Review of consumer credit law 2018

The Government has decided to make law changes to the Credit Contracts and Consumer Finance Act. This follows our 2018 review of the consumer credit law.

Background to the 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 Credit Contracts Legislation Amendment Bill (Bill) was introduced to Parliament in April 2019. Over 400 people, groups and businesses have given feedback on it.

Key changes that the Bill will introduce

The new Bill will introduce 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. These changes include:

Introducing an interest rate and cost of credit cap on high-cost loans

  • Lenders will not be allowed to charge more than 0.8 per cent of interest and fees per day for a loan.
  • A cost of credit cap will be introduced with a limit on 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.
  • This type of cap is very similar to the one used in the United Kingdom since 2015.
  • These restrictions will be reviewed once they have been in place for 3 years.

New prescriptive requirements when lenders assess the affordability and suitability of loans

  • Lenders are currently 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.
  • Regulations will set minimum requirements for these inquiries.
  • Lenders will need to keep records that substantiate that loans are affordable and suitable for borrowers and fees are not unreasonable.
  • Lenders will be 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.

Increased enforcement and tougher penalties for breaking the law

  • Tougher penalties will be 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.
  • Directors and senior managers of consumer credit lenders and mobile traders will be required to meet a ‘fit and proper person’ test before the creditor can be registered on the Financial Service Providers Register.
  • Duties will be imposed on directors and senior managers to ensure that lenders comply with their obligations.
  • Lenders will be required to provide statistical information about their business to the Commerce Commission on an annual basis.

Responsible lending laws for mobile traders

  • Contracts entered into by mobile traders will be treated as consumer credit contracts, whether or not they charge interest. This means that mobile traders will be required to comply with all of the obligations of the Act including responsible lending requirements.
  • Mobile traders will be required to pass a fit and proper person test and to register on the Financial Service Providers Register.

Responsible advertising standards

  • Lenders are currently 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.
  • Regulations will set minimum advertising standards for credit.
  • If a lender advertises credit in a language, they will also have to offer to provide the borrower with information about the loan in that language.

Greater transparency and access to redress during debt collection

  • Debt collectors will be required to disclose to debtors specific information at the commencement of debt collection action. This information will be specified in regulations and is likely to include the unpaid balance prior to debt collection action, any debt collection fees to be added and where to get help.

Timeline for the new changes

The proposed law changes will be phased in, to provide lenders time to implement systems changes. The new legislation will take full effect on 1 April 2021. The specific commencement dates for the proposed changes are below:

Commencement dates
the day after Royal assent
  • new enforcement provisions, including pecuniary penalties, statutory damages and enforceable undertakings
  • expanded options for creditors to make electronic disclosure
1 June 2020
  • new requirements on high-cost lenders, including the total cost of credit cap and rate cap
  • mobile traders to be treated as creditors under consumer credit contracts
  • duties on directors and senior managers
1 September 2020
  • applications open for certifications of directors and senior managers as fit and proper persons
1 April 2021
  • requirements to keep records of affordability and suitability assessments, and how fees are calculated
  • providing disclosure to borrowers in languages used in advertising language
  • providing information about disputes resolution schemes and financial mentoring services
  • creditors and mobile traders required to hold certifications (currently registered creditors have until their next annual confirmation to obtain a certification)
  • regulations setting minimum requirements for affordability, suitability, responsible advertising

Parliamentary Process

In April 2019, the Minister of Commerce and Consumer Affairs introduced the Credit Contracts Legislation Amendment Bill to Parliament. After its first reading, the Bill was referred to the Finance and Expenditure Committee for review.

The Committee reported back to the House on the Bill on 11 November 2019.

Read the Committee's report on the Parliament website(external link)

You can read the Credit Contracts Legislation Amendment Bill online and follow its progress on Parliament’s website.

Credit Contracts Legislation Amendment Bill on the New Zealand Legislation site(external link)

Credit Contracts Legislation Amendment Bill on Parliament's website(external link)

Exposure Draft Regulations – open for public submissions

The Bill provides for the creation of regulations to support the new law changes. An exposure draft of the regulations is now publicly available for comment on both the policy direction and the drafting of the proposed regulations. A commentary document provides context and key questions for submitters.

MBIE is seeking feedback on the draft regulations from November 2019. Submissions will close at 5pm on 5 February 2020.

Consultation page for Exposure draft: Credit Contracts and Consumer Finance Amendment Regulations (No 2) 2020

Related information

You can find out more about MBIE’s 2018 review of the consumer credit law below:

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

Cabinet paper Review of Consumer Credit regulation [PDF, 755 KB]

Impact Statement - Consumer Credit Regulation Review [PDF, 1.1 MB]

Cabinet paper – Credit Contracts and Consumer Finance Amendment Bill: Approval for introduction  [PDF, 543 KB]

Cabinet Legislation Committee Minute of Decision: Credit Contracts and Consumer Finance Amendment Bill - Approval for introduction [PDF, 365 KB]

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]

For more updates

Subscribe to be kept up to date on the review of Consumer Credit Law(external link)

Last reviewed: 02 August 2019