Chasing the Loan Sharks Out of the Water

The Credit Contracts Legislation Amendment Bill (“CCLAB”) received Royal Assent on 19 December 2019, and introduces a number of changes that strengthen the requirements of responsible lending for banks and financial institutions

The overall purpose of the CCLAB is to make certain amendments to reduce irresponsible and predatory lending to consumers. The most significant change introduced by the Bill relates to high cost loans and the introduction of a credit cap. This means that a borrower will not pay more than 100% of their loan (including interest and fees) on high cost loans (defined as loans with an annual interest rate of 50% or more), and no more than 0.8% per day on a loan.

In addition to the credit cap, new prescriptive requirements have been created for lenders. The requirements will force lenders to assess the likelihood the credit provided to borrowers will meet the requirements and needs of the borrower and/or result in substantial hardship for the borrower (this will also apply to any “material changes” made to existing credit contracts).

Additionally, the provisions require lenders to keep records relating to the affordability of the loans and reasonableness of fees, ensure any advertising material is compliant with certain advertising standards, and provide details regarding dispute resolution for any potential hardship that arises.

Other Changes Introduced by the Bill

The other key changes introduced by the CCLAB can be summarised as:

1. Requirements for directors and senior managers of creditors to meet “a new fit and proper” test;
2. Disclosure requirements at the commencement of debt collection;
3. Significant punishments for irresponsible lending behaviour; and
4. New requirements for credit providers to provide statistical information about their business to the Commerce Commission on an annual basis.

The new legislation regarding the credit cap and new duties imposed on directors and senior managers will commence in June 2020, with the remainder of the Act commencing on 1 April 2021.

If you have any questions about the changes being introduced by the CCLAB, please contact Sarah or Jono