Rules banks and other lenders must follow to make sure loans and credit are affordable and meet your needs.
Key rules for lenders
Lenders must act in line with responsible lending principles set out in the Credit Contracts and Consumer Finance Act (CCCFA). It applies to those who provide mortgages, loans, agreed overdrafts, and buying on credit, including truck shops. It also covers consumer leases and home buy-backs.
Responsible lending covers everything lenders do, from adverts to loan agreements, affordability assessments to limits on interest and fees.
The most important requirements say lenders must:
- Comply with disclosure obligations.
- Ask detailed questions about your income, expenses and current circumstances, including any likely changes to the income you’ll rely on to repay the loan.
- Ask what the loan is for to make sure they provide the right type of finance.
- Conduct an affordability and suitability assessment to check the loan or credit meets your needs and make sure you can afford repayments.
- Help you understand what you are signing up to before you sign.
- Limit interest and fees for high-cost loans (loans with 50% interest per annum or more) — they cannot ask you to pay back more than twice the amount borrowed, they cannot charge more than 0.8% of the unpaid loan balance in interest and fees per day when averaged across the loan term, and cannot charge compound interest.
- Treat you fairly — this includes how the lender behaves when you can't pay. Default fees for missed payments must be $30 or less for high-cost loans, unless the lender can justify a higher amount.
If a lender breaks these rules, apply to your lender to have your contract changed or cancelled. If they don't agree, complain to their dispute resolution scheme.
Lender responsibility principles
What you can expect from your lender(external link) — Commerce Commission
Lenders who provide credit must also:
- Be registered — check the Financial Service Providers Register.
- Belong to an approved independent dispute resolution scheme.
Unregistered lenders cannot make you pay interest, default fees and other costs of borrowing. They must register to gain this right, but can only make you pay borrowing costs for the time they are registered.
Financial Service Providers Register(external link) — Companies Office
Responsible Lending Code – current
The code guides lenders on how to put lender responsibility principles into practice. It's a complex document aimed at businesses that provide loans and credit.
You can find the summarised principles, and how they apply to you as a consumer, on this page without reading the code in full.
Find the full Responsible Lending Code, or previous versions and addendums on the MBIE Document Library:
Responsible Lending Code(external link) — MBIE website
In June, MBIE issued some additional guidance that sits alongside the Responsible Lending Code. This guidance covered situations where an existing consumer credit contract is varied or replaced for the purpose of reducing a borrower’s financial difficulties brought on by the economic or health impacts of COVID-19. This excludes brand new lending.
The addendum expired on 31 March 2021.
Addendum to the Responsible Lending Code: COVID-19 [PDF, 275 KB]
Updated Responsible Lending Code – from 1 December 2021
An updated version of the code has been issued, to support recent law changes. The law changes and most of the updated code will take effect from 1 December 2021.
Note that Chapter 12 of the updated code will come into force on 1 February 2022. Until this date, Chapter 12 of the previous version of the Responsible Lending Code remains in force.
Lender responsibility principles
Lender responsibility principles protect your rights when you:
- borrow money or buy on credit
- act as a guarantor for someone's loan or credit contract
- buy credit-related insurance, eg payment protection, mechanical breakdown insurance added to car finance.
If your lender has not followed the principles explained below, complain first to the lender. If you can't agree a solution, complain to the lender's dispute resolution scheme.
The principles say lenders must:
The lender needs to check the loan is suitable for you. They could ask different questions to figure out what might suit you best, including:
- How much you need to borrow.
- What the loan is for.
- Questions about your expenses and the income you will be relying upon to repay the debt.
- What you have planned or anything you can see on the horizon (foreseen circumstances) that might change your future income.
- How much of a buffer or surplus you might need in your budget after the proposed loan payments are included. This is needed to cover any unexpected expenses you might incur after you get the loan.
- If you need extra products like insurance.
- How you want to make repayments.
For example, if you want to make lump repayments alongside your regular repayments, a flexible or floating loan would meet your needs better than a fixed loan.
The lender must work out if you can afford repayments. This means checking how much you are paid, and how much you spend on rent, power, food, travel and other household costs and what might change your future income or expenses.
The lender should use these figures to check you can afford repayments without "substantial hardship" — explained in the Responsible Lending Code as able to make repayments and still pay your other bills.
Repayments cover more than just the loan amount. Fees and interest are also included.
Applying for a loan checklist [PDF, 422 KB]
Applying for a loan checklist — Māori [PDF, 374 KB]
Applying for a loan checklist — Sāmoan [PDF, 367 KB]
Applying for a loan checklist — Tongan [PDF, 369 KB]
Fees a lender may charge(external link) — Commerce Commission
This covers advertising, loan documents and other ways of sharing information. All information must be clear and understandable.
Lenders must give you specific information in writing (also called disclosure) before you take out the loan, and during the loan or credit contract.
You must be given copies of all important documents, eg disclosure statement, payment schedule.
Before you sign/agree
Lenders must give you information about your rights, costs and rules to follow. This is usually in a document called a disclosure statement.
Examples of key information you must be given:
- total amount to repay, including interest
- all fees, eg monthly admin fee, repossession costs
- any assets used as loan security, eg your car
- how to apply for hardship
- how to cancel.
Credit contracts are supposed to be clear and understandable, but they can still include complex legal language. It's your right to get independent help if you don't understand something in your contract. Our page with simplified definitions can also help:
Credit contracts: Plain English definitions
If your disclosure statement has incorrect or missing information — or you haven't been given one — the lender:
- can never make you pay fees or interest for that time
- cannot enforce any other rules in your contract (including making you pay) until you have a disclosure statement with full and correct details
- may face penalties if you complain to a dispute resolution scheme or take legal action.
During the loan/credit contract
Lenders must give updates on repayment progress and other account information. They must do this regularly — at least every six months.
Some send paper statements. Some provide a secure website where you can log into your account.
If you and your lender agree to any changes mid-loan, eg reduced payments or higher fees, it must be put in writing before the change takes place.
Lenders must treat you fairly at all times, including when there's a problem. A problem could be:
- overdue payments
- you break another rule of your loan agreement, eg sell car used as loan security
- an unexpected life event makes it hard to afford repayments (also called hardship)
- repossession.
When it comes to repossession, lenders must:
- only enter your home or garage when they have the right to do so
- only take items listed as security in your contract, eg car or TV
- not take personal or household necessities, eg beds, fridge, passport
- not damage your home or belongings, including when storing repossessed items.
Once your item is sold, it freezes your account, meaning interest and fees will no longer be added to what you owe.
Repossession agents must also give you copies of important documents, including their licence or certificate.
Your lender's behaviour — and the rules in your credit contract — must be fair and in line with reasonable commercial practice. Check what other lenders do. Is your lender's behaviour within this range, or do they seem to have too much power over you?
If your lender or loan agreement seems to be extremely unfair, it might be:
- oppressive behaviour
- an oppressive contract.
Both are illegal. Get independent advice on your next steps, which could include legal action.
Possible examples of oppression
- Pressuring you to borrow more than you can afford.
- Pressuring you to sign a contract on the spot, with no time to think or get advice.
- Setting up a power imbalance so you are in a weaker position, including taking advantage of any barriers you face.
- Charging high fees to earn a profit, not just cover costs.
- Giving too little time to pay any missed payments.
- Taking too long to act on overdue payments, as it's unfair to let fees and interest stack up.
- Failing to correct errors in how much is owed, especially if the lender continues to chase you for payment.
Unfair contract terms(external link) — Commerce Commission
You also have rights as a consumer under the:
- Fair Trading Act — lenders must not mislead you or lie to you, including in adverts or in contract terms (rules of the document you signed).
- Consumer Guarantees Act — lenders must not provide sub-standard services.
Example — Lender acting unfairly
Maggie misses one of her car loan payments. She can't afford the missed payment and late fee until she gets her wages next week. She tries to explain this to her finance company. But they threaten repossession unless she pays off the whole loan within two days. Maggie calls the MoneyTalks helpline and is paired with a free financial mentor.
The mentor talks to the lender on Maggie's behalf, pointing out this is an extreme reaction to a missed payment. It could be oppressive conduct, which is illegal. The lender backs down. Maggie makes the missed payment on her payday.
Financial dispute resolution schemes
All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:
- give information about how lenders should act
- share tips on how to complain to your lender
- look into certain complaints when you and your lender cannot agree on a solution.
It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.
Free confidential advice(external link) — MoneyTalks
There are four schemes:
- Banking Ombudsman(external link) — phone 0800 805 950
- Insurance and Financial Services Ombudsman(external link) — phone 0800 888 202
- Financial Services Complaints(external link) — phone 0800 347 257
- Financial Dispute Resolution Service(external link) — phone 0508 337 337
To find out which your lender belongs to, ask your lender or check:
- lender's website
- your credit contract, in a section called "dispute resolution"
- lender's entry on the Financial Service Providers Register.
Search the register(external link) — Financial Service Providers Register
You can also phone any of the financial disputes schemes — they will tell you which one to contact.
Possible outcomes
If the dispute scheme investigates your complaint, it might decide the lender should:
- Change your contract: A common option is to agree a new payment plan that you can afford.
- Reduce how much you owe: Some fees or interest might be refunded.
- Lower the interest rate.
It's up to you — not your lender — to accept or reject the scheme's decision. If you don't accept it, you can take your complaint elsewhere, eg District Court.
If things go wrong
If you think your lender or debt collector has acted unfairly, follow these steps — you might not need to do all three:
- Contact the lender: Talk to the bank or finance company as soon as possible. Many issues can be solved at this step.
- Contact the lender's dispute resolution scheme: If you and the lender can't agree, get independent help to solve the problem.
- Report the lender to the Commerce Commission: This government agency gathers information to take action against lenders who break the rules. It doesn't take on individual cases.
The Credit Contracts and Consumer Finance Act changed in June 2015. If your loan agreement started before then, different rules might apply.
1. Contact the lender
If a lender or debt collector seems to have acted unfairly, you can apply to have your contract changed or cancelled.
Before you make contact, read our information on how to complain.
A free financial mentor can help, or can talk to them for you. Start by contacting the free helpline MoneyTalks.
Contact information(external link) — MoneyTalks
- Check your credit contract — this should list all fees, and explain when you might have to pay these costs.
- Gather proof, eg if fee amount is more than what's listed in your contract or on their website, differences between your lender's fees and most others.
- Think about what you will say, making notes with points you want to cover.
- Decide your ideal outcome, egreduce or cancel the fee.
During the conversation:
- Take notes — include dates and what was said. If you need to take your complaint to the dispute resolution scheme, this will be helpful proof.
- Stick to the facts — explain the problem and share any proof.
- Say what you want — explain your ideal outcome.
- Take time out — if it gets heated, or you want to think about their response, arrange a time to call or email back. Explain you need time to digest the conversation.
- Make it official — if you reach an agreement to reduce or waive (cancel) a fee, get it in writing. It's a good idea to get your contract updated.
2. Contact lender's dispute resolution scheme
All banks, lenders and financial advisors must belong to a financial dispute resolution scheme.
To find out which your lender belongs to, phone any one of the four schemes to find out. For contact details, see:
Financial dispute resolution schemes
3. Report the lender
The Commerce Commission enforces certain consumer laws, including the Credit Contracts and Consumer Finance Act. This is designed to make sure businesses lend responsibly, eg to check loans are affordable and disclose all interest and fees.
Commerce Commission doesn't act on behalf of individuals and can't investigate every complaint. But their investigations do help make sure businesses comply with the law. Your information helps them assess which consumer issues cause greatest harm.
Make a complaint(external link) — Commerce Commission
More help
Get support at any point from:
- MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.
Contact information(external link) — MoneyTalks
- Community Law Centre: Free one-on-one legal advice for people with limited finances. The organisation has 24 centres throughout the country. You can find legal information and other resources on its website.
Our law centres(external link) — Community Law Centre