Credit Reforms (Responsible Lending) Bill
General policy statement
The purpose of this Bill is to amend provisions in the Credit Contract and Consumer Finance
Act 2003 and the Credit (Repossession) Act 1997 to require lenders to act responsibly when
lending to unwary consumers and to prevent excessive rates of interest from being charged.
A number of financial institutions appear to be entering into finance arrangements which the
debtor is hopelessly unable to meet from the outset. It appears that for these institutions the
long term benefit of lending to all consumers outweighs the costs of investigation into the
means of individual debtors. Therefore, it appears that they are content to carry a relatively
small (from the institution’s perspective) number of defaults. For the debtors who find
themselves in default, the consequences can be catastrophic and enforcement actions
Key provisions of the Bill are changes to the Credit Contract and Consumer Finance Act 2003
and to the Credit (Repossession) Act 1997. The amendments to the Credit Contract and
Consumer Finance Act 2003 will require lenders to seriously consider the actual means of a
prospective borrower and their ability to service the debt and will allow for the prescription of
maximum annual percentage rates of interest payable in respect of consumer credit contracts.
Rules applying caps to annual interest rates now apply in many overseas countries including
the United States, Canada and Australia.
The amendment to the Credit (Repossession) Act 1997 will change the provision from one
which currently freezes interest at the time of sale, to one which limits the rights of the
creditor to the value of the goods sold.
The bill also amends the Secondhand Dealers and Pawnbrokers Act 2004 to allow pawn
brokers registered under that Act to charge administration fees, thereby removing any need for
high interest rates in order to compensate for not being a