New Credit Law

Got your eye on a new TV? Or are you're looking to buy a car? Maybe you're considering buying these on credit or taking a loan to cover the cost. From 1 April 2005, a new credit law will help provide better protection from unfair practices and give you greater rights when you buy goods on credit or borrow money. The new law, the Credit Contracts and Consumer Finance Act (CCCFA), replaces the Credit Contracts Act and the Hire Purchase Act. It was introduced because the older laws did not fit many new consumer credit products and industry practices and better protection was required.

New Protections and Rights

So what will be different? Here are some of the changes for consumers under the new credit law.

  • Disclosure. Consumers must be given a Disclosure Statement at the start of the contract. This is important information about the contract, and must be understandable and accurate. This will give consumers the opportunity to make informed decisions about the affordability of a credit contract or loan. It will also make it easier to compare the true costs of different credit products.
  • Fees. Lenders (the company or organisation providing the credit) cannot charge consumers unreasonable fees - e.g., establishment fees must be based on the lender's actual costs of establishing the contract. Lenders may charge a default fee - e.g., if a payment is late - but the default fee can only be to compensate the lender and must not be a penalty. Lenders are also prevented from using unfair methods of calculating interest or early repayment charges. However, there is no limit to the interest rate that a creditor can charge.
  • Enforcement. There are greater incentives for lenders to comply with the new credit law and treat consumers fairly. There are stronger penalties for lenders and retailers who breach the law. The Commerce Commission has been given the power to take action in response to these breaches. And consumers will still be able to seek their own remedies through use of the Disputes Tribunal.
  • Hardship. If consumers experience an unforeseen "hardship", such as an illness or injury, losing their job or ending a relationship - and they are up to date with their payments - they can request a change to a credit contract from their lender. This can include spreading payments over a longer term or postponing payment dates.
  • Early repayment. Consumers can pay off the full amount owing on their credit sale or loan contract at any time (called "full prepayment"). Some contracts may allow consumers to pay off some of the balance (called "part prepayment"). However, if consumers make a prepayment, the lender may charge a fee to cover their costs. These costs must be reasonable. Consumers can ask the lender what costs they'll have to pay if they want to repay early.
  • New term. With the new credit law comes a new term for the old "hire purchase" agreement. The term "credit sale" applies to the purchase of goods with the right to use them and pay them off later - e.g., by making monthly payments. However, some business may continue to use "hire purchase" to describe this type of sale.

Want More Information?

  • For contracts signed on or after 1 April 2005. The Ministry of Consumer Affairs has produced a new pamphlet, Credit - What you need to know when borrowing money or buying goods on credit. This straightforward guide covers consumer rights before and after signing a contract, the information lenders must disclose, what contracts must include, the responsibility of the consumer when entering a contract and where to go for more help. The pamphlet is available from Citizens Advice Bureau (CAB) - phone 0800 FOR CAB (0800 367 222). Information is also on the Ministry's website (www.consumeraffairs.govt.nz - see Consumer Information section, Credit Issues).
  • For contracts signed before 1 April 2005. If you signed a contract before 1 April 2005, the Credit Contracts Act and Hire Purchase Act may still apply to you. Lenders can choose whether or not to bring older contracts under the new credit law, but they cannot do this if it would increase the amount you would have to pay. For more information on existing contracts check out The Ministry's pamphlet "Hire Purchase - A guide for consumers", or their factsheet "Cash Loans". Both are available from your local Citizens Advice Bureau or on the Ministry's website.

Some Terms Explained

  • Credit: the amount of money you're borrowing. Credit can be a loan, buying goods that you'll pay off later or using a bank or store credit card to buy goods and services.
  • Credit contract: a contract that sets out the terms and conditions of the credit sale or loan.
  • Credit sale: A type of credit contract where you buy goods with the right to use them and pay them off later - e.g., by making monthly payments (instalments). This is the new term for the old "hire purchase" agreement.
  • Disclosure statement: written information about your credit contract - e.g., payment information, interest rate, cancellation rights.
  • Lender: the company or organisation providing you with credit - e.g., sellers, finance companies, banks, money lenders.
  • Loan: money you borrow from a bank, finance company or other lender. A loan is a form of credit contract.
  • Secured loan: A loan where the lender asks you to list goods you own - e.g., a car or household goods - as security for the loan. If you fail to repay what you owe, the lender may seize and sell the goods to pay off your debt to them.

Thanks to Ministry of Consumer Affairs

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