New responsible lending rules that come into effect this week will need to be actively enforced to rein-in lenders who target vulnerable consumers.
Consumer NZ chief executive Sue Chetwin says changes to lending laws are needed to clampdown on traders like mobile truck operators selling goods on credit at inflated prices, often to people who can least afford to pay for them.
“Customers of these traders may not be told the total amount they had to pay and could end up with substantial debts. A packet of cereal bought from a mobile truck operator could cost $40 and a packet of milk powder $35. Credit fees charged on top could add significantly to the price,” Ms Chetwin said.
Changes to the main law governing lending to consumers, the Credit Contracts and Consumer Finance Act, take effect from tomorrow. Ms Chetwin said the law reforms were designed to prevent consumers being locked into loans they couldn’t afford and had little hope of repaying.
Key changes included introducing responsible lending principles and a code. All lenders – from major banks to mobile truck operators – were covered by the changes and had to ensure their practices were responsible.
Lenders are required to publicly disclose their fees and contract terms. Customers must be given this information before they enter into a credit contract.
Ms Chetwin said consumers should also expect to see a clampdown on ads for easy credit. “We expect to see ads touting ‘no credit checks’ or ‘instant approval’ to be stamped out and companies prosecuted by the Commerce Commission if they continue to make these claims.”
She said enforcement was crucial if the Act’s consumer protection objectives were to be achieved.
Other key changes to the Credit Contracts and Consumer Finance Act would also take effect from tomorrow:
- Consumers would now have a cooling-off period of five, instead of three, working days to cancel a credit contract.
- Repossession rules had been brought into the Act and essential consumer goods such as beds, stoves and washing machines could not be repossessed.
- Maximum penalties had been aligned with the Fair Trading Act. The maximum fine for a company was now $600,000.
Consumer NZ has been calling for responsible lending requirements since 2008. It surveyed political parties prior to the 2008 general election on their support for a responsible lending code. Only two parties stated outright support for a code at that time.
Responsible lending principles and a responsible lending code were finally introduced in the Credit Contracts and Consumer Finance Amendment Act 2014. The amendments take effect from 6 June.