A new responsible lending law has come into effect in New Zealand to protect borrowers and provide them with key lending protections.
According to Regulation Asia, the Credit Contracts and Consumer Finance Act – revised from a previous 2003 version of the law – is designed to better protect borrowers and provide them with protection when they take out personal loans or mortgages, borrow on overdrafts, use credit cards or buy products and services on credit or hire purchase.
The Act will mean that lenders including banks, mortgage advisers and finance companies will be required to apply more scrutiny to borrower repayment capabilities, and borrowers will also be mandated to give more details and evidence around spending and income when they apply for loans.
The new law will apply to all credit applications – whether small or large – including new loans and changes to existing credit arrangements. It will also cover all consumer credit contracts, consumer leases, business loans and home buy-back transactions.
Lenders can also be forced to refund interest, fees and/or damages to borrowers if they fail to comply with their disclose obligations and the requirement to determine loan affordability and suitability under the new law,
A website dedicated to the new legislation commented that the CCCFA will ensure borrowers will be able to make informed choices and keep track of their debts.
A joint statement by the New Zealand-based Financial Services Federation and the New Zealand Bankers’ Association detailed that the changes will help people avoid unaffordable debt, but will mean credit applications will take longer to process and borrowers will have to provide more information than before.
The statement added, “Lenders will no longer be able to rely on information provided by customers – they’ll need to collect extra information and check it is correct. Credit applicants will need to provide detailed information about their financial situation, including income, debts, and expenses. This may include having to provide their recent transaction history.”
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