Financial Regulation Update – June 2018

Review of consumer credit legislation: MBIE are seeking feedback

The Ministry of Business Innovation and Employment (MBIE) has released a discussion paper which sets out MBIE's findings from its review of the 2015 changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) to date. Feedback is due by Wednesday 1 August 2018. Submissions will inform MBIE's recommendations to Government on any further changes to the CCCFA.

MBIE is seeking feedback on a range of issues, predominantly related to protecting vulnerable consumers, and proposed a range of potential solutions for each issue. The issues identified by MBIE and some of the proposed solutions are summarised below.

• Excessive cost of some consumer credit agreements: including financial harm from frequent use of high-cost loans, debt spirals and uncompetitive rates. Proposed solutions include introducing caps on interest and fees (for some or all lenders).
• Continued irresponsible lending and other non-compliance: including superficial testing of loan affordability, aggressive advertising of high-cost loans to consumers who have previously repaid them and guarantors signing guarantees they do not understand. Proposed solutions include:
  • increasing lender registration requirements, by:
    • expanding powers to deregister lenders and ban directors from future involvement in the credit industry;
    • introducing a "fit and proper person" test for directors and senior managers of lenders (lenders who are subject to an existing regime eg registered banks, licensed NBDTs and market services licensees would be exempt); and/or
    • introducing a comprehensive creditor licensing regime;
  • strengthening enforcement and penalties for irresponsible lending, by:
    • introducing penalties and clearer civil liability for responsible lending breaches;
    • introducing duties on directors and potentially senior managers to take reasonable steps to ensure that the lender complies with its CCCFA obligations;
    • introducing a requirement that lenders must substantiate their affordability and suitability assessments and supply a copy on request to the borrower or the Commerce Commission; and/or
    • increasing industry levy on creditors to help fund advocacy, monitoring and enforcement of the CCCFA; and/or
  • introducing more prescriptive requirements for affordability assessments and advertising.
• Continued predatory behaviour by mobile traders: including the high cost of purchasing goods with some mobile traders, high rates of non-compliance with the CCCFA and the Fair Trading Act 1986 and irresponsible and unconscionable behaviour by mobile traders.  Proposed solutions (in addition to the other potential measures addressed above) include addressing credit sales that currently fall outside the scope of the CCCFA, by:
  • including credit contracts that charge default fees in the definition of consumer credit contract; and/or
  • prohibiting the price of goods or services sold on credit from exceeding the cash price.
• Unreasonable fees: including difficulties in enforcing the prohibition on unreasonable fees, a lack of clarity about when a fee is unreasonable and whether greater regulation of third party fees is required. Proposed solutions include:
  • requiring lenders to substantiate the reasonableness of fees;
  • imposing specific fee caps by regulation; and/or
  • requiring disclosure and advertising to be based on an annual percentage rate that combines interest and fees.
• Irresponsible debt collection practices: including unaffordable repayment schedules, excessive charges and harassment. Proposed solutions include:
  • requiring key loan information to be shared with the borrower at  commencement of debt collection;
  • requiring debt collectors to offer an affordable payment plan; or
  • making third-party debt collection agencies directly subject to the CCCFA.

MBIE has also asked for feedback on whether the principle of excluding small businesses, investment loans and family trusts from the consumer protections under the CCCFA remains the correct policy position.

The full discussion paper is available here.

We are currently reviewing the discussion paper in detail. Please get in touch if you would like to discuss.