In 2015 there was an update to consumer credit law in NZ. Changes in the law are documented in the Credit Contracts and Consumer Finance Amendment Act 2014 and came into effect in June 2015. These changes were introduced for the purpose of strengthening protection for consumers seeking a personal loan or other types of credit-related finance.
One of the key changes in the law is the introduction of lender responsibility principles supported by a responsible lending code. If lenders breach the new responsibility principles, the courts are able to impose higher penalties than previously and the consequences for lenders who break the law are tougher.
The two lender responsibility principles are:
1. Every lender must exercise the care, diligence and skill of a responsible lender in all its dealings with borrowers and guarantors. This includes when advertising, when entering into a loan, and in all subsequent dealings relating to the loan.
2. Lenders must comply with specific listed lender responsibilities, the key responsibilities being:
3. Lenders must make reasonable enquiries before entering into a personal loan or finance agreement or taking a guarantee to be satisfied that the credit provided will meet the borrower’s needs and the borrower or guarantor will be able to meet repayments or comply with the guarantee without suffering substantial hardship.
4. Lenders must help borrowers and guarantors to make informed decisions about whether to enter into the loan or to give the guarantee, as well as in all subsequent dealing about the loan.
5. Lenders must treat borrowers and guarantors reasonably and in an ethical manner at all times, including when breaches of the loan occur, the borrower suffers unforeseen hardship or during a repossession process.
6. Lenders must ensure loans are not oppressive and that their conduct is not harsh, burdensome or in breach of reasonable standards of commercial practice.
7. Lenders must meet all their other legal obligations to the borrower and guarantor, including obligations under the Fair Trading Act 1986 and the Consumer Guarantees Act 1993.
For more information on the new lender responsibilities click here.