Know your rights
You have specific rights to protect you when you enter into consumer credit contracts such as mortgages, agreed overdrafts, personal loans, credit sales and credit card purchases, under the Credit Contracts Consumer Finance Act (CCCFA). You can apply to have these contracts varied or cancelled if any of these rights are breached, and sometimes the costs of credit can’t be enforced.
You have slightly different rights with consumer leases and pawnbroking contracts under the CCCFA.
Your rights with consumer credit contracts under the CCCFA include:
- disclosure of key information: what you need to know before and during the credit contract term. See the model Disclosure statement for consumer credit contracts [DOCX, 33 KB]
- interest charges: how these are charged, total interest, any interest-free period and reasonable default interest charges (higher rate applied, but only to the amount in arrears). A lender can’t charge interest in advance
- early repayment: any prepayment fees (break fees) must be reasonable
- other fees must be reasonable, such as credit fees for establishment, default fees for not meeting the contract’s terms, and third-party fees such as broker charges
- credit-related insurance to cover illness and redundancy; a lender may not be unreasonable about any terms on which you take this out
- cancellation: you have various cooling-off periods to change your mind
- applying for hardship: you can apply for a payment holiday or change your credit contract if you experience unexpected hardship
- oppression: lenders may not act in a way that is harsh, very unfair or that doesn’t meet reasonable standards of commercial practice; and may not include oppressive terms in the credit contract
- Lender Responsibility Principles and the Responsible Lending Code [PDF, 395 KB]: lenders must comply with these principles when providing credit, including treating you ethically and reasonably.
‘Reasonable’ in relation to default interest charges and all other fees must reflect the lender’s actual costs incurred, or a reasonable estimate of that loss, and conform to standard commercial practice.
Lenders who provide credit also fall within the legal scope of financial advisors. They must be registered on the Financial Service Provider Register(external link) and belong to an independent dispute resolution scheme.
If not, they can’t enforce any of their rights to recover the cost of borrowing or make you repay your debt during the time they are unregistered.
Read Getting financial advice to find out more.
New Lender Responsibility Principles and the Responsible Lending Code [PDF, 395 KB] apply to all lenders. Lenders must:
- exercise the care, diligence and skill of a responsible lender in all their dealings with you
- be satisfied that you can afford to borrow the loan amount and make repayments without suffering substantial hardship
- help you make an informed decision about whether to take out a secured loan, as well as all subsequent dealings
- make sure that loans are not oppressive. Charging excessive interest rates when taken together with other factors may indicate oppression. Some of these factors are set out in the paragraph on oppressive terms
- must not exercise their rights oppressively.
Lenders need to make sure a loan meets your needs and that you can afford repayments without undue hardship.
‘Oppressive’ terms or behaviour include being harsh or in breach of reasonable commercial practice. Other factors that may be taken into account include:
- relative bargaining strengths of both parties, including skills, experience, access to resources and advice. Taking advantage of a vulnerable borrower may indicate oppression
- the complex nature of any credit contract and whether you got legal advice or could afford to do so
- when exercising lender’s rights, the period given to you to remedy any default, whether the amounts demanded are in fact correct and whether the lender’s actions are lawful.
Find out more in the Commerce Commission’s factsheet on Oppression(external link).
You also have rights as a consumer under the Consumer Guarantees Act. In particular, lenders must provide credit services to you with reasonable care and skill. They must also comply with all the rules under the Fair Trading Act (FTA) and not mislead or deceive you.
For more information read the Commerce Commission’s guidance on fees a lender may charge(external link).
Consumer leases are leases of products for personal, domestic or household use, but with no interest, credit fees or express security interests. Consumer leases must either:
- last for more than 12 months and the amount payable is less than the cash price of the products
- give you the option to buy the products at a price which is the fair value of the products.
Consumer leases are treated separately to consumer credit contracts. Your rights are reduced in that:
- lenders don’t have to tell you as much about the contract (disclosure)
- you have no right to cancel a consumer lease after receiving initial disclosure
- you can’t ask for changes to the contract on the grounds of hardship.
Pawnbrokers lend money on the security of your goods (based on their market value) which you leave at their shop for a set period eg, three months. If you don’t repay the loan (including interest and fees) and pick up the goods by an agreed date (redemption date), they can only sell them after this date and keep the redemption price.
Pawnbroking contracts are also treated differently to other consumer credit contracts. Your rights are limited to: