Feedback is sought on a Responsible Lending Code to
support the reforms to the Credit Contracts and Consumer Finance
Submissions close on 13 August 2014.
The proposed code is intended to assist compliance with the
responsible lending principles set out in the Act, and is due to
come into effect from June 2015. The
discussion document, put out by the Ministry of Business,
Innovation and Employment (MBIE), seeks feedback on the
code's contents, including:
whether it should differentiate between lenders and loan
how prescriptive it should be (i.e. getting the right balance
between certainty and flexibility)
the restrictions which should be applied to credit advertising
(e.g. prohibiting advertising a monthly interest rate instead of an
annual interest rate)
the explanations to be given to borrowers as to the content of
credit agreements and their variations (e.g. oral disclosure of
certain key features or providing video clips on line)
how to ensure that borrowers and guarantors are able to meet
their obligations without substantial hardship. Possibilities
following the Australian presumption of substantial hardship if
the borrower can only repay the loan by selling their home (this
would require the lender in circumstances where a person wants to
take out a home loan which will stretch beyond their retirement to
ascertain at the outset whether the borrower will be able to keep
up the payments when retired)
the more controversial option is to set a specific
debt-to-income ratio, as the UK has done in an attempt to cool the
UK property market. MBIE admits that there are difficulties with
such an approach
how to ensure that loans and credit related insurance are
likely to meet the borrower's requirements and objectives (this
may require sales staff to give personalised financial advice and
therefore be qualified under the Financial Advisers Act 2008)
when verification of information provided by customers will be
how lenders should assess whether the security to be taken in
relation to a loan is "excessive". (It will be
interesting to see what the code provides in this area –
taking a small home loan over a valuable property should not be
prohibited in circumstances where, say, the mortgage is nearing its
end and has been transferred to a new lender because of better
what lenders should do prior to enforcing if a customer
defaults and how they should treat the borrower, any guarantor and
the property on a default
what processes lenders should have to ensure that fees are
whether lenders should be required to release any security at
the end of a loan. We doubt this would be practical for large
The code will apply to lenders under consumer credit contracts
and to credit contracts which are secured by consumer goods. The
code will not be binding on lenders but will provide them with a
safe-harbour so that, if they comply with its terms, they will be
treated as complying with the responsible lending provisions.
The code is expected to be finalised in March 2015.
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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