Your rights and what you need to know when agreeing to a credit contract.

Credit contracts and your rights

The main purpose of the Credit Contracts and Consumer Finance Act (CCCFA)(external link) is to make dealings between consumers and lenders clearer, as well as to protect consumers.

The CCCFA provides protection when you:

  • take out a personal loan or mortgage
  • use a credit card
  • borrow money on an agreed overdraft
  • buy products and services on credit.

What lenders does the CCCFA apply to?

Lenders (also called creditors) who must comply with the CCCFA include:

  • buy back operators/promotors
  • insurance companies
  • finance and mortgage brokers
  • paid advisers.

Watch the Commerce Commission’s T.V show It’s All Good(external link) to find out more about getting a loan or being a guarantor.

What is a credit contract?

Credit is where under contract, you are given the right to:

  • defer payment of a debt, ie pay by instalments
  • buy property or services and defer payment for the purchase, either in whole or in part
  • incur a debt and defer its payment.

A credit contract is the agreement under which the credit is or may be provided. Examples include:

  • personal loan or mortgage or agreed bank overdraft
  • credit sale (formerly called hire purchase)
  • credit cards
  • revolving credit, facility used for purchases and/or cash advances
  • conditional sale of either real or personal property.

A consumer credit contract is an agreement where a person is given credit:

  • solely or mainly for personal, domestic or household purposes
  • where interest charges or credit fees must apply-or a security interest must be involved and:
    • the lender is in the business of providing credit or provides credit as part of a business or on behalf of another party, or
    • the contract was formed when one party was introduced to another by a paid adviser or broker.

What you need to know

The CCCFA and its regulations cover:

  • consumer credit contracts
  • consumer leases
  • buy back transactions of land (buybacks). 

Consumer leases and buy back transactions are treated differently to consumer credit contracts.

A consumer lease is a contract where you lease products which are mainly obtained for personal, domestic or household use and the person leasing is in the business of leasing products or leases products as part of a business. Also with a consumer lease you:

  • have the option to purchase the leased products, or
  • the term of the lease is one year or more.

In certain situations, a lease to hire products may be a consumer credit contract but not a consumer lease.

The main requirement is that you either:

  • pay for the products over the term of the lease an amount that is equal to or greater than their cash price (includes interest or credit fees), or
  • you have an option to buy the products for nothing or at a nominal amount at the end.

A credit sale is the same as hire purchase or conditional sales where you:

  • buy products and pay for them at a later date, usually in instalments
  •  get to take the products home straightaway
  • the seller or lender (may be the same person or a separate finance company) under a credit sale usually has a security interest in the products until they are fully paid.

Note: A layby sale is not a credit sale as you can’t take possession of the products until the final instalment (or a specified amount) is paid and no interest charges or fees are payable under the agreement.

See also:

Credit contracts not covered by the CCCFA

A contract is not a consumer credit contract when:

  • the credit is for commercial or investment purposes. Lenders may get a declaration from customers that the credit is for business or investment
  • the total amount to be paid is due within two months and the debt equals the sale price of the products or services
  • a borrower goes into overdraft without the lender’s prior agreement
  • the borrower is acting as a trustee of a family trust
  • it is a student loan under the Student Loan Scheme.

Disclosure of information must be clear, concise and likely to be noticed by a reasonable person. It must not be misleading or deceptive about important things.

The CCCFA sets out the timing of disclosure, with various deadlines:

  • initially before the credit contract is signed
  • when guarantors sign
  • if the interest rate or the contract changes by agreement or by the lender.

Electronic disclosure is fine if the borrower consents.

Lenders who do not make proper disclosure cannot enforce contracts against borrowers until disclosure is made.

See the following model disclosure statements, which are provided in the Act:

Ongoing disclosure for unpaid balances, interest debited, and payments must be made:

  • every 45 days for revolving credit contracts
  • at least every six months for all other credit contracts.

For credit cards, a minimum repayment warning, telling the borrower that if they only pay the minimum amount each month, they will pay more interest and it will take longer to pay their credit card debt off.

Additional disclosure must be made on changes to the credit contract or lease, or when the borrower requests it.

Lenders must make their standard terms and costs of borrowing publicly available via their website or on clearly displayed notices at their premises. This helps borrowers to compare the cost of borrowing and contract terms, and to shop around.

If you don’t get a copy of the disclosure statement and any of the terms and conditions of the contract, or it’s incomplete or incorrect, the following applies:

  • the lender can’t enforce it or repossess any secured property
  • you may be entitled to a range of statutory damages
  • you have the right to cancel some or all of the contract

For contracts entered into on or after 6 June 2015 a lender cannot recover any of the costs of borrowing (interest and fees) for the period of non-compliance.

The CCCFA sets out how interest (including any default interest) is to be calculated. This must be disclosed in the contract. Interest may not be charged in advance. It is calculated by applying the daily interest rate to the daily unpaid balance.

A default interest rate is a higher interest rate charged if you miss payments or go over your credit limit. It can only be charged while you are overdue and on the amount of missed or over-limit payments, not on the whole amount of the loan.

Credit fees and early repayment fees are not interest charges and must be reasonable. This means:

  • credit fees and default fees are matched to reasonable processing costs, documentation and any third party costs
  • early repayment fees are a reasonable estimate of the lender’s loss arising from part or full prepayment for a fixed rate interest loan and their administration costs.

Lenders may not charge borrowers commission under credit-related insurance if they required the borrower to get insurance from a particular insurance company.

Lenders can only charge a default interest charge on the amount in default (not the entire unpaid balance) and only whilst the borrower is in default.

Any unreasonable fees may be challenged in court and either cancelled or reduced.

Note: For contracts entered into before 6 June 2015 lenders can charge a commission in relation to credit –related insurance or default interest on total amount owing.

Borrowers have the right to request changes to a credit contract without incurring penalties if unforeseen circumstances cause hardship, eg. illness, injury, loss of employment, or the end of a relationship. They can ask lenders to:

  • extend the contract term by reducing the amount of each payment
  • postponing payments for a set period (payments holiday)
  • extending the term of the contract and postponing debt repayments for a specified period of time (payment holiday). 

You can make a hardship application in writing to the lender at any time, unless you have:

  • been in default for two months or more
  • been in default for two weeks or more after receiving a repossession warning notice or Property Law Act notice
  • not made four or more consecutive debt repayments on their due dates. 

Borrowers may only make one hardship application on the same grounds within any four month period, unless the lender agrees to consider another application.

If the borrower catches up on the debt repayments and defaults, they are again entitled to make a hardship application. Lenders can’t charge a fee for processing these applications. Hardship applications can be made during repossessions and this will halt the repossession process until a decision is made. Lenders may only repossess secured items if they reasonably believe they are at risk.

Borrowers can apply to the Courts if a lender refuses their request.

With hardship applications lenders have to:

  • acknowledge requests for hardship within 5 working days
  • if necessary, ask for more information within 10 working days
  • make a decision on hardship applications within 20 working days and communicate that decision to borrowers
  • comply with the lender responsibility principles.

The CCCFA also protects guarantors and consumers when secured items are repossessed under a consumer credit contract. Lenders must provide advance notice of repossession once the  items have been repossessed. Lenders must comply with the repossession rules within the CCCFA and the lender responsibility principles.

See also the Commerce Commission’s:

A lender must accept a full prepayment, and may only refuse part prepayments if allowed by the contract. However they can also charge early repayment fees.

At the start of a loan you have a short window of time called a cooling off period of five working days to cancel the loan contract in writing. This may also be done electronically. The cooling off period is extended to:

  • seven working days if  the documents were sent to you by fax or email
  • nine working days if the documents were posted to you.

Saturdays, Sundays and public holidays are not working days.

Note: You may also cancel at any time if no disclosure was made. 

You are protected by the CCCFA from oppression, ie extreme unfairness, harsh, unconscionable or against reasonable standards of commercial practice. It applies to:

  • the terms of the credit contract itself
  • the lender’s behaviour.

You can apply to the courts to re-open the credit contract, consumer lease or buy-back including an order to:

  • vary or cancel the contracts
  • pay any sums.

There is a long list of factors the courts will consider in deciding whether there has been oppression or not including:

  • whether the credit contract is a consumer credit contract
  • whether the lender complies with the Lender Responsibility Principles 
  • relative bargaining power of both parties
  • your personal characteristics, eg. age, any mental or physical health condition
  • whether independent legal advice was given to you
  • the lender or their agent put unfair pressure or undue influence on you
  • length of time given to remedy any default
  • any other matters.

Read the Commerce Commission’s guidance on borrowing money and buying on credit(external link) to find out more.

A lender or trader can’t state the CCCFA does not apply

A business who tries to contract out of the Act in any other circumstances commits an offence under the Fair Trading Act.

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