The Credit Contracts and Consumer Finance Act amalgamates all consumer credit leglsiation into one law and replaces the old Consumer Credits Act and the Hire Purchase Act.
Many mortgages do not come under the old laws because there was a ceiling of $250,000 value. The new law has no ceiling on the value of any loan.
Lenders will have to disclose all credit fees payable under the contract and any securities taken for the transaction. The law does not affect existing loans – although lenders can opt to bring existing loans under the new regime if they wish.
The Commerce Commission expects a number of larger lenders to do this, rather than have some loans having to comply with the old law and some with the new.
As with other reforms in this area it boosts the amount of disclosure lenders are required to provide to borrowers.
The new act includes a model disclosure form which lenders can provide borrowers.
“If the forms are used correctly they provide a ‘safe harbour’ for creditors,” says the Commission’s director of fair trading Deborah Battell.
The new law also includes provisions to safeguard borrowers from being badgered into unnecessary credit insurance.
Until now consumer credit contracts have not had an enforcement body behind them – any legal action has been carried out by the borrower through the civil courts.
The new law puts the Commerce Commission in charge of enforcement, and makes breaches matters for the criminal rather than civil courts. Penalties are accordingly higher and include prison terms for serious breaches.
Battell says the commission will take complaints form borrowers and will also be monitoring lenders.
