Government proposes new laws for consumer lending

The Government has introduced its Credit Contracts Legislation Amendment Bill, responding to issues identified by the Ministry of Business, Innovation and Employment, following its review of the consumer credit sector last year.

The Bill reflects a campaign promise of the Labour party to pass tougher laws targeted at mobile loan truck shops and introduce a cap on interest for high-cost consumer credit contracts, and intends to help protect vulnerable consumers from problem debt.  In this regard, the Bill looks to codify a number of responsible lending practices already prescribed by the Responsible Lending Code.

However the Bill also includes a number of other changes, including a duty on directors and senior managers to exercise due diligence in CCCFA compliance, the introduction of a “fit and proper person” test for directors and senior managers, and additional responsible lending regulations that will require specific practices for advertising and a creditor’s inquiries into a borrower/guarantor.

If enacted, the Bill will add another layer of complexity to the already complicated regime contained across the CCCFA, existing regulations, and the Responsible Lending Code (which is non-binding, but will be indicative of compliance).

Directors and senior managers of responsible lenders face the prospect of being made personally liable for compliance under the regime — liability which cannot be indemnified by the creditor, nor insured against.  The Bill might have the unintended outcome of encouraging skilled and responsible managers away from the sector due to the complexity of the task and the potential onerous consequences.

In our view, the Bill goes further than is necessary to protect vulnerable consumers from problem debt.  It creates further uncertainty and compliance obligations for responsible lenders, where the real problem is non-compliance by irresponsible lenders with the responsible lending practices already in place.

Read our summary of material aspects of the Bill here.

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