8 August 2001
Consumer Credit Laws to be overhauled
The Government is going to change the law to protect consumers against loan sharks and unfair credit practises.
The Minister of Consumer Affairs, Jim Anderton, today announced the Labour Alliance Government's intention to replace the Credit Contracts Act 1981 and the Hire Purchase Act 1971 with a tougher single Consumer Credit Bill.
"The Ministry of Consumer Affairs has highlighted two new examples of companies who have been acting in ways that are not acceptable.
"Financial Options of Manukau City have been using some contracts which do not disclose any financial information and are charging excessive fees.
"Jackson Investments of Christchurch were putting stiff penalties onto early repayments for vehicles and inflating the price of vehicles on the contracts."
"Although many of these practises appear to be unlawful anyway, these reforms will send a clear message to all bad loan companies that we will no longer let them get away with ripping people off.
"The old credit legislation was out of date, complex, difficult to understand, and gave consumers very little clout against unfair behaviour.
"The new bill will modernise the law and will be designed to cater for existing credit practices, including the growing computerisation of banking and loan services.
"We will also be creating flexibility to cater for future credit products.
"We need to remove outdated credit concepts and make the law easier for consumers and business to understand.
"The important features of the proposed reforms are improved redress for consumers, a public enforcement agency, better information for consumers to help them make better credit decisions, and a fairer deal in relation to interest charges, fees, and early repayment.
"Lack of enforcement is a key problem with the current legislation, as it relies on consumers taking action themselves against lenders.
"Responsible credit and lending institutions such as reputable finance companies and banks have nothing to fear.
"Evidence from the Ministry of Consumer Affairs showed that marginal lenders and lenders of last resort regularly breach the law. Very few people take credit cases to a Court or Disputes Tribunal because the law is too complex, it costs too much, or they feel intimidated.
"I will be seeking funding to give the Commerce Commission the authority and resources to investigate the activities of lenders and take action if necessary.
"This will reduce the power imbalance between lenders and consumers and increase the chances of legal action being taken against lenders," said Jim Anderton.
Other features in the proposed changes include:
- A performance standard that will require lenders to provide contracts that are clearer and easier to understand. Model forms will be written into the Bill to assist lenders.
- Lenders cannot charge interest in advance.
- Clear rules for the early repayment of loans, including a formula that may be used to more fairly calculate the cost of early repayment.
- Businesses will not be covered by the changes. Businesses will continue to be covered by the Fair Trading Act 1986, The Personal Property Securities Act 1999 as well as protections such as the Banking Ombudsman. Removing their coverage from consumer credit laws will reduce red tape and compliance costs. The Ministry of Economic Development will look at any specific small business credit requirements.
The Bill is being drafted with the aim of introducing it to Parliament in the first half of next year.