Stronger consumer credit protections are proposed in the Credit Contracts and Financial Services Law Reform Bill (Bill), which passed its first reading last week and is now with the Commerce Select Committee.
Submissions are due by 1 November 2013.
Credit providers will be required to exercise the care, diligence, and skill of a responsible lender in respect of credit advertising, and before and after providing consumer credit, and to make reasonable inquiries that the credit will meet the borrower’s needs and will be capable of repayment without causing substantial hardship.
They will also need to assist the borrower to make an informed decision about whether to enter the agreement or any variation or guarantee and to ensure that:
- the contract is expressed in a clear, concise and intelligible manner
- the standard terms and costs of borrowing are freely and publicly available on their Internet sites and at their business premises, and
- initial disclosure is made before a credit contract or any credit-related insurance or extended warranty is provided (rather than within five working days, as is currently the case).
The principles will be set out in a Responsible Lending Code. While the Code will not be legally binding, compliance with it will be taken as evidence that no oppressive conduct has occurred, and credit providers which breach it more than twice may be banned.
Other consumer protections proposed in the Bill include:
- extending to five working days the ‘cooling off’ period for consumers to cancel their credit contracts
- a new requirement to disclose when a creditor’s rights under a consumer credit contract are transferred to another party
- releasing borrowers from the obligation to pay interest or fees if their lender is not a registered financial service provider (see our Brief Counsel on the new requirement for lessors of consumer goods under financing arrangements to register as financial service providers)
- additional criteria to aid a court in deciding whether oppression has occurred
- explicit processes and timeframes for consumers to apply for relief in situations of unforeseen hardship
- preventing goods from being repossessed unless they are specifically identified in the credit contract and prohibiting essential household items from being listed as securities
- licensing of repossession agents and employees under the Private Security Personnel and Private Investigators Act 2010, and
- stronger powers to prevent certain entities or individuals from becoming registered financial service providers or to revoke their registration.
The Bill amends the Credit Contracts and Consumer Finance Act 2003 and repeals the Credit (Repossession) Act 1997 and incorporates its provisions within an expanded Credit Contracts and Consumer Finance Act.