Banking and finance: consumer credit law update and personal property securities update

Consumer credit law update

Earlier this year, the Government sought feedback from the public on the adequacy of the protections afforded by the Credit Contracts and Consumer Finance Act 2003 (CCCFA) since the 2015 reforms.

Click the button below to view our earlier update about the CCCFA.

Government signals further tightening of consumer-credit laws

After considering 86 submissions and hearing from consumers and financial services organisations, the Government made an announcement last week in relation to the following changes:

  • Interest and fee cap on high-cost loans

Interest and fees on ‘high-cost loans’ will be limited to 100% of a loan’s principal amount over the life of the loan.  The Honourable Minister of Commerce and Consumer Affairs Kris Faafoi has signalled that the ‘high cost loan’ concept will be derived from the high cost credit agreement definition in the Responsible Lending Code (Code), with the concept likely needing further development during drafting.  At present, the Code treats as high cost credit agreement those agreements where the annual interest rate is 50% or greater.  Affected lenders will also be required to disclose the cap to consumers.

  • Clearer responsible lending requirements

While the Code will remain non-binding in most parts, certain elements of the Code in relation to loan affordability and suitability and advertising responsibly will now be made binding.   The Minister has signalled that if a lender advertises in a language, they will need to provide the loan disclosure documents in that language.

  • Tougher enforcement for breaching the CCCFA

Stricter penalties and expanded court powers for breaches of the CCCFA will be implemented, including increased civil pecuniary penalties of up to $200,000 for an individual and $600,000 for a body corporate and statutory damages for breaches of the responsible lending principles.    Directors and executives of consumer credit lenders will also be subject to greater duties to ensure compliance, and will generally be required to meet a ‘fit and proper person’ test before being registered as a financial service provider to help prevent ‘phoenix lenders’.  The assessment will be conducted by an independent assessments officer employed by the Commerce Commission.

  • Substantiation requirement

A lender will be required (on request) to substantiate that its fees are reasonable.  In addition, the current presumption that lenders can take the information provided by borrowers and guarantors at face value without verification will be removed.  Lenders will be required to verify certain information (such as income and expenses and suitability of a product to a borrower) where it is reasonable to do so.

  • Greater transparency during debt collection

Certain key loan information will need to be shared with a borrower at the commencement of debt collection activity.  The information to be shared will be prescribed by regulation but will include the name of the original lender, the date on which the debt was passed to the debt collection, any fees added for debt collection, rights of the borrower and contact information for relevant consumer support services.

  • Accountability by mobile traders

Mobile traders will be required to register on the financial service provider register and belong to a dispute resolution scheme and their directors and top executives will be subject to ‘fit and proper person’ requirement.  The Fair Trading Act provisions relating to uninvited direct sales will also be amended to require any uninvited direct sale to leave a consumer’s premises immediately if directed and ‘do not knock’ stickers or directions will be made legally enforceable.

These changes could have an impact on lending policies and procedures, as well as day-to-day business practices for all lenders of consumer credit.  The Minister has also identified that a potential consequence of the changes is a tightening of access to credit, particularly for those that rely on high cost lending.  To address this, cross-agency work has been initiated with the financial services and community sectors.

At present, new credit-based businesses such as Afterpay, PartPay, Laybuy and Oxipay are not intended to be brought within the scope of the CCCFA.

The Minister is also recommending an amendment to section 99(1A) of the CCCFA, which creates significant financial risk for lenders for failure to comply with the disclosure requirements under the CCCFA, to have access to the court for relief.

If you have any queries about any of the proposed changes, please get in touch with our Banking and Finance team.  It is expected that the majority of the changes will come into effect in 2020.

Lane Neave will continue to provide updates on these changes as they move through the legislative process.

Personal property securities update

On 1 October 2018, amendments to the Personal Property Securities Regulations 2001 (Regulations) came into force.  In addition to technical amendments, the Regulations now require all financing statements to record an organisational debtor’s New Zealand Business Number (NZBN).

Not only does this apply to financing statements registered from 1 October 2018, but also to all existing financing statements.  Secured parties have two months from 1 October 2018 to ensure that all existing financing statements comply with the amended Regulations, to avoid a financing statement becoming invalidated.

Provided an existing financing statement correctly records a debtor’s current name and incorporation number, MBIE will automatically update existing financing statements to be compliant.  Secured parties are encouraged to review their financing statements to ensure compliance with the amended Regulations, and if necessary, manually update the non-compliant financing statements.  MBIE has indicated that it will be contacting those secured parties for which it has not been able to automatically update financing statements that it has identified as being non-compliant.

The amendment to the Regulations coincides with the launch of a new Personal Property Securities Register platform (PPSR).  If you have not already, you are required to set up access to the new PPSR (https://ppsr.companiesoffice.govt.nz/) – all of your existing financing statements will be transferred across to the new platform.

If you are a creditor that uses the PPSR and have any queries regarding the register or the Regulations, please do not hesitate to contact our Banking and Finance team for assistance.

Business Law team

If you need any assistance, do not hesitate to get in touch with the Business Law team at Lane Neave.

Gerard DaleClaire EvansGraeme CrombieEvelyn JonesAnna RyanJoelle Grace,  Peter OrpinEllen SewellMatt TolanCarlo WanKristina SutherlandJacob NuttWhitney MooreAlex StoneBen Cooper, Lisa Catto

 

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