Explanatory note
This note is not part of the regulations, but is intended to indicate their general effect.
Regulation 4AAAR is amended to remove the need for advertisements for consumer credit contracts to state the period during which the interest rate is fixed, if the annual interest rate is fixed for the entire period of the contract.
New regulation 18H provides exemptions for insurance premium funding agreements from the requirements that lenders must make inquiries under section 9C(3)(a) of the Credit Contracts and Consumer Finance Act 2003 (the Act) (which relates to the affordability and suitability of consumer credit contracts). The exemption from those requirements also has the consequence of exempting lenders from the associated requirement under section 9C(5A) of the Act, which is to comply with the regulations relating to those reasonable inquiries.
New regulations 27 and 28 are exemptions from the new certification requirement. That requires creditors under consumer credit contracts, including mobile traders, to hold a certification from the Commerce Commission that their directors and senior managers are fit and proper persons.
New regulation 27 mirrors the current exemptions for securitisation or covered bond arrangements or similar arrangements.
New regulation 28 mirrors an existing exemption for credit provided, on an interim basis, by a non-financial service business (R) (see regulation 10 of the Financial Service Providers (Exemptions) Regulations 2010). This applies if the credit is provided in order to facilitate the provision of goods or services to customers and if the non-financial service business, in the ordinary course of its business, assigns the credit contracts to another person (an underlying lender) within 1 working day of providing the credit.
New regulation 28(4) is made under section 138(1)(abb) of the Act and declares the underlying lenders to be creditors from the time when the credit contracts are entered into (rather than from assignment). One effect of new regulation 28 is that the underlying lender is liable for responsible lending obligations and other pre-contract responsibilities. For the avoidance of doubt, R is still a creditor and is liable for the breach of any of the obligations in the Act or the regulations except for the duties from which they are specifically exempt under new regulation 28.
New regulation 29 prescribes requirements in relation to annual returns for the purposes of section 116AAA of the Act, including the date by which the return must be provided and the 12-month period to which it must relate.
New Schedule 1AA contains transitional provisions.
Clause 1 relates to section 9C(5A) of the Act, which provides that the requirement to make reasonable inquiries so as to be satisfied of a matter (see section 9C(3)(a) and (5)(a)) includes a requirement to comply with new regulations (see new regulations 4AA to 4AO, which will now come into force on 1 December 2021).
The clause contains exceptions from the requirement to comply with those new regulations in 2 cases, as follows:
the first case is agreements entered into before 1 June 2022:
the second case is agreements relating to specific land or residential premises, if the lender offered the credit before 1 December 2021.
Clause 1 has the effect of excepting lenders from the new regulations if the lender has substantially completed reasonable inquiries before 1 December 2021 and is satisfied that it is likely that the test in those provisions is met (for example, that it is likely that the credit or finance provided under the agreement will meet the borrower’s requirement and objectives and that the borrower will make the payments under the agreement without suffering substantial hardship).
However, section 9C(3)(a) of the Act may still require further inquiries (for example, if the borrower’s financial situation changes between the pre-1 December 2021 suitability and affordability assessment and the entry into the agreement). In that case, if those inquiries mean that the lender is no longer satisfied that it is likely that the test in those provisions is met, then the exception in clause 1 no longer applies, and the lender has to comply with the requirements in the new regulations.
Clause 2 provides that the first annual return must be provided by 30 June 2024.
Statement of reasons
The following statement of reasons is published for the purposes of section 138(1B) of the Credit Contracts and Consumer Finance Act 2003
The Minister of Commerce and Consumer Affairs, having had regard to the purposes of the Credit Contracts and Consumer Finance Act 2003 (the Act) set out in section 3 of the Act as required by section 138(1A)(a) of the Act, and being satisfied as to the matters set out in section 138(1A)(b) and (c)(ii) of the Act, considers the exemptions made in new regulation 18H of the Credit Contracts and Consumer Finance Regulations 2004 to be appropriate because—
requiring creditors under insurance premium funding agreements to perform the inquiries and assessment required by section 9C(3)(a) of the Act would be unduly onerous or burdensome, because—
insurance premium funders would incur significant costs from assessing affordability and suitability:
the terms of the agreements are such that they are similar in overall effect to a regular instalment plan provided by an insurer, which would not be regulated under the Act:
the assessment of affordability and suitability would have minimal benefit to borrowers, as the agreement can only be used to pay for insurance and the borrower is able to cancel the agreement at any time:
exempting those consumer credit contracts from the specified requirements will not cause significant detriment to debtors because—
the borrower can cancel the agreement at any time with no further liability for payment:
the lender will continue to be subject to all other obligations of the Act, including the lender responsibility to exercise the care, diligence, and skill of a responsible lender before entering into an agreement to provide credit:
the purposes of the Act to protect the interests of consumers, to promote confident and informed participation by consumers in markets for credit, to promote fair, efficient, and transparent markets for credit, and to provide remedies for consumers in relation to oppressive conduct will continue to be met.
The Minister of Commerce and Consumer Affairs, having had regard to the purposes of the Act set out in section 3 of the Act as required by section 138(1A)(a) of the Act, and being satisfied as to the matters set out in section 138(1A)(b) and (c)(ii) of the Act, considers the exemption made in new regulation 28(3) of the Credit Contracts and Consumer Finance Regulations 2004 to be appropriate because—
requiring directors and senior managers of a non-financial service business to meet the duties in section 59B of the Act would be unduly onerous and burdensome because, in the circumstances of the exemption, the non-financial service business does not design, or exercise control over, compliance with most of the obligations of the Act:
the exemption will not cause significant detriment to debtors because—
the underlying lender, which is responsible for ensuring compliance with the Act and making the final lending decision, will be declared a creditor for the period prior to assignment, including during the period that a borrower decides to enter into the credit contract:
the directors and senior managers of the underlying lender will be subject to the duty under section 59B of the Act:
the purposes of the Act to protect the interests of consumers, to promote confident and informed participation by consumers in markets for credit, to promote fair, efficient, and transparent markets for credit, and to provide remedies for consumers in relation to oppressive conduct will continue to be met.
Issued under the authority of the Legislation Act 2012.
Date of notification in Gazette: 30 September 2021.
These regulations are administered by the Ministry of Business, Innovation, and Employment.