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).
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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: |
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| 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? |
Read the full consultation document
Fit for purpose consumer credit legislation discussion document [PDF, 1 MB]