What happens if a lender breaches the CCCF Act?

This fact sheet provides an overview of the penalties a lender can face if they breach the Credit Contracts and Consumer Finance Act and explains what remedies are available to borrowers.

Note: New Zealand credit law has changed. This information relates to contracts entered into before 6 June 2015. We are progressively updating our guidance to reflect these changes.

Anyone who breaches the Credit Contracts and Consumer Finance Act (CCCF Act) can face serious consequences.

A lender who breaches the CCCF Act may:

  • be unable to enforce the contract or any right to recover property or any security interest (prohibited enforcement)
  • have to pay the borrower a set penalty (statutory damages)
  • be ordered to pay compensation or refund money to the borrower (general remedial orders)
  • have contracts changed by the court if the contracts are oppressive (reopening orders)
  • be stopped by the court from behaving in a particular way (injunctions)
  • be banned by the court from operating within the finance industry (banning orders)
  • be convicted by the court of a criminal offence (offences).

Prohibited enforcement

A lender can't enforce a consumer credit contract, consumer lease or buy-back transaction if they have not made initial disclosure or variation disclosure where the lender and borrower have agreed to change the contract. Under a consumer credit contract, a lender can't enforce a guarantee until they have made guarantee disclosure or any variation disclosure required under the contract.

You can read more about disclosure requirements at the Disclosure page.

Lenders who make false representations that they can enforce a contract when they can't are also likely to breach the Fair Trading Act. Under the Fair Trading Act businesses can be fined up to $200,000 and individuals up to $60,000 per offence.  

You can read more at Misleading consumers about their rights.

 

Example

A lender provided loans for borrowers buying new and used cars. The lender faxed loan documentation to car dealers who then gave disclosure to borrowers. The disclosure borrowers received was faxed and photocopied and parts of it were illegible. Because of this, the lender hadn't made disclosure and couldn't enforce the contracts. However, the lender repossessed cars when the borrowers missed loan repayments, and misled borrowers that it could enforce the contracts and its security interest when it couldn't. The court convicted the lender of breaching both the CCCF Act and the Fair Trading Act. It was fined $59,000 and borrowers were awarded $13,700 in statutory damages.

 

Statutory damages

Under a consumer credit contract, consumer lease or buy-back transaction, borrowers can claim statutory damages from a lender if the lender fails to:

  • comply with the rules about disclosure for borrowers and guarantors
  • comply with the rules about interest - including disclosing interest and how and when it can be charged
  • ensure disclosure is made about credit-related insurance, repayment waivers or extended warranties.

You can read more in our fact sheets Interest charges and Credit-related insurance, repayment waivers and extended warranties.

The maximum amounts of statutory damages are set out in the CCCF Act. Borrowers can go to the Disputes Tribunal or court to get orders for lenders to pay statutory damages. The court can also reduce the amount of statutory damages or decide the lender doesn't have to pay statutory damages at all.  

General remedial orders

The CCCF Act gives the court wide powers to make remedial orders. These are orders intended to right a wrong, or "fix" breaches of a borrower's rights. The court will make a remedial order where someone has suffered loss or damage as the result of a breach, or potential breach. This can include ordering the lender, or anyone involved in the breach to:

  • comply with initial, continuing, variation and request disclosure requirements
  • make disclosure to the required standard
  • provide disclosure to anyone guaranteeing the contract
  • refund a borrower any money the lender wasn't entitled to receive (such as an undisclosed fee)
  • pay compensation for any losses the borrower has suffered that haven't been covered by statutory damages
  • pay exemplary damages to the borrower (in other words, money over and above the loss the borrower has suffered)
  • take any other steps to resolve the situation that the court thinks is appropriate to fix the breach.

The court can make orders in favour of any person who has suffered loss or damage whether or not they were a party to the court proceedings.

Reopening orders

The court has powers under the CCCF Act to reopen any credit contract (not just consumer credit contracts), consumer lease or buy-back transaction it considers is oppressive.

By reopening a contract, the court has the power to do a number of things, including changing the terms of the contract, ordering the transfer of property or the payment of money, or preventing a party from behaving in a particular way.

You can read more in our fact sheet Oppressive contracts - protections for borrowers.

Injunctions and banning orders

The court may grant an injunction to stop a lender breaching or attempting to breach the CCCF Act, or assisting or encouraging anyone else to breach the CCCF Act.

The court also has the power to ban a lender from the credit industry. This could include banning someone from:

  • providing credit
  • leasing out goods
  • being involved in any buy-back transactions
  • being involved directly or indirectly in the management of a lending business, or a business that leases out consumer goods or offers buy-back transactions
  • being employed by a lender, buy-back operator or a business that leases out consumer goods.

The court can only ban a person if they have either:

  • been convicted of an offence under the CCCF Act or a crime of dishonesty
  • been a lender who has had a  credit contract, consumer lease or buy-back transaction reopened under the Credit Contracts Act 1981 or CCCF Act
  • failed to comply on more than one occasion with the Credit Contracts Act 1981 or CCCF Act

or

  • been a director or senior manager in a company when that company did any of the above.

The court must also believe the person is not "fit and proper" (in other words, not suitable) to be closely involved in selling or arranging consumer credit contracts, consumer leases or buy-back transactions.

Offences

Lenders can be fined and sometimes imprisoned if they breach the CCCF Act.

It is a crime to breach the CCCF Act's provisions relating to:

  • disclosure requirements and standards
  • cancellation, interest charges, fees, payments, prepayments and hardship
  • restrictions on credit-related insurance, repayment waivers and extended warranties
  • occupiers registering caveats against buy-back properties.

Anyone found guilty of any of these offences may be fined up to $30,000 for each offence.

Any person banned from acting as a lender but who continues to do so may be fined up to $30,000 or imprisoned for up to three months.

It is a crime for a transferee to deal with land under a buy-back transaction without the court's permission if the transferee knows (or has reason to believe) that prior to entering the contract the occupier did not receive:

  • initial disclosure, including a copy of all terms of the transaction

or

  • independent legal advice.

Anyone found guilty of this offence may be fined up to $200,000 or imprisoned for up to one year.

Defences

The CCCF Act includes a reasonable mistake defence for these offences or liability for statutory damages if lenders can prove:

  • the breach was caused by a reasonable mistake or events beyond their control
  • they fixed the breach as soon as they could

and

  • anyone who suffered loss or damage was compensated or offered compensation.

A reasonable mistake defence is not available if transferees transfer land without the court's permission or a banned person operates in breach of the banning order.  

A mistake does not include a mistake of law. This means it is not a defence for lenders to claim they didn't know their actions breached the CCCF Act or that they misunderstood what the law meant.

What can a borrower do if a lender breaches the CCCF Act?

If a borrower believes their lender has breached the CCCF Act, there are a number of things they can do.

Report the breach to the Commerce Commission

You can call us on 0800 94 3600 or use our online complaints form.

Anyone who believes a lender has breached the CCCF Act can contact the Commerce Commission. We are responsible for enforcing a number of competition and consumer laws including the CCCF Act, Fair Trading Act and Commerce Act. This basically means our role is to make sure lenders comply with these laws.

While we don't act for individuals in any disputes with their lenders, we use the information we receive when deciding what to investigate and where to focus our attention.

When we receive a complaint, we look at it to see if we think the CCCF Act has been breached. We then decide what to do based on our enforcement criteria. Enforcement response options include sending a compliance advice or warning letter to the lender, entering into a settlement with them or taking them to court.

Because we don't investigate every complaint, and we aren't a dispute resolution service, it is important that borrowers also take their own action to address any concerns they have about a lender's behaviour.

Complain to the lender's dispute resolution scheme

Under the Financial Service Providers (Registration and Dispute Resolution) Act, all lenders must be members of a dispute resolution scheme. These schemes are independent, which means they have to be fair in resolving any disputes. Borrowers can use these schemes to help resolve problems with their lenders. To find out which scheme a lender belongs to, you can search online at www.business.govt.nz/fsp  

The current schemes and how you can contact them are detailed below.

Get some advice

Borrowers can contact their local Citizens Advice Bureau (www.cab.org.nz or 0800 367 222), Community Law Centre (www.communitylaw.org.nz), Budget Advice Services (0508 283 438) or call 0800 LOANSTRESS for advice on what to do.

Take legal action

Borrowers can take legal action of their own against a lender under the CCCF Act. The Disputes Tribunal can hear claims where the value of credit is under $15,000 (or up to $20,000 if the borrower and the lender both agree). Lawyers are not able to appear in the Disputes Tribunal so borrowers and lenders appear for themselves.

The District Court will hear claims above these amounts and up to $200,000. It's a good idea to speak with a lawyer before taking any action through the court, although individuals can represent themselves.

Keeping up with the law

Lenders need to make sure that they understand their legal obligations before going into business and that they keep up-to-date on legal developments affecting their business. If a lender has an effective compliance programme in place, this will be taken into account by the court in any legal proceedings.

Current information about the CCCF Act is available at www.comcom.govt.nz/consumer-credit

Lenders and borrowers

The CCCF Act uses a number of different terms to describe lenders and borrowers, depending on the transaction:

  • consumer credit contracts - creditors and debtors
  • consumer leases - lessors and lessees
  • buy-back transactions - transferees and occupiers.

In these fact sheets we use the terms lender and borrower to talk generally about credit transactions, but use the specific terms for consumer leases and buy-back transactions where it makes things clearer.

 

 

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