Fit for purpose consumer credit legislation - high-cost credit contracts provisions

The Ministry of Business, Innovation, and Employment is seeking feedback on the high-cost consumer credit contracts provisions introduced, in 2020, by the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

Consultation and process

Public consultation will close at 5pm on 19 June 2024. This is a mandatory statutory review required by section 45L of the CCCFA to assess the effectiveness of these provisions. 

What is a high-cost credit contract?

The CCCFA defines high-cost consumer credit contracts as a contract with an average annual interest rate of 50% or greater, or as a contract where the combined annual interest rate and default rate are likely to be 50% or more. 

What are the high-cost credit provisions about? 

  • The maximum costs of borrowing must not exceed the first loan advance.
  • The maximum daily rate of charge cap is 0.8%
  • There is a rebuttable presumption that default fees over $30 are unreasonable.
  • Compound interest is prohibited
  • High-cost lenders are restricted from making high-cost loans to some repeat borrowers.

What was the objective of these provisions? 

The reforms are aimed at reducing financial harm caused by problem debt by: 

  • Addressing the excessive cost of credit for some types of loans
  • Addressing repeat borrowing by vulnerable consumers.

The impacts of the high-cost provisions

Direct Indirect
Elimination of the high-cost lending market  Take up of Buy-Now-Pay-Later loans
Double in lenders offering loans in the 30-50% interest range Increased percentages of debts from other credit types
No longer debt spirals and repeated borrowing from high-cost loans  Increased hardship assistance from the government 

Issues we want feedback on

  • Whether the interest rate that defines a high-cost consumer credit contract should be reduced to a rate between 30% to 50%
  • Any feedback you might have on the operation and effectiveness of the high-cost credit provisions.
MBIE particularly welcomes any views representing the perspectives of people who have used high-cost loans in the past. For example:
In the absence of new high-cost loans, what other avenues are you turning to?
Is the unavailability of high-cost credit having positive or negative effects on you?
Have you experienced any issues with loans in the 30% to 50% interest rate range?
Are your needs for short-term and low-value loans fulfilled by non-high-cost loans?
Last updated: 22 May 2024