Will the wider credit contracts definition catch you

​The Consumer Credit and Financial Services Law Reform Bill (the Bill), introduced into Parliament this month, will require more people to register as financial service providers.

Those affected are likely to include persons or companies who provide vendor financing as part of their main business.

Wider definition of “credit contract”

The Bill expands the definition of “credit contract” by removing an exemption in the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA) for contracts which are leases of goods under a financing arrangement.
The change is aimed at “loan sharks” who finance purchases of consumer goods such as furniture or appliances and who - due to their unregistered status - “are likely to be less scrupulous in their dealings with borrowers, and less concerned about complying with other laws such as the Credit Contracts and Consumer Finance Act (CCCFA)”.1  
But it will also catch other reputable persons or companies who provide vendor financing arrangements as a part of their main business, who may have previously been excluded from the requirement to register under the FSPA and to join a dispute resolution scheme.
The Bill also enables the Financial Markets Authority (FMA) to direct the Registrar of Financial Service Providers (Registrar) to decline a registration or to de-register a provider where the FMA is not satisfied that the purposes of the FSPA are met.
It also:
  • extends the Registrar’s powers of inspection to seek any information necessary to determine whether a financial service provider should be registered, including whether an application should be referred to the FMA, and
  • disqualifies from registration anyone with overseas criminal convictions within the last five years for theft, fraud or money laundering (persons convicted within New Zealand are already disqualified).

“Responsible lending” principles

The Bill significantly reinforces the protection already afforded to consumers under the CCCFA, through introducing a “Code of Responsible Lending” (Code). 
While the Code itself is not legally binding, compliance by lenders will be taken as evidence that no oppressive conduct (allowing re-opening of the contract under the CCCFA) has occurred.  The Bill also contains a suite of other amendments strengthening consumer rights – we will deal with these in more detail in a separate Brief Counsel. 

Next steps

If you think you may come within the new definition of credit contracts, and you are not registered under the FSPA, please contact us for more information or advice.
There will be an opportunity to submit on the Bill in the select committee stages.  We will keep you informed of developments.
Our thanks to Sarah Watson for writing this Brief Counsel. For further information, please contact the lawyers featured.
Footnote:

1   Cabinet Paper “Responsible Lending Requirements for Consumer Credit Providers”, Office of the Minister of Consumer Affairs, 2011, available
     at:  http://www.consumeraffairs.govt.nz/pdf-library/CCCFA-Review-CBC-Responsible-Lending-Cabinet-Paper.pdf

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Related topics: CCCF Act; Financial services regulation; Finance

Financial services regulation; Corporate & commercial; Finance

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