As we near the end of 2021, a number of long anticipated amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) are coming into force. The purpose of these amendments is to raise the standard of lenders and to better protect consumers from harmful lending practices. The five key changes are summarised below.
- Certification
Effective from 1 October 2021, certification is now compulsory for providers of consumer credit and mobile traders. Subject to some exemptions, lenders and mobile traders must now be certified by the Commerce Commission and registered on the Financial Service Providers Register. Ensuring certification is valid and up-to-date is very important to avoid the risk of services being suspended.
- Due diligence
A new due diligence duty, applying to anyone that is a director or senior manager of a consumer credit provider and/or a mobile trader selling goods on credit comes into force on 1 December 2021. This duty requires that all such personnel ensure their organisation is complying with its obligations under the CCCFA. Compliance with the duty is to be assessed objectively with breaches resulting in personal liability penalties of up to $200,000.
- Disclosure
From 1 December 2021, additional disclosure obligations around financial mentoring, dispute resolution and debt collection will join the existing CCCFA disclosure obligations. As part of the new obligations, lenders who advertise wholly or significantly in a language other than that of their loan agreement may now have to offer information about the loan agreement in the advertised language. The existing variation disclosure obligations have also been updated with the changes effective from 1 December 2021.
- Responsible lending
New regulations setting out the types of inquiries to be made before a lender agrees to lend money, or provide further credit, also come into force on 1 December 2021. Under these new regulations, lenders will be required to make more specific inquiries about the needs and objectives of borrowers. Assessments will also be required when making 'material changes' to the loan of an existing borrower.
- Advertising and fees
The 'Advertising Standards' set out in the new regulations to the CCCFA take effect from 1 December 2021. These standards prescribe detailed requirements for advertising as well as prohibiting certain advertising practices.
Section 41A CCCFA, under which lenders must keep records about how they calculated each credit and default fee, also comes into force on 1 December 2021. The idea is that lenders are able to actually demonstrate fees were not unreasonable at the time they were set or reviewed. Lenders who do not comply with s 41A or whose records show that their credit or default fees were not reasonable can be liable for pecuniary penalties. Further to this, lenders will be required to review fees where they become aware (or ought to be aware) of any factor which may impact the reasonableness of the fees.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.