory. It is important that repossession warning notices should inform borrowers of their rights. The concern that borrowers may seek to enforce their rights if they know about them is not a valid decision criteria. Currently borrowers do not know about their rights. There has previously been no regulator with any responsibility for credit repossession. Under the Bill, the Commerce Commission (and the registrar) will have responsibility in relation to the conduct of creditors and their repossession 195
687. Schedule 3A
Commerce Commission
There should be a requirement that the creditor set out the “period for remedying the default”.
688. Schedule 3B
Commerce Commission
“The creditor’s estimate of the total amount required to be paid to reinstate the agreement” (Schedule 3B) seems to have a similar meaning to “unpaid balance”.
689. Schedule 3B
Commerce Commission
the key information does not include information about: the debtor’s right to require a sale; the debtor’s right to obtain a valuation; the debtor’s right to force a sale if the goods have not been sold within 6 weeks.
690. Schedule 3B(i)
Commerce Commission
This part of the schedule seems to have been copied and pasted from Schedule 3A and does not make sense.
agents. Agree. The timing for remedying is referred to in paragraph (g), but it is not prominent enough. The references to reinstating and settling the agreement/contract are also unhelpful and potentially confusing in a repossession warning notice. Recommendation: Ask PCO to remove irrelevant references from Schedule 3A, and to make the remedy provision more prominent. Disagree. The term comes from the CRA, and as defined it excludes the principal where it has been accelerated. There is a useful distinction. Agree. It would be useful to add these references. Recommendation: Ask PCO to add reference in Schedule 3B to the debtor’s right to require or force a sale and obtain a valuation. Agree. Recommendation: Ask PCO to remove irrelevant references from Schedule 3B.
Schedule 3 - Consequential amendments to, or repeals of, other Acts 691. PPSA section 44
NZ Law Society
Submits that the proposed amendment to section 44 of the PPSA (Schedule 3 of the Bill) means that creditors would lose security over goods and their proceeds where the debtor wrongly sold those goods.
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Disagree. Section 44 currently requires the specific appropriation of after-acquired property where that property is consumer goods. Some creditors use powers of attorney to specifically appropriate after196
Recommends that this amendment should not be made, or if it is made, after-acquired goods which are proceeds of the original secured goods should be specifically excluded from it.
692. PPSA
Janette Walker
acquired consumer goods under their security agreements, notionally on behalf of the borrower.
The amendment in the Bill says the specific appropriation must be made by the debtor personally, and may not be made by the creditor. It has nothing to do with proceeds of sale, which are dealt with under section 45. The Bill proposes to remove the opportunity for Disagree. The amendment to the PPSA is secured creditors to use powers of attorney to extend for a very specific purpose, and is not the coverage of their security over future property a related to the actual exercise of secured borrower may acquire. However, banks have authority creditors’ power of sale. to utilise their various options as stated in the banks Standard Security Terms. Clauses such as those that Note that the unfair contract terms allow banks to “do all things necessary to complete provisions recently added to the FTA will the sale in whole or part” will seek to diminish and apply to creditors’ consumer contracts. contract out of the proposed changes to the PPSA. The Commerce Commission will be able to The Bill should include extra provisions which impose review such contracts, and identify and specific requirements upon lenders to present to a potentially take action in respect of unfair relevant authority all standard mortgage, security contract terms. documents for formal assessment. The Authority would have the capability and mandate to ensure the said documents comply with the purpose of the proposed CCCFA.
Miscellaneous issues 693. Advertising
Commerce Commission
There should be requirements about the advertising of interest rates. Consider that consumers would be protected by a requirement that any advertisement referring to interest rates should also refer to the applicable annual interest rate in the same font size as any other rate advertised.
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Disagree. Advertising which includes a reference to interest rates will be subject to the provisions in the Fair Trading Act regarding misleading and deceptive advertising. Requiring the disclosure of an annual interest rate alongside the advertised rate could be more confusing 197
694. Agency
Commerce Commission
695. Contracting out
Janette Walker
696. Credit related
Commerce Commission
The Bill should make it clear that creditors should be liable for actions of agents. Creditors commonly outsource parts of their lending function and it is unclear what liability attaches to the creditor if the agent breaches the Act. Consider it appropriate to include a section similar to s45 of the FTA which sets out provisions relating to the attribution of knowledge of directors, servants or agents of the company to the company itself.
Concerned that broadening the provisions to allow partial exemptions of credit contracts to apply, will not inhibit banks in particular from introducing within their mortgage documents and security documents clauses allowing the banks to remove debtor rights enshrined in other state legislation. Care needs to be taken that any exemptions will seek to support the major premise of the reform bill to protect vulnerable customers; provide consumer credit law consistent with other financial sector legislation; and elevating consumer protection mitigating the ability for “responsible lenders” from contracting out of enshrined state legislation to the detriment of debtor rights. There should be a separate right of cancellation for
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for borrowers using short-term credit facilities. Noted. The approach of the CCCFA is to focus on the creditor. The responsible lending obligations in the Bill apply to creditors, and brokers have no independent responsible lending obligations. If there are issues with brokers not complying with the lender responsibilities when they arrange consumer credit contracts, the creditors on whose behalf the brokers are acting will be responsible for their agents. The CCCFA already provides for this to be the case. Section 113(b) imports section 90 of the Commerce Act into the CCCFA, and it is the same of section 45 of the FTA. Noted. Section 135 of the CCCFA already prohibits contracting out of the Act, and it will apply to the new provisions being added to the CCCFA by the Bill.
Disagree. The CCCFA provides for rebates 198
insurance
credit related insurance, repayment waivers and extended warranties. Do not consider that the proposed regulation of credit related insurance, repayment waivers and an extended warranty is sufficient. There is currently no right of cancellation or cooling-off period for credit-related insurance or repayment waivers. Recommend that the Act give debtors a right to cancel a credit-related insurance product at any time during the term of a loan and receive a rebate.
697. Credit related insurance
Mangere Budgeting Services Trust
Submits that insurance may be described as fees (e.g. Indemnity Fees). Most borrowers were led to believe that these fees were compulsory and lenders did not disclose that these fees were optional or enquire about whether borrowers had existing relevant insurance cover.
698. Dispute Resolution
Salvation Army
Many people are either not aware these services exist or are reluctant to lodge complaints because of language barriers, different cultural views and approaches to dispute resolution, or a lack of time or resources. Transitioning cases to dispute resolution services must be streamlined to ensure true access and for the Bill’s intent to be fully realised. We would like clarification on how lenders who are not registered with dispute resolution providers are investigated and monitored.
699. Enforcement
ANZ
700. Enforcement
Paul King
Supports resourcing the Commerce Commission to improve enforcement and protect consumers. Supports increased enforcement at the lower end of the credit market. Recommends that the Bill be backdated to cover loans
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or insurance on a prepayment (section 52). The Bill extends the rebate to repayment waivers, and extended warranties provided by the creditor are also being included. However there is no general cancellation right. The best protection in relation to credit-related insurance will be in ensure it is covered by responsible lending, and to limit creditor commissions under section 45(5) and (6). Noted. An indemnity fee is a credit-fee under the Bill and will be subject to the section 44 prohibition on unreasonable fees. In addition, the increased disclosure obligations and the introduction of responsible lending will go some way to improving protection for borrowers. Noted. We are working with the schemes, Crown agencies and advocacy groups to promote awareness and accessibility to dispute resolution. FMA, in cooperation with the Registrar, has a risk-based enforcement plan, to enforce the requirement for FSPs to be registered and have dispute resolution. The Bill will bar unregistered lenders from charging interest. Noted.
Disagree. It is not the intention of the Bill
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since 2003.
to apply retrospectively.
Recommends that property not be sold for less than what it was valued when the loan was taken out.
701. Enforcement
Mangere Budgeting Services Trust
702. Enforcement
Consumer NZ
703. Enforcement
BNZ
704. Enforcement
Families Commission
Submits that the Commerce Commission does not take individual complaints. The CCCFA allows the Commerce Commission not to pay filing fees, yet the submitter was required to pay these fees. Recommends enforcement authorities act on behalf of the borrower when non-compliance is evident. The borrowers this legislation seeks to protect rarely recognise their rights have been breached and do not have the confidence or resources to take these lenders to Court. Submits that front line organisations see there is an alternative course of action through dispute resolution services, which have the power to make a ruling that is binding on the lender, if the complaint is upheld. Recommends that additional resources be provided to ensure monitoring and enforcement action can be effectively taken by the Commerce Commission. Submits that the CCCFA has not been widely or adequately enforced, particularly in relation to less reputable lenders, due to resourcing restrictions. Unless this happens, the Bill will do little to better the lives of those most vulnerable consumers whose current rights and obligations are not being upheld. Submits that the CCCFA has been poorly enforced and if this does not improve, the proposed Bill will not produce significantly greater protection for vulnerable people.
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Agree. The powers of the Commerce Commission to enforce against lenders have been enhanced under the Bill. The FSP Act specifies that scheme members must comply with a binding resolution of a dispute resolution scheme and it is an offence for a lender not to comply with a resolution. Noted. The Bill enhances the enforcement powers of the Commerce Commission to enable it to more effectively hold lenders to account. Budget advisors and community groups provide support and assistance for borrowers to raise concerns with lenders.
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Strongly supports the Bill’s emphasis on protecting borrowers, additional powers it gives the Courts and the expanded role of the Commerce Commission. Submits that unless the Commerce Commission takes a proactive enforcement approach, enforcement will continue to rely on borrowers to take action. This is not an adequate mechanism for protecting borrowers.
705. Enforcement
706. Enforcement
Citizens Advice Bureau New Zealand
Full Balance
Recommends that the Bill address a mechanism for borrowers to raise concerns with the Commerce Commission. Most vulnerable borrowers cannot raise concerns with lenders, dispute resolution services, the dispute tribunal or the Courts without assistance. This assistance is particularly necessary when a lender is operating illegally and is not registered with a dispute resolution scheme. A key concern is that the Bill continues to rely primarily on self-enforcement, which has proven to be a complete failure for most consumers. There are several steps that need to be taken to improve enforcement. This could be done by: Allowing the Commerce Commission to directly fine lenders for failing to meet their disclosure obligations. Significantly increasing the penalties for breaches of the Act. Increasing public awareness of how they can seek to remedy breaches of the Act. Increasing the role of Financial Dispute Resolution Schemes Recommends adding the following clause to Enforcement and Remedies:
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Noted. The Bill improves the enforcement powers of the Commerce Commission, particularly in relation to repossession. Other recommendations being made in this report address the suggestions made by the submitter (i.e. an infringement regime, increasing penalties, retaining the levy making power in the FSP Act for public information, and making the scope of financial dispute resolution schemes to deal with consumer credit issues clearer).
Disagree. The responsible lending provisions included in the Bill, combined with the improvements to the hardship
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Should the borrower be unable to meet the payments of the loan because of hardship due to too high debt payments due to the lender lending irresponsibility, then: (i) the borrower should be able to drip feedback the loan at an amount that is affordable without putting the borrower into hardship, (ii) No interest or fees shall be added onto the debt, and all previous interest and fees will be reversed (iii)A default will not go against the borrower’s credit rating, and if it has due to the irresponsible lending then it shall be removed (iv) If the loan was used as a hire purchase, then the given purchase would need to be given back and a refund given on the value, at the discretion of the lender (v) Any security that is used for the loan, shall otherwise be removed as a secured interest
707. Financial Literacy
708. Financial Literacy
ANZ
Kym Dalton
This provides for the situation where a borrower is able to repay a loan during hardship. This will prevent the debt from escalating and prevents detrimental effects on the borrower’s financial situation and credit rating. Submits that responsible lenders should help customers understand the basics of a credit contract, what their rights and obligations are and what happens if these obligations are not met. Offers to help the Commerce Commission and MBIE to improve financial literacy. Eg. ANZ MoneyMinded programme. Recommends financial literacy should be required. This will assist lenders in relying on information provided by borrowers (9D(4)).
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provisions adequately address the situation of a borrower in hardship.
Agree. The lender responsibilities will require a lender to assist the borrower to reach an informed decision.
Officials note the offer of help.
Noted. Improved financial literacy is a priority. However, requiring that education be obtained prior to obtaining credit will 202
limit the availability of credit to borrowers. Requiring comprehension provides a level of comfort to lenders that information provided by borrowers can be relied on. Submits that some responsibility will shift to the borrowers this way. Borrowers should be regulated or encouraged by regulation to become sufficiently financially literate.
709. Financial Literacy
Franklin Family Support Trust
710. Financial Literacy
BNZ
711. Financial Literacy
Christian Care Budget Service Families Commission
712. Financial Literacy
Submits there is sufficient time to confirm comprehension of basic financial literacy as loans are often pre-approved. See submission on s 9B(3)(b). Advocates for increased promotion of financial literacy as an added long term protection for consumers. Providing consumers with the tools to avoid unmanageable debt increases consumer confidence and works for healthier communities. Submits that the purpose of the Bill is not only to require lenders to behave responsibly, but also to encourage customers to have an informed understanding of their decisions. Increased financial literacy will have significant role in this. Urgent change to protect those in the community with low levels of financial literacy and their client rights. Submits that financial literacy only gives borrowers partial protection from irresponsible lending and does not obviate the need for strong regulatory controls of financial markets.
There would be insufficient time to obtain education prior to obtaining a number of credit facilities such as payday loans, car finance etc.
Agree that improved financial literacy is a priority. It is clear that responsible lending and improved consumer protection under the Bill will only be part of the solution necessary to deal with the problems of borrowers being vulnerable to lenders. The responsible lending principles and improved disclosure requirements will go some way to protect vulnerable borrowers.
Financial literacy does not protect people from poor decision making. Some people do not shop around for credit or compare fringe lenders. People on low incomes accept any offer of credit because they
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713. Infringement Notices
Commerce Commission
714. Interest Rate Caps
National Council of Women in New Zealand
believe they are unable to get credit from other sources. Infringement notices should be introduced for breaches of the disclosure provisions and for breaches of Part 3A (repossession). The Commission do not currently have a cost effective and timely enforcement mechanism in the enforcement toolkit. Many of the offences in the Act could appropriately be dealt with by infringement notice. Breaches of the disclosure provisions are strict liability, usually clear cut and easy to establish. We anticipate most of the Part 3A breaches will be the same. However, the cost of taking Court action to establish breaches of these provisions is high. Infringement notices are already used successfully in Australia for credit related offences and are set to be introduced under the CLRB for some FTA breaches. Infringement notices would be a low-cost, quick and proportionate way of dealing with easily identifiable breaches of the disclosure provisions of the Act without criminalising the creditor. Criminal proceedings would continue to be taken in appropriate circumstances. Recommends establishing a cap on the annual rate of interest. Consumers, particularly vulnerable people on low or fixed incomes, require better protection against high interest short term loans such as payday lenders.
715. Interest Rate Caps
Andrew Shann
Noted. Not every disclosure or repossession obligation in the CCCFA or the Bill is amenable to being an infringement offence, and it may not be practical to include infringement offence provisions within the available timeframe.
Disagree that the Bill should introduce an interest rate cap.
Recommends that a limit on interest rate should be set by regulation and monitored by a Government Agency such as the Reserve Bank.
The issues in the third-tier credit market are diverse and a multi-pronged approach is required which adequately protects the interests of consumers. The introduction of a cap is thus not suggested as the solution to the problems identified in the consumer credit market.
Recommends that changes are made to section 39
A more flexible solution is preferred which
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and section 138 of the CCCFA to prescribe a maximum interest rate.
716. Interest rate caps
Salvation Army
promotes transparency for consumers whilst imposing responsible lending obligations on lenders to protect Other jurisdictions have introduced a cap on interest. consumers. Together these features of the Australian legislation capped rates at 48%, a Bill Bill will maintain the availability of credit to introduced in the United States Senate proposed a cap those who need it whilst addressing the of 36% and the United Kingdom passed similar harm that irresponsible lending practices legislation last year. Interest rate restrictions apply in can have on borrowers and the Japan, Singapore, Canada, many countries in Africa, community. Europe and almost all of South America. In addition, the CCCFA already contains provisions on unreasonable fees which is a Interest rates must be capped. Bill does not address type of control over charges for credit. level of interest rates that lenders are able to set. The general principles of fairness and integrity, affirmed in the policy objectives of the Bill to ensure the protection of vulnerable consumers and responsible lending, should be applied to interest rates. In the Salvation Army’s experience exorbitantly high and increasing interest rates are now a significant cause in trapping individuals and families in a cycle of poverty that they are unable to extricate themselves from.
717. Interest rate caps
Rev Danny Te Hiko
There is no empirical evidence that fringe lending could not be sustainable under a proposed 48% cap, and there are examples of sustainable small loan social enterprises operating in London and Australia with interest rates between 28% and 35%. On balance, international research has found that caps provide a critical level of protection that significantly outweighs any disadvantages. Recommends including specific interest rate caps to avoid credit practices that charge potentially immoral
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rates of interest.
718. Interest rate caps
719. Interest rate caps
Marama Stephens
Jenny Brash
720. Interest rate caps
Families Commission
721. Interest rate caps
Andrew Saunders
722. Interest rate caps
BNZ
Submits that similar rules used to set reasonable fees in the Bill be used to set and limit interest rates. Submits that a degree of protection through wise and common sense legislation is essential to assist disadvantaged people. Supports the introduction of an interest rate cap. As fees must be set at a reasonable level, interest rates should be similarly restricted. Considers that protecting vulnerable citizens is of great importance from an ethical and moral standpoint. Understands that interest caps if not implemented properly could be a blunt instrument. Strongly submits that interest rates should be capped. New Zealand is out of the last remaining countries not to have capped interest rates. As fee must be set at a reasonable level, interest rates should be restricted in a similar way. Recommends that interest rates be capped. This would help to put an end to particularly abhorrent practice. There is no clear evidence of unintended consequences while the benefits are obvious. Submits that interest rates are capped for all lending institutions. Uncapped interest rates are unconscionable. Capping rates would ensure that loans could be repaid. Opposes interest rate caps. A cap carries the significant risk of permitting creditors to raise their interest rates up to the “authorised” maximum, making consumers worse off than they would have
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Agree. The Bill does not include a cap on the cost of credit but it does include a number of features that aim to alleviate the usury practices of lenders and the high
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723. Price controls
Cash Converters
724. Interest rate caps
CBNZ Inc
725. Interest rate caps
East Auckland Home and Budget Service
726. Interest rate caps
Mangere Budgeting Services Trust
727. Interest rate caps
North Shore Budget Service Inc
been without such controls. Introduction of price controls pose a significant risk to credit availability and to the competiveness and viability of credit markets. Restricting credit providers from recovering the costs associated with these loans will reduce availability of legitimate small amount credit. In the absence of reliable, regulated and responsible credit providers, consumers are forced to resort to non-compliant credit providers with no regard for price controls or responsible lending. Price control is a blunt and ineffective tool. Supports that responsible lending obligations are a better solution. Submits that a capped interest rate may not have a greater benefit in reducing the number of loans given. Concerned that specifying a capped rate is an acceptable rate and that the lender is being responsible if such a rate is used. Does not support an interest rate cap. The risk in specifying a rate is that any lending at or below this rate will be deemed “responsible” which is in contradiction to the concept of responsible lending. Submits that the reasonableness of interest rates should be on a case by case basis. Submits that capping interest rates may not have the desired effect as this may be countered for in other areas, such as fees.
The rate of interest whether capped or not should comply with the reasonable accepted market rate – not letting last resort lenders off this legislation.
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cost of consumer credit. The key protections in the Bill are increased disclosure provisions, tighter controls on unreasonable fees and the introduction of responsible lending. The introduction of a cap can be a blunt tool in addressing the high cost of consumer credit and may have unintended consequences in relation to the restriction of access to consumer credit or by driving demand underground . The protections in the Bill provide a more dynamic response to address irresponsible lending practices, balancing the need to make credit available whilst not imposing unnecessary restrictions that may lead to consumers, particularly vulnerable consumers, ending up in a disadvantaged situation.
Agree that an interest rate cap may not have the desired effect but disagree that this may be countered in other areas such as fees due to the prohibition on unreasonable fees. Disagree. Regulating a “reasonably accepted market rate” would be a “soft cap”. This would have the disadvantages
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728. Farm-Debt Mediation
Damian Chesterman
Should adopt overseas legislation to protect against unlimited high interest rates rather than reinventing the wheel. Recommends a requirement that lenders meet face to face and attend mediation with farmer borrowers prior to taking enforcement action. Submits that mediation would have allowed the lender to gain an understanding that payment would have been made, yet at a later stage during to farming production.
729. Farm-Debt Mediation
730. Micro-finance
Janette Walker
Law for Change
of a bright-line cap, with the additional disadvantage of uncertainty. Farm-debt is commercial in nature. The primary purpose of the Bill is consumer protection and therefore farm-debt mediation is outside the scope of the CCCFA and this Bill.
Submits that there is a distinction between farms and other businesses and should therefore be treated differently. There is very limited opportunity for farmers to communicate and negotiate with their banks, once placed in a position of financial hardship. Select Committee should consider the notion that a compulsory debt mediation process, ensuring the establishment of more equitable options for dispute resolution processes. A Farm Debt Mediation Bill would provide for efficient and equitable resolution of bank rural debt disputes. Farmers don’t have recourse through the Banking Ombudsman Scheme and farmers lack the financial resources to pay for legal representation. If farmers do lay a complaint with the Ombudsman’s office, the complaint more likely falls under “commercial judgement” and therefore outside the Banking Ombudsman’s jurisdiction. Submits that there should be more support for sustainable micro-finance options to protect consumers from unsafe practices of fringe lenders.
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Noted. It is clear that responsible lending and improved consumer protection under the Bill will only be part of the solution 208
731. Micro-finance
Salvation Army
732. Payday lenders
Cash Converters
733. Scope of protection
Woodhouse Law
Submits there should be greater publicity for alternative forms of assistance such as WINZ offering funeral assistance. Submits there should be faster outcomes in providing assistance. This will prevent people from going to third tier lenders and getting into debt in the first instance. The Child Poverty Action Group suggested a microfinance instrument for vulnerable consumers that make small short term loans available at close to the rate paid by banks' preferred customers. Work and Income could guarantee these KiwiBank loans, while refusing to guarantee loans provided under contracts from loan sharks with exorbitant interest rates. Evidence from Cash Converters on their payday loan products that prevent spiralling consumer debt. This includes a capped maximum loan based on the consumer’s net income, one loan at a time policy, interest that never compounds, no fees or penalties for rescheduling a payment and easy to understand product explanations in 3 languages. Has offered unsecured payday loans since 2006, 95% of consumers repay their loans. A large category of borrowers who are commercial or semi-commercial are not protected by Parts 2-4 and have no real bargaining power (small businesses and farms with securities over personal assets). These borrowers should have protection from Parts 2-4. Additional provisions should be included to widen the effects of Parts 2-4 to situations where security is given over personal (rather than business) assets such as a borrower’s family home and/or personal assets.
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necessary to deal with the problems of borrowers being vulnerable to lenders. The responsible lending principles and improved disclosure requirements will go some way to protect vulnerable borrowers however micro-finance and alternative forms of assistance for borrowers are outside the scope of the CCCFA and this Bill.
Noted.
Disagree. The primary purpose of the Bill is to provide protection for consumers. The intention is not to broaden this protection to commercial transactions. Where security has been given over a consumer good, then part 3A of the Bill will apply, regardless of whether it is a consumer credit contract or not.
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734. Scope of protection
Paul King
Recommends that the CCCFA apply to all loans less than $500,000 as this would cover most home loans and small business loans.
735. Short term credit agreements
National Council of Women in New Zealand
Consumers require better protection against short term lending agreements.
736. Small Businesses
Sarah Jane Pezaro
Recommends a longer period for debtors to pay and/or the elimination of prepayment fees to protect consumers against the hidden traps of short term credit agreements. Submits that there is a need to increase protection of small business and individual’s guaranteeing small business loans. The current protection under the FSP Act that FSP’s must be registered with a disputes scheme leads to problems when FSP’s are not correctly registered. It is possible for an FSP to remove the rights of retail clients by simply not being registered. Submits that only 2 FSPs were correctly registered of the 11 FSPs she made contact with.
737. SWAP products
Chris Stevens
FMA has stated that it is not in their mandate to take these FSPs to Court and has not taken legal action against one to date. Recommends that a consistent practice is shown to all clients of banks that use swap products which can result in severe stress and hardship. Only some clients received settlements from the banks. Submits that consumers do not fully understand the documents and did not receive regular updates from
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The primary purpose of the CCCFA is consumer protection. The dollar amount of the loan is not a consideration. Extending the scope of all provisions within the Act to all loans, regardless of the purpose of the credit, does not satisfy the purpose of the legislation. Noted. The increased disclosure requirements and the introduction of responsible lending principles will reduce the information asymmetry often seen in the short-term credit market.
Noted. The FSP Act requires financial service providers to be a member of a dispute resolution scheme in order to provide financial services to retail clients. Under the Bill, FSPs that are not registered will not be able to recover interest or fees in relation to any consumer credit contracts they enter into.
Noted. Swap products are not commonly used in relation to consumer credit products. If a bank enters into a consumer credit contract which uses a swap then they will be required to comply with the responsible lending obligations and assist 210
the bank. 738. Truck Shops
Law for Change
Submits that local authorities be involved in assisting the communities with truck shops, e.g. establishing a sinking lid policy or similar policies applicable to gambling venues in low socio-economic areas. Submits that truck shop vendors may be vulnerable themselves.
739. Warning notices
Damian Chesterman
Recommends that a lender must personally serve on the borrower and/or guarantor up to two warning letters advising of the default and intended enforcement action prior to taking enforcement action. This will provide an opportunity to remedy default before enforcement action.
ANZ
Submits that public notice and publication of the creditor’s website should suffice for notification to borrowers about their credit contract. The regulations should allow disclosure to be made by public notice and by displaying information on the creditor’s website or at all of the creditor’s places of business when the creditor does not have a website.
the borrower to reach an informed decision (9B(3)(b)) Noted. The majority of local authorities have bylaws in place, or have the ability to create bylaws to control the operation of mobile shops. The jurisdiction of local authorities in relation to mobile shops is outside the scope of this Bill. Disagree. The lender responsibilities will require the lender to treat the borrower reasonably and with respect (or ethically) including on a default - 9B(3)(e)(i) It would be inappropriately prescriptive to include specific notice requirements under the CCCFA for enforcement.
CCCFA Regulations 2004 740. Alternative publication requirements
CREDIT CONTRACTS & FINANCIAL SERVICES LAW REFORM BILL - DEPARTMENTAL REPORT PART B
Disagree. The regulations only apply to variation disclosure and guarantee disclosure about changes to interest rates and fees. These are discrete pieces of information. The public notice mechanism would not be effective for more detailed or complex information about consumer credit contracts.
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