Changes to consumer credit law 2020
The Government has made law changes to the Credit Contracts and Consumer Finance Act. This follows our 2018 review of the consumer credit law.
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Overview
In 2019, the Government passed the Credit Contracts Legislation Amendment Act (Amendment Act) to better protect kiwis against debt spirals and predatory lending. The Credit Contracts and Consumer Finance Regulations 2004 were also updated in a series of amendments (Amendment Regulations).
These changes support the economic factors needed to improve child and youth wellbeing in the Government’s Child and Youth Wellbeing Strategy action plan.
Find out more on the Child and Youth Wellbeing website(external link).
All the changes came into force between December 2019 and December 2021. Lenders must now comply with the additional requirements introduced in the Amendment Act and Regulations. Additional guidance for lenders is provided in the Responsible Lending Code (Code).
In January 2022, the Minister of Commerce and Consumer Affairs asked the Ministry of Business, Innovation and Employment, in collaboration with the Council of Financial Regulators, to take a closer look at the initial implementation of the changes that came into force on 1 December 2021. Further information on the investigation is available here:
Initial implementation review of the 2021 CCCFA changes
See below for more information, including:
- More detail on the changes passed in 2019.
- Links to the Amendment Act, Amendment Regulations and Responsible Lending Code.
- Policy documents, including public consultation documents, Cabinet papers and Regulatory Impact Statements.
Background to the 2018 Consumer Credit Review
In 2018, the Government decided to change the law to better protect Kiwis from debt spirals and predatory lending.
Following MBIE’s review into New Zealand’s consumer credit regulation and public consultation on suggested law changes, the Amendment Act was passed in 2019.
Key changes the Amendment Act introduces
The Amendment Act introduced a number of important changes for lending and borrowing in New Zealand. This includes prescriptive requirements to make it clearer what lenders must do to comply with their obligations, and to better protect vulnerable consumers from getting into problem debt. All changes came into force between December 2019 and December 2021.
Some of the changes include:
Increased enforcement and tougher penalties for breaking the law
- On 20 December 2019, tougher penalties and statutory damages were imposed for irresponsible lending, including financial penalties of up to $600,000.
- Borrowers who have been given unaffordable or unsuitable loans will be able to claim statutory damages at disputes resolution schemes which may include a refund of all interest and fees and compensation for any harm.
Introducing an interest rate and cost of credit cap on high-cost loans
- On 1 May 2020, the cost of credit cap came into force. This limits interest and fees charged on a high-cost loan to 100% of the amount borrowed. For example, if an individual borrows $500, they will never have to pay the lender back more than $1000, including all fees and interest.
- Since 1 June 2020, lenders are no longer allowed to charge more than 0.8% per day in interest and fees on high-cost loans.
- These restrictions will be reviewed once they have been in place for 3 years.
Responsible lending laws for mobile traders
- Since 1 June 2020, contracts entered into by mobile traders are treated as consumer credit contracts, whether or not they charge interest or fees. This means that mobile traders are now required to comply with all of the obligations of the Act including responsible lending requirements.
New prescriptive requirements when lenders assess the affordability and suitability of loans
- Since 2015 lenders have been required to make reasonable inquiries to be satisfied that the borrower is able to repay the loan without substantial hardship and that the loan is likely to meet the borrower’s needs.
- The Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020 set minimum requirements for these inquiries. In 2022, some of these requirements were reviewed by MBIE.
- Since 1 December 2021, lenders need to keep records that substantiate that loans are affordable and suitable for borrowers and fees are not unreasonable.
- Lenders are also prohibited from entering into a high-cost consumer credit contract with an applicant who has entered into two high-cost loans in the past 90 days.
Additional registration and compliance requirements
- Directors and senior managers of consumer credit lenders and mobile traders are required to meet a ‘fit and proper person’ test before the creditor can be registered on the Financial Service Providers Register.
- Mobile traders are required to pass a fit and proper person test and to register on the Financial Service Providers Register.
- Duties have been imposed on directors and senior managers to ensure that lenders comply with their obligations.
- The fees for certification and changes in circumstance that lenders are required to notify the Commerce Commission of are set by the Credit Contracts and Consumer Finance (Certification) Amendment Regulations 2021.
- Lenders are required to provide statistical information about their business to the Commerce Commission on an annual basis.
Responsible advertising standards
- Since 2015 lenders have been required to exercise the care, diligence and skill of a responsible lender in any advertisement and must ensure that any advertising used is not misleading, deceptive or confusing.
- The Credit Contracts and Consumer Finance Amendment Regulations 2020 set the minimum advertising standards for credit.
- If a lender advertises credit in a language, they also have to offer to provide the borrower with information about the loan in that language.
Greater transparency and access to redress before debt collection starts
- Creditors and debt collectors are required to disclose specific information to debtors before starting debt collection activity.
- The Credit Contracts and Consumer Finance Amendment Regulations 2020 also set the minimum disclosure requirements before debt collection starts.
New regulations
The amended Act provides for the creation of regulations to implement and support the changes in the Act.
From 1 December 2021, all amendment regulations have now been incorporated into the Credit Contracts and Consumer Finance Regulations 2004(external link) and are in force.
The first portion of the amendment regulations were made in August 2020. These new regulations related to:
- responsible advertising standards for lenders;
- the information to be disclosed at the start of debt collection;
- disclosure of information about dispute resolution services and financial mentoring services; and
- disclosure requirements when a contract has been varied.
Credit Contracts and Consumer Finance Amendment Regulations 2020(external link) — New Zealand Legislation
The amendment regulations relating to affordability and suitability assessments were made in November 2020 and are available in the link below.
Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020(external link) — New Zealand Legislation
The amendment regulations relating to certification were made in April 2020 and are available in the link below.
Credit Contracts and Consumer Finance (Certification) Amendment Regulations 2020(external link) — New Zealand Legislation
The amendment regulations which set the annual return requirements for lenders and provide some exemptions were made in September 2021 and are available in the link below.
Credit Contracts and Consumer Finance (Exemptions, Annual Returns, and Other Matters) Amendment Regulations 2021(external link) — New Zealand Legislation
Updated Responsible Lending Code
Since 2015, lenders have been required to comply with lender responsibility principles in the Credit Contracts and Consumer Finance Act 2003. The Code was introduced in 2015 to provide more detailed guidance on how lenders can comply with these lender responsibility principles. It provides non-binding guidance and lenders can meet their responsibility principles in other ways than those described in the Code. However, compliance with the Code is able to be used as evidence of compliance with the Act.
An updated Code has now been prepared to reflect the passing of the Amendment Act and the making of the new regulations. The updated Code also reflects existing good practice among lenders when borrowers are having repayment difficulties.
All chapters other than Chapter 5 and Chapter 12 came into force on 1 December 2021. Chapter 12 came into force on 1 February 2022. Chapter 5 was updated as part of the round of initial credit law changes in 2022 and came into force on 7 July 2022.
Related information
You can find out more about MBIE’s 2018 review of the consumer credit law below:
2018 discussion paper and submissions
Two page overview of discussion paper [PDF, 398 KB]
Discussion paper: Review of consumer credit regulation [PDF, 542 KB]
Background paper: additional information to support the discussion paper [PDF, 938 KB]
View the submissions we received from the consultation(external link)
Cabinet policy decisions and regulatory impact statements for the Credit Contracts Legislation Amendment Bill
Cabinet paper Review of Consumer Credit regulation [PDF, 755 KB]
Impact Statement - Consumer Credit Regulation Review [PDF, 1.1 MB]
Review of Consumer Credit Regulation: Further Policy Proposals [PDF, 602 KB]
Review of Consumer Credit Regulation: Further Policy Proposals - Minute of decision [PDF, 166 KB]
Credit Contracts Legislation: further policy proposals - Regulatory Impact Summary [PDF, 227 KB]
Cabinet agreement to introduce the Credit Contracts Legislation Amendment Bill
Credit Contracts Legislation Amendment Bill and Parliamentary process
Credit Contracts Legislation Amendment Bill(external link) — Parliament
New regulations and Responsible Lending Code
Exposure draft: Credit Contracts and Consumer Finance Amendment Regulations 2020
Updating the Responsible Lending Code – December 2020
For more updates
Subscribe to be kept up to date on the review of Consumer Credit Law(external link)