There are four situations in which disclosure will be required:
- at the start of the contract (initial disclosure);
- during the life of the contract (continuing disclosure);
- any time the contract is varied (variation disclosure); and
- if the debtor requests it (request disclosure).
Disclosure must also be provided to anyone who has guaranteed the debtor’s obligations under the contract (guarantee disclosure).
The Credit Contracts and Consumer Finance Act (CCCF Act) sets out the information that must be provided, and how and when it must be provided.
Initial disclosure
Initial disclosure of key information and a copy of every other contract term must be provided to the debtor before the contract is made or within five working days of when the contract was made. The law of contracts governs when a contract is ‘made’.
Schedule 1 of the CCCF Act sets out the key information that must be provided to the debtor.
Initial disclosure must include:
The creditor’s full name and address
The initial unpaid balance
The initial unpaid balance is the amount the debtor owes at the date the disclosure statement gives as its effective date. The disclosure statementmust describe and account for every payment the debtor has made before that date. It must include the amount and a description of each advance, charge or payment debited on or before that date. Advances include the cash price of any property or services bought from the creditor, as well as any money provided to the debtor. It also includes any additional charges for optional extras, such as insurance or extended warranties where they are paid at the commencement of the contract.
Any trade-in by the debtor constitutes a payment by them and must be disclosed as part of the initial unpaid balance.
Subsequent advances
The amount, timing and description of each additional advance to be made after the date of the disclosure statement must be disclosed if it can be ascertained. If the contract is a revolving credit contract, which means the debtor can draw down credit whenever they choose, the amount or timing of any advances will not be known and so do not need to be disclosed.
Total advances
If it can be ascertained, the total of every advance made or to be made in connection with the credit contract must be disclosed. If it is a revolving credit contract, the total advances to be made will not be known and so do not need to be disclosed.
Credit limit
The credit limit of the contract must be disclosed
Annual interest rate
The annual interest rate or rates, expressed as a percentage, must be disclosed. If there is more than one rate, how each rate applies.
If an annual interest rate is fixed for the term of the contract or any part of its term, the duration for which the annual rate is fixed.
If the annual interest rate is calculated according to a base rate, how the base rate is determined, must be described, as well as:
- the name of the base rate or a description of it;
- the margin or margins (if any) to be applied above or below the base rate to work out the annual interest rate;
- where and when the base rate is published, or if it is not published, how the debtor may ascertain the rate; and
- the current actual annual interest rate or rates payable under the contract.
Method of charging interest
How interest charges are calculated and how often interest charges are debited under the contract must be disclosed.
Total interest charges
The contract’s total interest charges must be calculated and clearly described (unless the contract will not be paid out within seven years from the date of which credit is first provided). When calculating total interest charges, it may be assumed that:
- if there is one annual interest rate it will not vary over the term of the contract; and
- if there is a variable interest rate, the rate over the applicable period is the same as when the disclosure statement is prepared; and
- the debtor will pay the amounts the contract requires when it requires them.
Interest-free period
If the contract involves an interest-free period, its length and the date from which interest will accrue must be stated. If interest starts accruing on the occurrence of an event rather than on a particular date you must describe the event that will trigger the accrual of interest.
Credit fees and charges
Each credit fee and charge must be described. This does not need to include any fees and charges already described as part of the initial unpaid balance.
Payments required
If more than one payment is to be made, the following must be disclosed:
- the amount of each payment or the method of calculating it;
- when the first payment is due (if ascertainable);
- the frequency of the payments;
- how many payments will be made(if ascertainable); and
- the total amount of payments (if ascertainable). This is only required if the contract will be paid off within seven years of the date that the credit is first provided. When total payments are calculated, it may be assumed that:
- if there is one annual interest rate it will not vary over the term of the contract; and
- if there is a variable interest rate, the applicable rate over the period is the same as the rate specified in the disclosure statement; and
- the debtor will pay the amounts the contract requires when it requires them.
Full prepayment
If the contract allows the recovery of a fee representing a reasonable estimate of a creditor’s loss on full prepayment, how the fee is calculated and if the statutory procedure prescribed in the CCCF Act’s regulations is used must be disclosed.
Security interest
Any security interest that is or may be taken in connection with the contract must be described (including a description of any property that may be subject to a security interest), as well as the extent to which the debtor’s obligations are secured.
Default interest charges and default fees
Any default interest charge and each default fee that may become payable under the contract must be described. The description must include how and when each of these interest charges and default fees would become payable.
Continuing disclosure statements
How often continuing disclosure statements will be provided, unless there is an exemption under the CCCF Act, such as:
- where the debtor cannot feasibly be located; or
- where neither interest charges nor credit fees are payable; or
- where the debtor has agreed to access continuing disclosure information on a website; or
- where continuing disclosure is not otherwise required.
Consent to electronic communications
If a creditor agrees to accept notices or other communications from the debtor in electronic form, a statement must be included to that effect.
Other items
Any other information or warning required by the regulations must be disclosed.
Debtor’s right to cancel
A statement about the debtor’s right to cancel the contract must be included (unless the transaction is a revolving credit contract). The CCCF Act specifies the exact wording of this statement that must be used (making the appropriate deletions as shown).
Statement of right to cancel
The Credit Contracts and Consumer Finance Act 2003 gives you a right for a short time after the terms of this contract have been disclosed to you to cancel the contract.
How to cancel
If you want to cancel this contract you must give written notice to the creditor.
*You must also –
- return to the creditor any advance and any other property received by you under the contract (but you cannot do this if you have taken possession of any goods or if you bought any property at an auction or if the contract is for the sale of services that have been performed); or
- pay the cash price of the property or services within 15 working days of the day you give notice.
[*Delete if the credit contract does not involve a credit sale.]
†You must also return to the creditor any advance and any other property received by you under the contract.
[†Delete if the credit contract involved a credit sale.]
Time limits for cancellation
If the disclosure documents are handed to you directly you must give notice that you intend to cancel within three working days after you receive the documents.
If the disclosure documents are sent to you by electronic means (for example, email) you must give notice that you intend to cancel within five days after the electronic communication is sent.
If the documents are mailed to you, you must give the notice within seven working days after they were posted.
Saturdays, Sundays, and national public holidays are not counted as working days.
What you have to pay if you cancel
If you cancel the contract the creditor can charge you –
a) the amount of any reasonable expenses the creditor had to pay in connection with the contract and its cancellation (including legal fees and fees for credit reports, etc); and
*b) interest for the period from the day you received the property or services until the day you either pay the cash price for the property or services or return the property to the creditor.
[*Delete if the credit contract does not involve a credit sale.]
† (b) interest for the period from the day you received the advance until the day you repay the advance.
[†Delete if the credit contract involves a credit sale.]
This statement only contains a summary of your rights and obligations in connection with the right to cancel. If there is anything about your rights or obligations under the Credit Contracts and Consumer Finance Act 2003 that you do not understand, if there is a dispute about your rights, or if you think that the creditor is being unreasonable in any way, you should seek legal advice immediately.
Examples
A finance company failed to tell customers about default fees that would be charged if they missed payments and did not correctly rebate credit-related insurance to some customers who had paid back their loans early.
In a settlement reached with the Commission, the company agreed to revise all its credit contracts to fully disclose its default fees and returned over $50,000 to affected customers.
A pawnbroker misrepresented the interest rate it charged on payday loans and pawn broking contracts as 200 per cent when in fact it charged at a rate of 240 per cent. It also admitted to failing to meet the disclosure standards required under the CCCF Act and incorrectly calculating interest when customers repaid their loans before the due date.
In a settlement with the Commission, the pawnbroker agreed to refund interest to affected customers and amend its loan documents and practices to comply with the legislation.
Continuing disclosure
At least every six months continuing disclosure of specific information must be provided to the debtor in a consumer credit contract, unless it is a revolving credit contract, in which case continuing disclosure must be provided at least every 45 working days.
There are, however, three situations in which continuing disclosure does not have to be provided:
- if the amount of each advance to be made under the contract is known at the date the contract is made and payments are to be made according to a specified non-adjustable schedule; or
- the debtor can at all reasonable times access any information you have to disclose on a website you maintain and they have consented to having information disclosed in this way (this consent should be in writing); or
- no interest charges or fees are payable under the consumer credit contract.
In addition continuing disclosure does not have to be provided over a particular period:
- if the debtor cannot reasonably be located; or
- if during the period otherwise covered by a disclosure statement:
- there have been no debits or credits to the account and the unpaid balance is nil or has been written off; or
- the debtor has breached the consumer credit contract and enforcement proceedings have commenced; or
- the debtor has been declared bankrupt or has died (although continuing disclosure statements will still have to be provided if the official assignee or the executor or trustee of the debtor’s estate requests them).
If a disclosure statement is not provided during a particular period for one of these three reasons, the next disclosure statement must include all the information that would have been disclosed for that period.
The information that must be provided in each continuing disclosure statement is:
- the opening and closing dates of the period covered by the statement;
- the opening and closing unpaid balances;
- the date, amount and description of each advance during the statement period;
- the date and amount of each interest charge debited to the debtor’s account during the statement period;
- the date and amount of each amount paid by or credited to the debtor during the statement period;
- the date, amount and description of each fee or charge debited to the debtor’s account during the statement period;
- the date that the next payment is due;
- how much the next payment will be (if this information cannot be ascertained, how the next payment will be calculated should be included, as a matter of good practice). At the very least you should ensure that the method of calculating payments is disclosed in the initial disclosure statement); and
- the annual interest rate or rates applying during the statement period expressed as a percentage.
Variation disclosure
In certain circumstances the CCCF Act requires a creditor to disclose to the debtor variations to a consumer credit contract.
The circumstances in which a debtor must be provided with variation disclosure are:
- If both the creditor and debtor agree to change the consumer credit contract; in this case, the debtor must be provided with full particulars of the change before it takes effect, unless:
- the change is only the release of a security interest or a change in the place for payments to be made; and
- the change reduces the debtor’s obligations or extends their repayment time, except if the change has been made on the grounds of unforeseen hardship, in which case full particulars of the change must be provided.
- If the contract gives the creditor power to vary fees or charges, the amount or timing of payments, the interest rate or the way interest is calculated, and the creditor decides to exercise that power, the debtor must be provided with full particulars of the change within five working days of the date the change takes effect. Disclosure is not required if the change only reduces the debtor’s obligations under the contract, increases the time for payment or increases the credit limit.
Changes made following the exercise of a contractual power that increase the debtor’s obligations or increase the amount of an interest rate or the amount of any fee or charge payable under a consumer credit contract may be done by:
- displaying the information prominently at the creditor’s place of business; and
- advertising the information at least once in all the following areas in which the creditor does business: Whangarei, Auckland, Hamilton, Rotorua, Hawkes Bay, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin and Invercargill; and
- posting the information on the creditor’s website.
However, the CCCF Act does not allow a creditor to use this method of disclosure if the change in any way affects the amount, frequency or time for payment to be made under the contract.
Request disclosure
A debtor or guarantor may write to a creditor for information about their consumer credit contract.
Request disclosure may include any or all of the following information about a consumer credit contract:
- the effect of part prepayment on the debtor’s obligations;
- full particulars of any changes to the contract since it was made;
- the amount of any fee payable on part prepayment and how the fee will be calculated;
- the amount required for full prepayment on a specified date and how the amount will be calculated;
- the unpaid balance, including any outstanding interest charge (calculated at the date the disclosure statement is prepared);
- the amount of payments made or to be made or the method of calculating the amount of those payments;
- the number of payments made or to be made (if ascertainable);
- how often payments are to be made;
- the total amount of payments to be made under the contract, if ascertainable; and
- a copy of any disclosure statement that was or should have been provided before the request was made.
Request disclosure must be provided within 15 working days of receiving the request or, if a reasonable fee for disclosure is charged by the creditor, 15 working days from receiving that fee. If a creditor does not intend providing the information until the debtor or guarantor pays the fee they should let them know this in writing as soon as the request is received.
Request disclosure does not have to be provided if information has already been given to the debtor or guarantor in the previous three months or if the request is received more than a year after the contract has ended.
Guarantee disclosure
If a guarantee for the performance of the debtor’s obligation under the contract is taken, the person giving the guarantee (the guarantor) must also be given disclosure.
Either before the guarantee is given or within 15 working days of that date the guarantor must be provided with:
- the same initial disclosure given to the debtor; and
- a copy of all the terms of the guarantee.
A creditor will be required to make further disclosure to the guarantor during the term of the contract if:
- the creditor and the debtor enter into another consumer credit contract to which the guarantee applies; in this case the guarantor must be given the same initial disclosure given to the debtor; or
- the creditor and the debtor agree to change the consumer credit contract so that it increases the debtor’s obligations or reduces the time for payment; in this case full particulars of the change must be disclosed to the guarantor within five working days of the creditor and the debtor agreeing to the change; or
- the creditor exercises a power under the consumer credit contract that increases the debtor’s obligations or reduces the time for payment; in this case the guarantor must be given full particulars of the change within five working days of when the change takes effect. This includes any changes following the exercise of a power on a default by the debtor.
Where a creditor exercises a power to change a consumer credit contract and the change relates only to the interest rate, fees or amount of a charge, instead of directly giving the guarantor disclosure of the change, it can be provided by:
- displaying the information prominently at the creditor’s place of business; and
- advertising the information at least once in all the following areas in which the creditor does business: Whangarei, Auckland, Hamilton, Rotorua, Hawkes Bay, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin and Invercargill; and
- posting the information on the creditor’s website.
However, the CCCF Act does not allow a creditor to use this method of disclosure if the change in any way affects the amount, frequency or time for payment to be made under the contract.
Request disclosure must also be provided to the guarantor if it is asked for.
Example: A car finance business failed to properly disclose fees and charges to customers by not telling them what fees and charges applied, how interest was calculated, or how to pay the loan off early and by not sending a copy of the contract to those who acted as guarantors of the loans. The partners of the company were convicted under the CCCF Act, fined and ordered to pay statutory damages to customers. They were also convicted of breaching the Fair Trading Act by threatening to repossess vehicles when loan payments had not been made.
Failure to make disclosure
Failure to make adequate disclosure to a debtor under a consumer credit contract is an offence under the CCCF Act. The debtor is also entitled to recover statutory damages where the disclosure provisions have been breached.
A debtor has the right to cancel a contract by giving written notice within three working days of initial disclosure being given. Where the creditor has not given the required initial disclosure this right remains up until the time correct disclosure is made. Further, a creditor is not able to enforce a contract (and therefore is unable to recover the debt or enforce any rights to recover property or realise security) if it has not complied with the initial disclosure provisions and/or disclosure of agreed changes. .
If a creditor fails to make guarantee disclosure they will be unable to enforce the guarantee until it is provided.
Representations that creditors have the right to enforce these contracts will also breach the Fair Trading Act. Separate penalties apply to the Fair Trading Act.
Definitions
Consumer credit contract: A contract where credit is provided by a creditor to a natural person primarily for personal use. Interest or a credit fees must be payable under the contract or a security interest taken.
Creditor: Someone who provides or may provide credit – such as providing finance for a mortgage, credit card, arranged overdraft, personal or cash loan or pawn-broking pledge.
Debtor: Someone who borrows money from a creditor, incurs a debt and defers paying that debt or purchases property, goods or services and defers payment for them. In the case of a consumer credit contract, a natural person borrowing money primarily for personal use.
Guarantor: Someone who guarantees the performance of a debtor’s obligations under a contract.
Lenders and Borrowers
The CCCF Act uses a number of different terms to describe lenders and borrowers, depending on the nature of the transaction.
- Consumer credit contracts – creditors and debtors.
- Consumer leases – lessors and lessees.
- Buy back transactions – transferees and occupiers.
For the purposes of these fact sheets the terms creditor and debtor are used when referring generally to credit transactions, but the specific terms are used where relevant.
