A short guide to consumer credit law
In this guide:
The Credit Contracts and Consumer Finance Act helps protect consumers when they’re borrowing money. It helps ensure consumers can make informed choices, know what they’re agreeing to, and can keep track of their debts.
Please note the law will be changing on 6 June 2015. Make sure you check back for updated guidance. Read more on our website.
Here's a summary of the things that businesses and consumers need to be aware of when dealing with credit.
- must disclose key information about a contract and this must be clear and accurate
- can't impose oppressive requirements on borrowers
- can't enforce contracts in an oppressive way
- must disclose any fees and make sure they are reasonable.
Consumers (as borrowers):
- can cancel their contract in the first few days after receiving disclosure
- have the right to repay what they owe on their contract early
- can ask lenders to change their contract if they are suffering unexpected hardship.
A customer has been given credit if they have been given the right to:
- put off paying an existing debt
- incur a debt and put off paying it
- purchase goods or services and put off paying for them – this is typically known as a credit sale as the consumer usually gets the goods or services before paying for them in full and pays them off over time.
Under the Act, any customer who is given credit has entered into a credit contract and has specific rights and obligations.
A consumer credit contract is a type of credit contract where the customer:
- is a private individual (in other words, they are not a company or incorporated society)
- is entering the contract primarily for personal, domestic or household purposes (as opposed to primarily for business or investment purposes)
- may have to pay interest or a credit fee, or provide a security interest.
In addition, you — as the lender — must either:
- be in the business of providing credit (such as a finance company or bank), although lending does not have to be your only business or main business
- be in the practice of providing credit as part of your business (such as a car dealer)
- make a practice of entering into credit contracts on behalf of someone else
- have been introduced to your customer through a paid advisor or broker.
There are some exclusions, so for more information read our fact sheet on Consumer credit contracts - overview.
A credit fee is an additional charge added to the amount loaned under a credit contract, such as an establishment, late payment or administration fee.
You must provide certain information to your customers — this is called disclosure. Disclosure must be clear, concise and not misleading. It must be provided in writing, including by email, post, and in person.
What you must disclose and when varies depending on the transaction. For example, you need to provide extra disclosure if the contract changes, if someone guarantees the loan or if your customer asks for more information.
If certain disclosure is not made properly then you can't enforce the contract. You may have to pay damages or other compensation to your customers, and may even face criminal conviction.
You can read more in our fact sheet on Disclosure.
Please note that the information provided here is guidance only and should not be used instead of legal advice. If you are unsure what your business needs to do to comply with consumer credit law, you should seek your own legal advice.