Credit Contracts and Consumer Finance Regulations 2015: Understanding the Key Provisions
As a borrower, it is important to be aware of the laws and regulations governing credit contracts and consumer finance. The Credit Contracts and Consumer Finance Regulations 2015 (the “Regulations”) are designed to protect consumers from predatory lenders, unfair contracts, and other harmful practices. In this article, we will discuss the key provisions of the Regulations and what they mean for borrowers.
Scope of the Regulations
The Regulations apply to all credit contracts entered into in New Zealand after 6 June 2015. A credit contract is defined as an agreement in which one party (the creditor) agrees to provide credit to another party (the debtor) for the debtor`s personal, domestic or household purposes. The Regulations do not apply to contracts for business purposes.
One of the main aims of the Regulations is to ensure that borrowers are fully informed about the cost of credit and the terms of their contracts. Creditors are required to provide certain disclosures to borrowers before they enter into a credit contract. These include:
– The interest rate and any other fees or charges that will be payable
– The total amount of the credit and the total amount that will need to be repaid
– The repayment schedule, including the number and amount of each payment
– The consequences of default, including any interest or fees that will be charged and any action that the creditor may take to recover the debt
The creditor must provide these disclosures in a clear and concise manner, and in a form that the borrower can keep.
Unjust Contract Terms
The Regulations prohibit unfair contract terms in credit contracts. An unfair term is one that causes a significant imbalance in the parties’ rights and obligations and is not reasonably necessary to protect the legitimate interests of the creditor. Examples of unjust contract terms include:
– Terms that allow the creditor to vary the interest rate or fees without notice
– Terms that allow the creditor to demand early repayment of the loan without a valid reason
– Terms that require the debtor to pay unreasonable fees for default or for any other reason
If a court finds that a term is unfair, it may be declared void and unenforceable.
The Regulations also set out certain requirements for responsible lending. Creditors are required to assess the borrower`s ability to repay the loan, taking into account their income, expenses, and other financial commitments. They must also take reasonable steps to verify the borrower`s financial situation and ensure that the credit contract is suitable for their needs.
Creditors are also required to provide assistance to borrowers who experience financial hardship. This may include offering flexible repayment arrangements or referring them to a financial counselling service.
Enforcement and Remedies
The Commerce Commission is responsible for enforcing the Regulations. If a creditor breaches the Regulations, they may be liable for a fine of up to $600,000. Borrowers who have been harmed by a breach of the Regulations may also be entitled to compensation.
The Credit Contracts and Consumer Finance Regulations 2015 provide important protections for borrowers. By requiring clear disclosure, prohibiting unfair contract terms, and imposing responsible lending obligations on creditors, the Regulations help to ensure that borrowers are not taken advantage of by unscrupulous lenders. If you are considering taking out a loan, it is important to familiarise yourself with the Regulations and to seek independent advice if necessary.