New law puts bite on credit industry

The Commerce Commission yesterday warned the credit industry it would "be seen to have teeth" under sweeping new powers from April 1.

That is when the long awaited Credit Contracts and Consumer Finance Act comes into effect. The legislation covers home loans, personal loans, hire purchase, credit cards, long-term leases and housing buy-back schemes.

The Act replaces the 1971 Hire Purchase Act and 1981 Credit Contracts Act and brings New Zealand's consumer credit laws in line with Australia's.

Commission chairwoman Paula Rebstock said the Act aimed to promote more transparent lending.

"The Act signals major changes to the way New Zealanders lend and borrow money and aims to benefit consumers and credit providers," said Rebstock.

The commission will have public enforcement powers with civil and criminal remedies available. Potential penalties include fines of $3000 to $200,000 and jail terms of up to one year. It will be the first time credit law is enforced by a regulatory agency.

Now, it is up to individuals to take action against credit providers.

Deborah Battell, the commission's director of fair trading, left no doubt the watchdog was taking its new powers seriously.

"For the commission to be effective and to be seen to have teeth, it is going to have to take cases," Battell said.

She suggested one of the best sources of complaints would be competitors of alleged offenders.

Chapman Tripp principal Alan Lester said that, rather than the fines, the discretionary remedies available under the Act would be of more concern to credit providers.

This included what he dubbed the "two strikes and you're out regime" whereby the commission can seek court orders banning an individual or company from providing credit.

Consumers' Institute chief executive David Russell described the Act as a big step forward in consumer protection. He said it had been 10 years in the making and was an attempt to address real problems for "victims of loan sharks".

Justin Kerr, executive director of the Financial Services Federation, whose 47 non-bank financial institutions hold assets of $14.5 billion, said he was generally in favour of any improved disclosure.

Kerr said the Act should address concern over a lack of disclosure at the bottom end of the market and consumers would be made more aware of their rights.

The industry has been given 18 months to prepare for implementation of the Act, which was passed by Parliament in October 2003.

The commission will focus on promoting compliance between April 1 and June 30 and then switch to "full enforcement" mode from July 1.