Credit Contracts and Consumer Finance Act 2003

Transcription

1 Credit Contracts and Consumer Finance Act INTRODUCTION 1 Purpose 1 What this seminar covers 1 The need for legislative change 1 The reform process 4 2. Policy objectives of the CCCFA 6 Objectives 6 Principal objectives 6 3. COMMENCEMENT OF THE CCCFA AND TRANSITIONAL PROVISIONS 8 When does the CCCFA apply? 8 Opting-in 8 Nominee companies 9 Risks of opting-in 9 Default interest provision 10 Declaration WHAT DOES THE CCCFA APPLY TO? 12 Consumer credit contracts 12 Credit contracts 12 The meaning of credit 13 Credit contract 14 Consumer leases and buy-back transactions 15 CCCFA may apply to transactions not governed by New Zealand law 15 What is a "consumer credit contract"? 15 Debtor must be a "natural person" 16 "Personal, domestic, or household purposes" 17 Guidelines 17 Section 12 investment purposes 18 Section 13 presumption in favour of consumer credit contracts 18 Section 14 declarations as to purpose 19 Section 14 qualification 19 Issues for consideration 20 Are interest charges or credit fees payable? 21 Does the credit contract involve a "security interest"? 21 Agreement to mortgage 22 Security interest 22 Creditor must be acting in the course of a business 22 Leases as consumer credit contracts 23 Statutory exceptions from the definition of consumer credit contract 23 Differences from the Credit Contracts Act some examples IMPLICATIONS OF THE CCCFA FOR BUSINESS TRANSACTIONS 27 Specific provisions of the CCCFA applicable to business finance 27 Substantial deregulation of business finance 27 Business regulation 28 Examples of the effect of deregulation of business finance 30 Early settlements in respect of business finance transactions following 1 April How will business financiers behave after 1 April 2005? 31 Restricting availability of products 31 Voluntary compliance 32 Systems 32 Application 32 Form of documentation 32

2 6. KEY CONCEPTS AND REQUIREMENTS OF THE CCCFA 35 Interest charges 35 Annual interest rate 35 Contract must specify "annual interest rate" 35 How interest is to be calculated 36 Methods of charging interest 36 How interest is to be charged 37 End of day 37 Debiting of interest charges 38 Compounding interest 38 Comparison with Credit Contracts Act 38 Penalty Rates 39 History 39 The present law 39 New law s 40 CCCFA 41 Consumer credit contracts Default interest 42 Lordsvale Finance 43 What does s 40(2) permit a creditor to do? 44 Non-consumer credit contracts 44 Payments 45 Dating and adjustment of account entries 46 Uniform Consumer Credit Code 46 Prepayments MATTERS TO BE TAKEN INTO ACCOUNT IN DOCUMENTING A 51 CONSUMER CREDIT CONTRACT Required disclosures 51 How disclosures made and disclosure standards 51 Disclosure must be "in writing" 52 Disclosure standards generally 52 Should disclosure be made in a separate document? 53 Model disclosure forms 53 How disclosure is made 54 Disclosure for the purposes of cancellation and enforcement 54 Initial disclosure what is to be disclosed 55 Schedule 1 requirements comparison with Credit Contracts Act 55 Summary 55 Differences 57 Disclosure of cash price 58 Interest-free terms 58 Credit insurance 60 Disclosure assumptions 60 Initial disclosure consumer leases and buy-back transactions 60 Continuing disclosure when required 61 Continuing disclosure frequency 62 Continuing disclosure what required 64 Cancellation rights 64 Contracts that cannot be cancelled 65 Effect of cancellation 65 How must the debtor give notice of cancellation? 66 Statement of right to cancel MATTERS TO BE TAKEN INTO ACCOUNT IN CHANGING A 68 CONSUMER CREDIT CONTRACT Disclosure of agreed changes 68 Disclosure following exercise of a power by a creditor 68 Disclosure by publication MATTERS TO BE TAKEN INTO ACCOUNT IN RESPECT OF 72

3 GUARANTEES OF CONSUMER CREDIT CONTRACTS Disclosure of guarantee 72 Disclosure of changes to guarantors 72 Two key elements 73 Disclosure 73 Particulars of changes 74 Oppression MATTERS TO BE TAKEN INTO ACCOUNT WHEN A DEBTOR OR 76 GUARANTOR REQUESTS DISCLOSURE Request disclosure 76 What needs to be disclosed 76 When is compliance not required? 76 Relationship between request disclosure and enforcement FEES AND INSURANCES 78 Treatment of fees under the Credit Contract Act 78 Credit fees 78 Definition 78 Consequences 78 Two limbs to the definition 80 Definition is unclear 80 Costs of complying with creditor s requirements 80 Fees payable to third parties 81 Costs the debtor would have incurred anyway 81 Illustrations 81 Policy objectives 83 Third party charges passed on by creditor to debtor 84 Unreasonable fees 84 What is "unreasonable"? 85 The Court will decide what is unreasonable 86 Fees or charges passed on by creditor 87 Prepayments 87 Part prepayments 87 Full prepayments 88 Section 81(2) of the Property Law Act Rule of Use of the Rule of What is the Rule of 78? 91 Why the Rule of 78 is unfair to consumers 93 The CCCFA 93 Other CCCFA provisions relating to credit insurance CONSUMER LEASES 98 The definition of consumer lease 98 Leases deemed to be credit contracts 98 Disclosure 99 Amount payable on termination BUY-BACK TRANSACTIONS 102 Impact of the CCCFA on buy-back transactions entered into before October 2003 Initial disclosure and independent advice 104 Non-compliance with initial disclosure and independent advice requirements 104 Variation and request disclosure RE-OPENING CREDIT CONTRACTS OPPRESSION AND HARDSHIP 107 The CCCFA 107 When a contract may be reopened 108 The meaning of oppressive 108 Deciding whether to reopen a contract 109 Illustrative case notes 111

4 Greenbank New Zealand Limited v Haas [2000] 3 NZLR Raptorial Holdings Limited (in receivership) v Elders Rural Finance New Zealand Limited [2001] 1 NZLR Time limits 113 Standing 114 Costs 114 Oppression in relation to hardship 114 Changes on the grounds of unforeseen hardship 115 Introduction 115 The CCCFA (Part 2, subpart 8) 115 Key aspects 120 What a debtor cannot apply for 122 Australian position 122 Australian cases 123 General 125 Cost to credit provider 125 New Zealand applications 126 General ENFORCEMENT 128 Prohibited enforcement 128 Cancellation 129 Statutory damages 129 Offences 132 Prohibition on certain creditors, lessors, transferees, and buy-back promoters 134 Orders, injunctions and prohibited enforcement 135 Compliance 138 Reduction of statutory damages 138 Reasonable mistake defence 138 Compliance programmes 139 The Courts powers: a colourful illustration 139 Background 140 Was the lending for personal, domestic or household purposes? 140 Orders 141 Appeal 142 General COMMERCE COMMISSION 145 Introduction 145 The CCCFA (Part 4, subpart 7): role and functions of the Commerce 146 Commission Application of Commerce Act Powers of the Commission 148 Class actions 149 Injunctions 150 General 151 APPENDIX 1. SCHEDULE 1 OF CCCFA 153 APPENDIX 2. SCHEDULE 2 OF CCCFA 158 APPENDIX 3. SCHEDULE 3 OF CCCFA 160 APPENDIX 4. MODEL DISCLOSURE STATEMENT NON-REVOLVING 162 CREDIT CONTRACT APPENDIX 6. PERMITTED ASSUMPTIONS 170 APPENDIX 7. ADLS TERM LOAN CONTRACT 172 APPENDIX 8. ADLS MORTGAGE FIXED SUM 180 APPENDIX 9. CCCFA FLOW DIAGRAM 188 APPENDIX 10. EXAMPLES OF FULL REPAYMENT FORMULAE FROM THE 192 CCCF REGULATIONS 2004 APPENDIX 11. EXAMPLES OF RELATIONSHIP BETWEEN CCCFA AND 202 CREDIT CONTRACTS ACT

5 APPENDIX 12. SELECTED BIBLIOGRAPHY 204