Borrowers' rights

The Credit Contracts and Consumer Finance Act (CCCFA) sets out your rights when borrowing money, or buying products or services on credit. It covers:

• credit cards
• overdrafts
• personal loans and mortgages
• credit sales – such as buying an appliance or car on finance.

Full disclosure

Before you sign a contract with a lender, it must give you a disclosure statement setting out the details of the loan.

Read the disclosure statement carefully and make sure it spells out the term of the loan, exactly how much repayments will be, how much interest you’ll be charged and how the lender calculates this cost.

Also check whether you’ll be stung by any other fees – such as an establishment fee to set up the loan, insurance charges, or the cost for the lender to check your credit history.

The disclosure statement must also outline your rights to cancel the contract, what happens if you can’t make payments and whether you’ll pay a fee for any early payments.

Cancelling is an option

By law, you've got a cooling-off period if you change your mind and want to cancel the deal. You have five working days from the date you were handed the disclosure statement.

If you cancel but have already taken the goods home, you’ll still have to buy the items. This means you may have to apply for credit elsewhere if you haven’t got the cash to pay.

Fees and interest

You’ll likely have to fork out for fees at some stage when signing up for credit. That said, a lender’s fees must be reasonable.

If you repay your loan early, you may be charged a fee but it should be a reasonable estimate of the lender’s loss from unearned interest and other charges. The lender can loan the money out again, so any loss should be minimal.

You could also be charged to cover the cost of a third party’s service. For example, the lender may organise a credit check on you. However, this fee must not exceed the actual cost of carrying out this service.

There are no limits on the rate of interest a lender can charge, except for high-cost, short-term loans, commonly known as payday loans.

Payday lenders can’t require customers to pay back more than twice the amount borrowed under a high-cost loan contract. A high-cost loan is one with an annual interest rate of 50 percent or more. So, if you borrowed $500, the amount you’d have to pay back would be capped at $1000.

Payday lenders also can’t charge more than 0.8 percent per day over the term of the loan.

Hard times

If you are struggling with repayments, you can make a hardship application. Write to your lender and ask to change the terms of your contract. You’ll need to make clear why you’re experiencing hardship – such as illness, injury, or redundancy.

If you fall behind with your payments or break other terms in a contract, the lender can repossess the goods that you’ve bought or offered as security for a loan.

You can ask the lender to extend how long you have to pay off the loan, or to reduce or postpone repayments for a specific time. While these options will give you a break, you’ll likely end up paying more.

Lenders aren’t allowed to increase the interest rate on your loan if you’ve changed your contract because you’ve suffered hardship.

It’s important to let your lender know as soon as you find yourself in difficulty. You can’t make a hardship application:

• after two months of being in default of your repayments
• if you’ve failed to make four or more repayments in a row
• if you’ve been in default for two weeks or more after receiving a repossession warning notice or a notice that you’re in default on your mortgage.

Lenders can take possession

If you fall behind with your payments or break other terms in a contract, the lender can repossess the goods that you’ve bought or offered as security for a loan. The lender must explain its right to repossess in your contract and must follow the steps set out in the act.

Harsh terms or dodgy products?

Consumer law offers protection if the terms of your contract are harsh, the lender has acted harshly, or you’ve been sold a dud product.

The courts have the power to change the terms of credit contracts if they judge them or the lender's behaviour as oppressive. This includes terms that are harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice – in short, terms that are extremely unfair.

If you’ve bought a product – such as a fridge or a car – with credit arranged by the retailer (called a “collateral credit agreement”), it can also be held liable for the loan if the product isn’t of acceptable quality and you reject it under the Consumer Guarantees Act.

Insurance

You might be told you need insurance if you’re buying goods on credit. Before you sign anything, make sure you’ve been given a copy of the policy.

The retailer or finance company must make sure the insurance:

• covers reasonable risks
• doesn’t double up on insurance you already have
• is suitable and affordable for you to pay and won’t leave you in substantial hardship.

Lenders are often keen to push payment protection insurance. This insurance gives limited cover if you lose your income because of illness, accident or redundancy.

Because the cover is so limited, make sure you review the policy carefully before signing up. ACC means you shouldn’t need this sort of insurance to cover accidents. If you have life insurance, you won’t need extra insurance to cover the debt in the event of your death.

If you repay the loan early, you may be entitled to a partial refund of any insurance premiums paid. The amount depends on how much longer the contract has to run.

New CCCFA rules

Since 2019, a number of changes have been made to the CCCFA to better protect consumers. These changes range from tougher penalties for irresponsible lending to interest-rate caps on high-cost loans or payday loans.

On 1 December 2021, more changes came into effect including new prescriptive requirements for lenders to follow when assessing credit affordability and suitability.

The new rules mean consumers are having to jump through more hoops to get credit and lenders are having to do more digging.

There’s been a lot of controversy about the new rules. As a result, the rules are being reviewed by the Ministry of Business, Innovation and Employment.

Got a complaint?

Talk to your lender if you believe it’s not playing fair. If you can’t resolve the matter, you can make a complaint to a financial dispute resolution scheme. All lenders must belong to one of four dispute schemes and must tell you which they’ve joined. The schemes are:

• Banking Ombudsman
• Insurance and Financial Services Ombudsman
• Financial Dispute Resolution
• Financial Services Complaints

You can check the scheme the lender belongs to on the Financial Service Providers Register on the Companies Office website – companies.govt.nz.

You can also make a complaint to the Commerce Commission if you think the lender has breached the CCCFA or the Fair Trading Act.

Buy now, pay later

Buy-now, pay-later providers, such as Afterpay and Laybuy, have been springing up everywhere. If you don’t have the cash, you can get your goods immediately and then pay them off in interest-free instalments. Catchy hashtags, such as “#afterpayit” make everything seem in reach with just the click of a button.

With Afterpay, you pay off the purchase price in fortnightly instalments over eight weeks. With Laybuy, you pay it off in six weekly payments.

Paying this way may be an attractive option if you don’t have cash on hand. But the downside is that you’ll be charged fees if you can’t pay an instalment on time. Fees vary depending on the buy-now, pay-later provider.

Our research has shown consumers using buy-now, pay-later services are being charged more than $10 million a year in late fees.

If you end up not being able to clear your debt, you could find the debt collector at your door. You may also get a black mark on your credit file.

But these schemes aren’t covered by the CCCFA. We think they should be so consumers have the same protections that are available when they’re using other forms of credit.

The Ministry of Business, Innovation and Employment is looking into the issue and is due to make a decision on the regulation of buy-now, pay-later schemes in the coming months.