Credit Contracts and Consumer Finance Amendment Regulations 2004

2004/359

Credit Contracts and Consumer Finance Amendment Regulations 2004


Note

These regulations are administered in the Ministry of Consumer Affairs.


Pursuant to section 138 of the Credit Contracts and Consumer Finance Act 2003, Her Excellency the Administrator of the Government, acting on the advice and with the consent of the Executive Council, makes the following regulations.

1 Title
2 Commencement
  • These regulations come into force on 1 April 2005.

3 Assumptions
  • Regulation 6 of the principal regulations is amended by omitting the words the Schedule, and substituting the expression Schedule 1.

4 New regulations 11 to 17 substituted
  • The principal regulations are amended by revoking regulation 11, and substituting the following regulations and headings:

    11 Calculation of reasonable estimate of creditor's loss if interest rate fixed for part of term
    • (1) For the purposes of section 54(1)(a) of the Act, a reasonable estimate of a creditor's loss arising from a full prepayment of a fixed rate contract may be determined in accordance with the following formula:

      LRE = VFP - u

      where—

      • LRE is the reasonable estimate of the creditor's loss arising from the full prepayment

      • VFP is the value of forgone payments calculated in accordance with subclause (2)

      • u is the unpaid balance at the time of the full prepayment.

      (2) The value of forgone payments is calculated in accordance with the following formula:

      .

      where—

      • VFP is the value of forgone payments

      • p is the amount of each payment payable under the fixed rate contract during the fixed interest period in which the contract is fully prepaid

      • v is calculated in accordance with subclause (3)

      • n is the number of payments yet to be made under the fixed rate contract during the fixed interest period in which the contract is fully prepaid

      • f is the number of payments to be made per year under the fixed rate contract during the fixed interest period in which the contract is fully prepaid

      • i is the annual fixed interest rate determined in accordance with subclauses (4) and (5) and expressed as a decimal fraction

      • d is the number of days between the payment due date that immediately precedes the date of full prepayment and the date of full prepayment

      • EB is the expected unpaid balance at the end of the fixed interest period in which the fixed rate contract is fully prepaid calculated in accordance with subclause (6).

      (3) The variable v is calculated in accordance with the following formula:

      .

      where

      • i is the annual fixed interest rate determined in accordance with subclauses (4) and (5) and expressed as a decimal fraction

      • f is the number of payments to be made per year under the fixed rate contract during the fixed interest period in which the contract is fully prepaid.

      (4) The annual fixed interest rate i is the annual fixed interest rate that at the date of full prepayment of the fixed rate contract the creditor usually offers on a fixed rate contract that—

      • (a) is of the same or a similar type as the fixed rate contract that is to be fully prepaid; and

      • (b) has a fixed interest period that is—

        • (i) equal to the unexpired portion of the fixed interest period of the fixed rate contract that is to be fully prepaid; or

        • (ii) closest to the unexpired portion of the fixed interest period of the fixed rate contract that is to be fully prepaid, whether shorter or longer (if the creditor does not offer a contract with a fixed interest period equal to the unexpired portion of the fixed interest period of the fixed rate contract that is to be fully prepaid).

      (5) If more than 1 annual fixed interest rate applies under subclause (4)(b)(ii), the annual fixed interest rate i is the higher or highest of those annual fixed interest rates.

      (6) The expected unpaid balance at the end of the fixed interest period is calculated in accordance with the following formula:

      EB = u + IC - TP

      where—

      • EB is the expected unpaid balance at the end of the fixed interest period in which the fixed rate contract is fully prepaid

      • u is the unpaid balance at the time of the full prepayment

      • IC is the total amount of the interest charges that would have been paid in accordance with the contract during the unexpired portion of the fixed interest period in which the fixed rate contract is fully prepaid

      • TP is the total of all payments that would have been paid in accordance with the contract during the unexpired portion of the fixed interest period in which the fixed rate contract is fully prepaid.

      (7) If a reasonable estimate of a creditor's loss arising from a full prepayment determined in accordance with the formula in subclause (1) is less than zero, then the reasonable estimate of that creditor's loss arising from the full prepayment is zero.

      Example

      A debtor is advanced $5,000 under a fixed rate contract. The contract is for a term of 2 years. For the first year the interest rate is fixed at 12% and the 12 monthly payments are $235.37. For the remainder of the term a floating interest rate applies. Full prepayment of the contract is made after 6 months and 5 days (5 days since the last payment due date) when the unpaid balance is $3,865.66. At the date of full prepayment, the annual fixed interest rate that the creditor usually charges on a fixed rate contract of the same or a similar type as the fixed rate contract that is to be fully prepaid with a term of 6 months (6 months being the nearest term to the unexpired portion of the fixed interest period of the fixed rate contract that is to be fully prepaid) is 10%. During the unexpired portion of the fixed interest period of the fixed rate contract that is to be fully prepaid, total payments of $1,412.22 would have been payable ($235.37 x 6 months), including total interest charges of $195.67. Applying the above formula, a reasonable estimate of the creditor's loss arising from the full prepayment is calculated as follows:

      .

      A reasonable estimate of the creditor's loss is $31.79.

      Note: For the purpose of this example only, calculations have been rounded to 9 decimal places.

    Model disclosure statements

    12 Model disclosure statements
    • For the purposes of section 34 of the Act—

      • (a) the model disclosure statement that may be used for the disclosure of information under section 17(1) of the Act for a consumer credit contract other than a revolving credit contract is set out in Form 1 of Schedule 2:

      • (b) the model disclosure statement that may be used for the disclosure of information under section 17(1) of the Act for a revolving credit contract is set out in Form 2 of Schedule 2:

      • (c) the model disclosure statements in Schedule 2 must be used in accordance with regulations 13 to 16.

    13 Terms and conditions for use of model disclosure statements
    • (1) A model disclosure statement may be—

      • (a) printed in any font and font size that is easily readable by a reasonable person:

      • (b) printed in any colour or colours:

      • (c) formatted with or without the use of borders or boxes around the text:

      • (d) extended to provide sufficient space or lines in each box to enable completion of the required information in accordance with subclause (2).

      (2) A model disclosure statement must be completed by—

      • (a) inserting in legible type or writing all of the information required by section 17(1) of the Act to be disclosed that is applicable to a particular consumer credit contract:

      • (b) omitting any information (including any alternative information requirement) that is not applicable to the particular consumer credit contract, either by deleting that information from the model disclosure statement or by clearly striking through the space on the model disclosure statement for the disclosure of that information:

      • (c) omitting the square brackets and the words in those square brackets that provide guidance for completion of the forms.

      (3) A model disclosure statement may not be completed by inserting the words not applicable to indicate that a requirement to disclose information is not applicable to a particular consumer credit contract.

    14 Format and layout may not be modified
    • Except as provided in these regulations, the format and layout of a model disclosure statement may not be modified.

    15 Other information
    • (1) The following information may be included in a model disclosure statement in addition to the information that must other-wise be disclosed in accordance with the Act and these regulations:

      • (a) the name and address of the debtor:

      • (b) any name, logo, mark, design, or other information relating to the creditor if that information is included in a manner that is not likely to deceive or mislead a reasonable person or detract from the information that is required to be disclosed by the Act.

      (2) Except as provided in subclause (1), no other information may be included in a model disclosure statement.

    16 Model disclosure statement may be divided into 2 parts
    • If a model disclosure statement is included as part of 1 or more documents, the model disclosure statement may be divided into no more than 2 parts with 1 part comprising only the statement relating to the debtor's right to cancel under section 27 of the Act.

    Other key information concerning consumer credit contract

    17 Other key information
    • (1) For the purposes of paragraph (v) of Schedule 1 of the Act the information set out in subclause (2) is information that is key information concerning a consumer credit contract.

      (2) The information referred to in subclause (1) is a description of the credit fees that are, or may become, payable by the debtor to, or for the benefit of, the creditor in connection with the credit contract (unless the credit fee is disclosed under paragraph (c) or paragraph (n) of Schedule 1 of the Act), including—

      • (a) when each of those credit fees is payable, if ascertainable; and

      • (b) the amount of each of those credit fees if ascertainable, but, if not, the method of calculation of the fee.

5 Schedule amended
  • The Schedule of the principal regulations is amended by revoking the heading Schedule, and substituting the heading Schedule 1.

6 New Schedule 2 added
  • The principal regulations are amended by adding, as Schedule 2, the Schedule 2 set out in the Schedule.


Schedule
New Schedule 2 of principal regulations

r 6

Schedule 2
Model disclosure statements

r 12

Form 1

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Form 2

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Diane Morcom,

Clerk of the Executive Council.

Explanatory note

This note is not part of the regulations, but is intended to indicate their general effect.

These regulations, which come into force on 1 April 2005, amend the Credit Contracts and Consumer Finance Regulations 2004 ( the principal regulations).

These regulations—

  • substitute a new regulation 11 of the principal regulations, which prescribes a method that may be used for calculating a reasonable estimate of a creditor's loss arising from a full prepayment of a fixed interest rate consumer credit contract if the interest rate is fixed for part of the term of the contract (but not for the whole term). This method compares the unpaid balance of the contract as at the date of the full prepayment with the value of future payments that the creditor would receive if the amount fully prepaid is re-lent at the creditor's prevailing interest rates for the unexpired portion of the fixed interest period, and takes into account the expected value of the unpaid balance at the end of the fixed interest period:

  • insert a new schedule into the principal regulations comprising 2 model disclosure statements. These model disclosure statements (for credit contracts other than revolving credit contracts and for revolving credit contracts) may be used by creditors for the purpose of making initial disclosure under section 17(1) of the Credit Contracts and Consumer Finance Act 2003 (the Act). The use of these model disclosure statements is subject to certain requirements (for example, creditors must ensure that all of the information required to be disclosed is included). Creditors are not obliged to use the model disclosure statements. However, a creditor under a consumer credit contract who uses a model disclosure statement in accordance with the prescribed requirements is to be treated as having complied with the disclosure standards in section 32(1)(a), (c), and (d) of the Act:

  • for the purposes of Schedule 1 of the Act, prescribe as key information concerning a consumer credit contract a description of the credit fees and charges that are, or may become, payable by the debtor to, or for the benefit of, the creditor in connection with a credit contract. Such credit fees and charges would include, for example, application fees paid by the debtor to the creditor immediately before entering into the credit contract.


Issued under the authority of the Acts and Regulations Publication Act 1989.

Date of notification in Gazette: 14 October 2004.


  • 1 SR 2004/240