Financial Regulation Update – 4 April 2019

Credit Contracts Legislation Amendment Bill introduced to Parliament

Today saw the introduction in Parliament of the Credit Contracts Legislation Amendment Bill. A full copy of the Bill is now available online. If passed, the intention is for most of the Bill to come into force on 1 March 2020.

The Bill would make a number of significant changes to the Credit Contracts and Consumer Finance Act (CCCFA), including the following:

• The introduction of a new duty on directors and senior managers of creditors under consumer credit contracts to exercise due diligence to ensure that the creditor complies with its duties and obligations under the Act. The Bill does not define who would be a "senior manager". The court would be able to order a director or senior manager to pay statutory damages or compensation for a breach of the creditor's obligations, in circumstances where the director or senior manager has breached their obligation.
• The introduction of a pecuniary penalties regime, under which the Commerce Commission would be able to seek pecuniary penalties for certain breaches of the Act, including breach of the duty of directors and senior managers referred to above.
• The introduction of a provision enabling a creditor to apply to court for an order that the effect under section 48 or 99(1A) of a failure to make initial disclosure, or agreed variation disclosure, be extinguished or reduced on "just and equitable" grounds.
• The introduction of an obligation on the lender to keep records of their inquiries in relation to their compliance with the responsible lending principles and how the creditor calculates credit fees and default fees.
• Expansion of the circumstances in which lenders will need to verify information provided by borrowers.
• Amendments to the provisions in relation to how disclosure is made, including in relation to electronic disclosure.
• A new regime for disclosure before debt collection starts.
• Changes to the disclosure requirements in Schedule 1 for high-cost consumer credit contracts and layby sale agreements.
• The introduction of an obligation to make disclosure in a particular language (which will often be a language other than English), where the creditor uses that language for advertising, in certain circumstances.
• The introduction of a new certification regime for creditors under consumer credit contracts and mobile traders, which considers whether the creditor's controlling owners, directors and senior managers are fit and proper persons. Licensed providers under other certain other statutes (such as banks and non-bank deposit takers) would be exempt from this certification regime.
• The introduction of the concept of a "high-cost consumer credit contract", which would include a contract with an annual interest rate of 50% or more, and which would attract a number of special rules. The maximum cost of borrowing recoverable under a high-cost consumer credit would be limited to an amount equal to the first advance under the contract.

The next stage in the legislative process is referral to Select Committee.

Please get in touch with one of our experts if you would like to discuss how the proposed changes would affect you or for assistance in preparing a submission to the Select Committee.

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