Tougher consumer credit laws target loan sharks
Hon Bill English
Minister of
Finance
6 November 2011
Media Statement
Tougher consumer credit laws target
loan sharks
The Government plans to overhaul consumer credit laws to protect unwary consumers being preyed on by unscrupulous credit companies, Finance Minister Bill English says.
“There has been significant and much-needed reform of the investment side of the financial sector over the past three years,” Mr English says.
“However, credit providers remain largely unregulated and have no conduct requirements, leading some to exploit vulnerable people, resulting in severe financial hardship and spiralling debt. This is not acceptable.”
Cabinet has approved a package of changes
including:
• Strengthening the Consumer Contracts and
Consumer Finance Act (CCCFA) by adding new responsible
lending requirements including that:
o The borrower must
be reasonably expected to repay the loan without substantial
hardship.
o The lender must be honest and transparent in
dealing with the borrower.
• Creating a Code of
Responsible Lending that sets out the types of practices
accepted as meeting the principles of responsible lending.
• Giving the Financial Markets Authority (FMA) the
power to issue formal warnings and cancel a person’s
financial service provider registration if they fail to
comply with the code and other relevant legislation.
• Provide that borrowers are not liable for the costs
of interest or fees if their lender is not registered, as
required, on the Financial Service Providers Register (a
recent survey found 35 per cent of third-tier lenders were
not registered).
• Amend the CCCFA to stipulate that
advertising must not be misleading, deceptive, or confusing
and must comply with the code, and allow the regulator to
prohibit advertisements that fail to do so.
• Protect
important goods, such as tools of trade, necessary household
items, and motor vehicles with a value of up to $5000, from
being used as security against a loan (except if the credit
contract is for the purchase of such an item)
• Extend
the 'cooling-off period', where a consumer has the right to
cancel a credit contract, from three to five working
days.
• Improve disclosure requirements, including that
disclosure of key information and full terms and conditions
must occur before the contract is made (presently this can
happen up to five days after).
• Changes to the rules
around oppressive credit contract provisions and hardship
applications to provide increased consumer protection.
The package of reforms has been shaped by the Government’s Financial Summit, held in August, which brought together 250 people from community groups, budgeting services, NGOs, banks, financial regulators, and credit companies to look at ways of tackling irresponsible lending.
Because this is a complex area, the Government intends to release draft legislation for consultation on the proposed changes in advance of introducing final legislation to Parliament.
“These changes represent a multi-pronged approach towards promoting responsible lending by increasing consumer protections, requiring lenders to give borrowers more information and beefing up the powers of enforcement agencies.
“People need access to
affordable credit. For some people who are a higher lending
risk, the cost of credit will always be higher but that does
not justify the highly exploitive and irresponsible lending
practices of some lenders,” Mr English says.
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