Bill passes final reading

The Credit Contracts and Financial Services Law Reform Bill passed its third reading in Parliament yesterday. Consumer Affairs Minister Craig Foss says the bill is the biggest change to consumer credit legislation in more than a decade. “Rewriting the rules for consumer lending is an important part of the government’s Business Growth Agenda, which aims to boost confidence and trust in our financial markets,” he says. "It protects the interests of borrowers and requires lenders to act responsibly." The bill amends the Credit Contracts and Consumer Finance Act, the Financial Service Providers (Registration and Dispute Resolution) Act, the Private Security Personnel and Private Investigators Act and the Personal Property Securities Act. It also repeals the Credit (Repossession) Act and incorporates its content into an expanded Credit Contracts and Consumer Finance Act. Key changes to legislation include:

• Requiring responsible lending in the consumer credit market - lenders must act with skill, care and diligence in all dealings with a borrower throughout the life of a consumer credit contract.
• Introducing a Responsible Lending Code to provide guidance on how a responsible lender should behave.
• Requiring more timely and complete disclosure of loan terms and extending the ‘cooling off’ period for borrowers to cancel their loan.
• Introducing a standing disclosure regime where lenders must provide free of charge their standard form contract terms and costs of borrowing.
• Preventing goods from being repossessed unless they are specifically identified in the credit contract and limiting some essential household items from repossession altogether.
• Licensing of repossession agents and employees.

There are new rules for fees and charges, which you can include in a consumer credit contract will be tightened. The changes make clear that the main test is whether the fees reasonably compensate you for costs or losses you incur. Two of these new rules are:

• You will only be able to charge default interest on the amount in default and not the entire unpaid balance.
• You will not be able to receive commission on credit-related insurance if the borrower is required to obtain insurance from a particular insurer or insurers. You also will not be able to receive commission where the insurance is financed by the credit contract and you have not complied with the lender responsibilities about insurance.

This means the insurance must be sold responsibly and so long as taking insurance is not a compulsory condition of the loan commission can be paid. It can therefore still be recommended and funded by the loan and commission paid if sold responsibly.