How the Finance Companies we use comply with Lender Responsibility Principles?
“You are protected by responsible lending laws. Because of these protections, the recommendations given to you about a new Loan are not regulated financial advice. This means that duties and requirements imposed on people who give financial advice do not apply to these recommendations.
This includes a duty to comply with a code of conduct and a requirement to be licensed”.
Regulation 229L Financial Markets Conduct Amendment Regulations 2020
Before approving or taking a guarantee* for loan the Finance Company we use to process your application has a duty as a responsible lender to make “reasonable enquiries” that the loan is suitable in that it meets the borrowers needs and objectives, and that the borrower or guarantor* can afford to make the payments without suffering substantial hardship. The ultimate goal is to ensure customers are not signing a loan contract that they cannot afford.
*Note: The Finance Company will request all borrowers including joint borrowers or guarantors complete a separate Credit Capable application form in their own right. We refer to joint borrowers and guarantors as borrower(s) below.
These Lender Responsibility Principles are governed by the Credit Contracts Finance Act (CCCFA) and are enshrined in the Responsible Lending Code which offers guidance to lenders on how to uphold the principles.
The Responsible Lending Code can be downloaded from the Consumer Protection Website:
https://www.consumerprotection.govt.nz
The Commerce Commission provides a detailed explanation of the Lender Responsibility Principles:
https://comcom.govt.nz/business/your-responsibilities-if-you-provide-credit/the-lender-responsibility-principles
How does the Finance Company adhere to the Responsible Lending Code?
What are the needs and goals of the borrower?
The Finance Company wishs to meet the needs and objectives of each borrower and will ask for the loan purpose, the amount to be borrowed and the term required to repay the loan. The Finance Company will be assessing a borrower's suitability and affordability before entering into a loan agreement, before making a material change to an existing loan agreement and the Finance Company is required to keep records of these enquiries.
Is the loan affordable and suitable for the borrower?
In order to assess affordability and suitability to be approved for a loan, the Finance Company will make enquiries to understand the financial situation of the prospective borrower(s) by requesting they complete the Credit Capable Application Form.
The Credit Capable Application form requests that borrower(s) provide information on their current financial situation including income, existing home loans, credit cards, other debts, expenses as well as property values.
The Credit Capable Application form informs all borrowers that the Finance Company will conduct a credit check, and during the course of an assessment, the Finance Company will request further information such as banks statements, financial statements, pay slips, tax returns and other information.
Ultimately the Finance Company will make a decision to approve or decline the application. The lending decision will be made on the basis the borrower's income exceeds expenses including their new loan repayment without suffering financial hardship. The Finance Company will decline a loan application if the borrower(s) cannot afford to repay the loan.
The Finance Company will decline the application if the loan causes the borrower(s) to experience financial hardship repaying the loan, or because the loan does not meet their financial needs or goals.
What happens if the borrower is suffering Financial Hardship?
Borrowers have rights on the basis their circumstances might have changed causing unforeseen financial hardship. Under Section 55 (1) of CCCFA:
"A debtor who is unable reasonably, because of illness, injury, loss of employment, the end of a relationship, or other reasonable cause, to meet the debtor's obligations under a consumer credit contract and who reasonably expects to be able to discharge the debtor's obligations if the terms of the contract were changed in a manner set out in Section 56 may apply to the creditor to agree to that change".
Borrowers should contact the Finance Company to discuss their options if they fall within this criteria. Each borrower will be required to complete a
Hardship Assessment Form from the Finance Company as part of this process.
Does the borrower understand the key information about the loan?
Once the assessment is completed and the borrower(s) is/are approved for a loan, the Finance Company has a duty to disclose key information about the loan, including outlining the rights and responsibilities of the borrower(s) before the credit agreement is signed.
Key Features of the Credit Contract and Disclosure Statement include:
- Establishment Fee
- Repayment waiver fee
- Default fees and other fees and charges
- Interest rates and method of charging
- Loan term
- Repayment amounts, repayment schedule and total of repayments
- Continuing disclosure (statements)
- Security Interest (property taken as security)
- Terms and Conditions
The Credit Contract and Disclosure Statement Terms and Conditions
Explains what could happen if the borrower(s) fail to meet the loan repayment commitments including outlining default fees, default interest charges,
and that the security item could be repossessed and sold.
It outlines what borrower(s) should do if they experience unforeseen financial hardship and how to contact the financial dispute resolution service.
Budgeting Services
The Finance Companies that Credit Capable use have found that customers who might be experiencing repayment difficulties may benefit from speaking with a financial mentor. Moneytalks is an independent and confidential service which is completely free. The financial mentors can help you with confidential advice, and talk you through your options for getting on top of debts and covering the essentials.
Their contact details are: Phone: 0800 345 123. Website: https://www.moneytalks.co.nz/find-help-now/
Budget Evaluation Work Sheet
To download a Budget worksheet, please click on the image below.
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