Most Read Contributor in New Zealand, September 2016
A draft Responsible Lending Code has been released for
comment by the Ministry of Business, Innovation and Employment
Submissions are due by 5pm, 23 December
Code seeks to provide an implementation guide to the
Responsible Lending Principles (the Principles) contained
in the Credit Contracts and Consumer Finance Amendment Act 2014
(the Amendment Act).
It will necessarily create new costs for lenders. The skill for
policy-makers and regulators will be to get the balance right so
that the vulnerable borrower is protected without creating an
unnecessary compliance burden on business.
The Code is non-binding and does not act as a "safe
harbour" for lenders, but compliance will be deemed to be
compliance with the Principles.
We outline a few areas for potential submission.
The Code proposes a series of rigorous checks and procedures
that a customer would need to go through before gaining a
"pre-approval". These may make it difficult for lenders
to grant pre-approvals to home buyers.
Policy and processes
Lenders would need to put in place specific policies and
processes in areas such as approving advertising material,
approving or declining applications, handling complaints and
training staff on the Principles. Implementation of these could be
time and cost onerous, especially if a lender needs to overhaul its
An example is the proposed requirement that a lender should
highlight key features of the credit contract "regardless of
the channel through which credit is provided." This may be
difficult to achieve over the phone to the same standard as could
be achieved in person. Lenders must ensure that all methods of
communication are at the same standard.
Ensuring the agent's policies
Lenders must ensure that their agents understand and comply with
all relevant legal obligations and policies, and that they have
appropriate processes in place. Agents for this purpose include
brokers, debt collectors and retailers or motor vehicle dealers
providing point of sale access to credit.
The level of scrutiny implied by this requirement would be
difficult to achieve where the agent is independent. It is unlikely
that a bank, for example, could gain such a high level of access to
an independent agent's internal processes.
The draft Code also explicitly states that, even if a lender has
adequate systems and procedures in place, the Court does not have
to believe that these have been adhered to. This is not a major
departure from current Court practice but it is an express
statement in the Code.
Knowledge of borrower requirements
A lender should have an in depth understanding of the
borrower's requirements such that an assessment can be made as
to whether the credit arrangements will be likely to meet the
borrower's needs. Further, a lender cannot sell a product to
the borrower that he or she does not need. The example the Code
gives is that an unemployed borrower will not generally need
insurance to cover against the possibility of unemployment.
MBIE is awaiting the Court of Appeal decision, due next year, in
Sportzone/MFT v Commerce Commission before determining
what fees a lender can reasonably charge and what connection those
fees must have to the credit contract in question.
The Code states that lenders should re-evaluate fees as soon as
possible after they realise that they generated profit from
The Code enhances consumer protection, predominately in the
realm of default and repossession. Here, the Code aims to ensure
that repayment occurs, and that lenders are not punishing a
borrower in a default situation.
What if the lender does not comply?
If lenders do not comply with the Code they may be held in
breach of the Principles in the Amendment Act. As a result, the
Court may order compensation or injunctions and the lender may be
banned from lending in future.
Non-compliance is also one of the factors that could lead to a
contract being reopened for oppression.
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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The Sportscraft refunds and returns policy limitations went beyond consumer's rights under the Australian Consumer Law.
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