Have Your Say: Consultation: Section 99(1A) of the Credit Contracts and Consumer Finance Act 2003

Closed
Submissions closed at
5pm on Friday, 9 December 2016
Consultation document PDF Document 804kb

Summary

The Credit Contracts and Consumer Finance Act 2003 covers, amongst other things, a range of transactions where lenders give credit to private individuals for personal use, such as through a mortgage, credit card, arranged overdraft or cash loan.

The lender (or 'creditor') must disclose key information to the debtor pursuant to sections 17 and 22 of the Act, including the annual interest rate, any fees that apply, and the details of the relevant dispute resolution service.

A number of legal consequences result from a failure by a creditor to make proper disclosure of this information to debtors. These include a right for the consumer to cancel the loan (section 27) and a pecuniary penalty for the lender (section 102A).

In addition, however, section 99(1A) provides that “neither the debtor nor any other person is liable for the costs of borrowing in relation to any period during which the creditor has failed to comply with section 17 or 22”. Under this provision, the creditor will forfeit the right to any interest or charges for the period during which non-compliant disclosure was made.

In a press release dated 2 November 2016, the Minister of Commerce and Consumer Affairs noted that he is concerned that this rule “might lead to unfair outcomes, particularly where the information the lender fails to disclose is very minor or where the borrower suffers no harm”, read more on the Beehive website. The Minister has asked MBIE to release a discussion paper to test this concern with the public.

Discussion paper

The discussion paper:

  • explains the problem identified with the provision;
  • outlines a number of alternatives to the status quo; and
  • seeks views on whether any such alternative should be introduced.

The main alternatives to the status quo are:

  • imposing a cap on the amount or proportion of interest and fees that a lenders forfeits;
  • allowing the lender to attempt to argue before a court that forfeiting all interest and fees would be disproportionate;
  • amending section 99(1A) so that the borrower can only avoid paying the interest and fees if they can convince a court that the error in information disclosure meets a materiality threshold;
  • repealing section 99(1A) so that the lender does not have to forfeit the interest and fees once corrective disclosure is made.