Loan-shark law guide

The government has published a plain English summary of the lender responsibility principles included in the Credit Contracts and Financial Services Law Reform Bill. In future, every lender must complywith the principles of the so-called loan-shark laws at all times. They set out responsibilities to borrowers, including when selling credit-related insurance (CRI), and guarantors. Officials from the Minister of Consumer Affairs and Ministry of Business, Innovation and Employment (MBIE) will now develop a responsible lending code to help loan providers comply. A draft will be published in mid-2014. The general principles are that every lender must exercise the care, diligence and skill of a responsible lender when advertising, before agreeing to providing credit or finance or taking guarantees, and in all subsequent dealings with borrowers and guarantors. Lenders’ responsibilities to borrowers include makingreasonable inquiries before entering into an agreement that it is suitable. RELATED: When finance laws will change. Providers will need to be satisfied the agreement will meet a borrower’s objectives and requirements without causing financial hardship. They can rely on information the borrower provides for this, unless there are reasonable grounds to believe the information is unreliable.

MAKING INFORMED DECISIONS

Lenders need to help consumers decide whether to sign the agreement and to be reasonably aware of the implications by ensuring advertising isn’t likely to be misleading, deceptive or confusing. Terms must be expressed in plain language in a clear, concise and intelligible way, while information cannot be presented in a way that’s misleading, deceptive or confusing. Lenders must also help consumers reach informed decisions about all later dealings. Borrowers and their property will have to be treated reasonably, with respect and ethically. This includes when contract breaches have occurred or may occur or when other problems arise, and when debtors suffer unforeseen hardship. During repossession all reasonable steps must be taken to ensure property isn’t damaged, repossessed goods must be adequately stored and protected, and the right to enter premises must be done in a reasonable way. Providers need to ensure contracts and powers are not oppressive, and borrowers aren’t induced into contracts by oppressive means. Lenders will have to comply with other legal obligations, including following rules about disclosure, credit fees, hardship applications, and repossession in the Credit Contracts and Consumer Finance Act. They must not make false or misleading representations or include unfair contract terms as required by the Fair Trading Act, and carry out services using reasonable care as stated in the Consumer Guarantees Act.

CREDIT-RELATED INSURANCE

Lender responsibilities will apply when a borrower has also entered, or is seeking to enter, into a credit-related insurance (CRI) agreement with the provider and the insurance is arranged by the lender. Lenders have to make reasonable inquiries before CRI contract is signed that it is suitable. They need to be satisfied the policy is likely to meet the borrower’s requirements and objectives, and payments will not cause substantial hardship. The provider can rely on information the consumer provides, unless the lender has reasonable grounds to believe it’s unreliable. Lenders need to help the borrower decide about insurance and be reasonably aware of the full implications. This includes ensuring the provider’s advertising isn’t likely to be misleading, deceptive or confusing. Also, information cannot be presented in a misleading, deceptive or confusing manner – information in disclosure statements are already subject to a similar standard.

OBLIGATIONS TO GUARANTORS

Lenders have responsibilities to guarantors under consumer credit contracts and these include making reasonable inquiries before guarantees are given. Providers need to be satisfied guarantors can comply without suffering substantial hardship and must assist guarantors to reach informed decisions. Lenders need to help guarantors decide whether to give the guarantee and ensure they are reasonably aware of the full implications of doing so. This includes making sure the terms of the guarantee are expressed in plain language, and information avoids being misleading, deceptive or confusing. Guarantors must be treated reasonably and ethically, including when the debtor defaults or other problems arise. Lenders need to ensure a guarantee isn’t oppressive, that rights or powers are not exercised oppressively and guarantors aren’t induced to give the guarantee by oppressive means. All legal obligations to guarantors must be met. These include following the rules about disclosure, credit fees, unforeseen hardship applications, and credit repossession. Lenders must not make false or misleading representations or include unfair contract terms, and carry out services using reasonable care and skill.