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Changes to credit legislation

22 March 2005

Changes to credit legislation signals first for New Zealand

New Zealand is about to see major changes in how New Zealanders borrow and lend money, with this area of legislation being enforced by a regulatory body for the first time. From April 1, the Credit Contracts and Consumer Finance Act will be in full force.

The Commerce Commission is responsible for enforcing the legislation through taking civil and criminal proceedings for breaches of the Act as well as promoting compliance within the credit industry.

Commission Chair Paula Rebstock says the new legislation is a major change for New Zealand.

“This Act refocuses credit law to better reflect the needs of both credit consumers and providers. It improves information for consumers, and allows credit products to be flexible and innovative.”

Ms Rebstock says the Commission has been working hard to ensure credit providers are aware of the law change and the need to comply. Promotion of the new Act has included industry seminars and the development of a guide for key industry players, along with extensive staff training. Industry has also had 18 months to prepare for the changes.

“As with any change, it is vital people understand it and that’s why we have been working to ensure industry is aware of their obligations and importance of complying. This Act is about strengthening the law in response to a changing world.”

The changes include: significant deregulation of business borrowing – business borrowing is now excluded from most provisions of the Act except for those that enable the re-opening of oppressive contracts; enforcement provisions – the Commission’s enforcement is expected to extend protections to consumers in what was previously an area of the law in which very few cases were taken by consumers; setting minimum standards for consumer credit contracts, particularly in relation to disclosure and contract terms; and giving consumers the right to repay contracts early, prohibiting unreasonable credit fees and establishing a mechanism to vary consumer credit contracts where consumers are struggling to meet obligations due to unforeseen hardship.

The Act maintains consumers’ rights to cancel contracts and continues to provide relief against oppressive credit contracts.

Ms Rebstock says that the latest statistics showed that total household debt had reached $115 billion. The driving force of the change, however, is not to stop consumers from acquiring debt, but rather to promote more transparency in lending.

“The information which credit providers must provide consumers is designed to help them make informed choices. This in turn helps promote healthy competition among the credit providers.”

Parts of the Act relating to buy-back transactions of land came into force in October 2003. The Act repeals the Credit Contract Act 1981 and the Hire Purchase Act 1981. However, both these Acts will continue to apply to credit contracts and hire purchase agreements entered into before 1 April 2005, unless creditors opt to have their transaction covered by the new Act.

With the Act becoming law, the Commission moves into its enforcement phase. “Providers not complying with the Act can face severe penalties, both financially and in terms of damage to reputation, and repeat offenders can be banned from providing further credit,” Ms Rebstock says.


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