Object reference not set to an instance of an object.
Publications

Select committee gives Credit Contracts Bill more teeth

25 March 2014

​Stronger consumer protections are proposed in the report back of the Credit Contracts and Financial Services Law Reform Bill (the Bill) but the select committee has stopped short of recommending interest rate caps.

Progress on the Bill will resume after the House returns on 8 April.  

New protections - and some fish hooks

  • A "plain language" requirement for all consumer credit contracts and all non-consumer credit contracts involving security over consumer goods.
  • A prohibition on charging borrowers commission for credit-related insurance where the insurance is financed under a consumer credit contract.
  • A general ban on taking security over certain types of consumer goods, even to secure a non-consumer loan.  The ban would apply only to certain goods used or acquired by the borrower primarily for personal, domestic or household purposes, such as the borrower's personal bedding, stove and passport.  Commercial lenders will need to take care to exclude such items from general security agreements granted by non-corporate borrowers (such as sole traders), as those individuals will most likely own some of the prohibited items for their domestic purposes.  Breaching the ban will be an offence.
  • A requirement that credit card statements include a prescribed warning about minimum repayments (the exact wording to be provided by regulation).
  • Some relief from the need for lenders to make variation disclosure where the information is provided in the next regular statement.  (The concession, however, will not generally apply if the lender provides on-line statements to a customer e.g. through internet banking.)
  • A shorter deadline - from 15 working days to five - for guarantors to be provided with a disclosure statement in relation to subsequent consumer credit contracts.

What this means for lenders

Lenders will need to review their consumer loan agreements, and even some non-consumer loan and security agreements, to ensure that they meet the new requirements.  We recommend that you make an early start as systems changes may be required to comply.  Chapman Tripp is happy to help.

The committee is proposing a transition period of 12 months after the Bill's enactment to allow time for the industry to adjust and to enable development of the Responsible Lending Code.

Chapman Tripp's earlier commentaries on the Bill are available here and here.

For more information, please contact the lawyers featured.

Contacts