The main provisions of the Credit Contracts and Consumer Finance Act 2003 came into force on 1 April 2005.
While the Act retains many of the aspects of the previous Credit Contracts Act, there are several important new features.
Main features of the CCCFA
While the CCCFA retains many aspects of its predecessor legislation, it will significantly affect the consumer finance industry. The main features include:
Applicable only to consumer credit
The CCCFA, for the most part, only applies to "consumer credit contracts" and "consumer leases". For a contract to be a consumer credit contract, the borrower (referred to in the CCCFA as the "debtor") must be a natural person who enters into the contract primarily for personal, domestic or household purposes. Consequently, except in relation to the oppressive contract provisions, "credit contracts" entered into
- for business or investment purposes, and/or
- by companies, incorporated societies or other similar bodies
are removed from the scope of the CCCFA. Further, while trustees of a trust might be natural persons, a credit contract with a natural person acting in their capacity as trustee of a family trust is also excluded from being a consumer credit contract. Similarly, while a partnership or sole trader might also be considered a natural person, credit contracts with each of these will often be excluded from the CCCFA, as a partnership and sole trader will most often be acting for business or investment purposes (however, this will always need to be assessed as a factual matter).
Finally, creditors should note that the CCCFA will apply to all consumer credit contracts regardless of the amount of credit provided. The existing monetary thresholds in the CCA will no longer apply.
Broader range of leases included
Currently, only a limited range of leases is covered by the CCA and the HPA: in the case of the CCA, only leases that contain an "interest" element (such as finance leases); in the case of the HPA, leases that contain purchase options. While these types of leases are subject to the CCCFA (and in most cases are likely to be consumer credit contracts), an additional, broader, range of leases, defined as "consumer leases", is also covered by the CCCFA.
These consist of leases where:
- the lessor carries on the business of leasing goods
- the lessee is a natural person
- the lease is entered into primarily for personal, domestic or household purposes (i.e. the same purposes as for a consumer credit contract), and
- the lease has a term of at least a year or includes an option for the lessee to purchase the goods (at a price that is at or close to the fair market price of the goods at the time the option is exercised).
New disclosure obligations
The disclosure obligations for consumer credit contracts and consumer leases under the CCCFA are broadly similar to those under the CCA. The five disclosure categories will remain: initial disclosure, variation disclosure, request disclosure, and (in relation to consumer credit contracts) guarantee disclosure and continuing disclosure. However, changes have been made with the aim of providing debtors with more relevant information and presenting that information in a manner that is likely to bring it to the attention of debtors.
On the other hand, in recognition of difficulties that have arisen under the CCA, creditors will not be required to calculate and disclose an overall finance rate. Model forms of initial disclosure statements that can be used have been published (in the regulations which accompany the CCCFA), and it will be possible to provide disclosure in electronic form if the debtor consents.
New rules regulating interest, fees and payments
The CCCFA contains new provisions which regulate in some detail the calculation of interest, fees, payments and early repayments in respect of consumer credit contracts and the amounts payable on the termination of consumer leases. For example, credit fees and default fees cannot be unreasonable, and guidelines as to what constitutes a reasonable fee are included in the CCCFA. In addition, third party fees or charges which are passed on to the debtor must not exceed the actual amount payable to the third party.
The CCCFA also regulates the timing of certain payments. For example, creditors cannot charge interest in advance and must accept partial prepayment under a consumer credit contract unless it expressly provides otherwise.
Debtor may seek hardship relief
A debtor may apply to a creditor, and ultimately the court, to change the terms of a consumer credit contract on the grounds of unforeseen hardship. The changes a debtor may seek principally relate to:
- extending the term of a contract and reducing the amount of each payment, and
- postponing the dates on which payments are due during a specified period.
The grounds of unforeseen hardship are limited by the CCCFA to illness, injury, loss of employment, the end of a personal relationship, or other "reasonable" cause.
The ground of other "reasonable" cause is troubling, and could create uncertainty for creditors. However, a debtor may not make an application to a creditor:
- if the debtor has defaulted in a payment
- if the debtor has incurred obligations in excess of a credit limit, or
- in relation to a hardship ground, if it was reasonably foreseeable at the time the contract was made that the debtor would be unlikely to meet its obligations under the consumer credit contract due to that hardship ground applying.
Rules now applying to home "buy-back" transactions
The rules that now apply to buy-back transactions include a disclosure regime, a requirement for independent legal advice and the application of the oppressive contract provisions.
A buy-back transaction involves a homeowner transferring the title to their home to a company or an individual (transferee) while retaining the right to remain in possession of the home, usually by paying rent. The homeowner has a right to buy-back the property at a later date. The transferee usually provides money or discharges a pre-existing debt of the homeowner.
Oppressive contracts and oppressive conduct are prohibited
The oppressive conduct provisions apply to all credit contracts and consumer leases and, thus, catch credit contracts entered into for business or investment purposes as well as consumer credit contracts. The provisions are broadly similar to those in the CCA. Accordingly, a court will be able to reopen a credit contract where the contract itself is oppressive, or where the circumstances of the entry into, or the exercise of rights under, the contract are oppressive.
Commerce Commission can enforce the CCCFA
The CCCFA provides a new role and powers for the Commerce Commission (Commission). The Commission is appointed as the public enforcement agency charged with promoting compliance with the CCCFA.
Significantly, the Commission will have the authority to prosecute creditors for breaches of the CCCFA, and take proceedings on behalf of debtors.
The CCCFA provides the courts with a wide range of remedies, including fines, statutory damages, injunctions and banning orders. Breaches of the CCCFA can result in a fine of up to $30,000. In addition, the court can impose statutory damages of up to $3,000 for a breach of the disclosure obligations in respect of each consumer credit contract, although the CCCFA provides guidelines as to when such damages may be reduced. Further, a court can make orders prohibiting or restricting a person from providing credit or being a director or employee of a creditor which provides consumer credit. More significantly, as with the CCA, a consumer credit contract or consumer lease will not be enforceable until the relevant initial disclosure or variation disclosure has been made by the creditor.