Explanatory note
This note is not part of the regulations, but is intended to indicate their general effect.
These regulations provide an exemption (new regulation 18I) from certain requirements of the Credit Contracts and Consumer Finance Act 2003 (the Act) where an existing customer of a lender is experiencing negative effects from the flooding and other weather-related damage that occurred or occurs in the upper North Island in January and February 2023. The exemption applies to credit provided, for the purpose of addressing those negative effects, up to a $10,000 limit and for a temporary period of up to 12 months.
The effect of new regulation 18I is that the lender will not need to comply with section 9C(3)(a)(ii) and (4)(a) of the Act in respect of an overdraft or home loan to which new regulation 18I applies. Those provisions relate to making reasonable inquiries about whether it is likely that the borrower will make the payments under an agreement without suffering substantial hardship and whether the guarantor will be able to comply with a guarantee without suffering substantial hardship.
The exemption is subject to conditions in new regulation 18I(3). One condition requires the lender to provide hardship assistance to the borrower after the credit is provided if the borrower requests assistance. The lender must provide relief that is sufficient to avoid the borrower suffering substantial hardship as a result of making the payments under the contract, for example, by refinancing the credit contract on affordable terms, granting interest relief, or reducing the debt owing.
The exemption conditions about hardship assistance do not limit subpart 8 of Part 2 of the Act, which relates to unforeseen hardship. That subpart entitles a debtor to apply for certain changes to an existing contract if they are unable reasonably to meet their obligations under it because of an unforeseen event.
A breach of a condition of the exemption would have the effect that the borrower could seek statutory damages or compensation, or the Commerce Commission could seek a pecuniary penalty, under the Act for a breach of section 9C(3)(a)(ii) of the Act, or the guarantor could have corresponding remedies for a breach of section 9C(4)(a) of the Act.
Statement of reasons
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 18I of the Credit Contracts and Consumer Finance Regulations 2004 to be appropriate because—
requiring lenders to perform an affordability assessment for lending to address the effects of upper North Island flooding would impose unduly onerous and burdensome requirements, given—
lending is required urgently by some affected borrowers; and
an affordability assessment in accordance with section 9C(3)(a)(ii) of the Act is time consuming and requires seeking detailed information from borrowers; and
exempting the credit contracts from the specified requirements will not cause significant detriment to borrowers because—
the amount of credit available under the exemption is limited to $10,000 and the exemption applies only to certain forms of credit (temporary overdrafts and home loans) that are considered less likely to result in substantial hardship; and
the exemption is limited to existing customers seeking credit for specific purposes over a limited time period; and
under the conditions of the exemption, lenders will be required to implement processes to ensure that, if lending is unaffordable, hardship assistance is provided; and
under the conditions of the exemption, lenders will be required to provide hardship assistance that addresses the unaffordable lending and prevents the borrower from suffering substantial hardship; and
other key lender responsibilities, such as those under section 9C(2)(a)(ii) (exercising the care, diligence, and skill of a responsible lender before entering into an agreement to provide credit) and section 9C(3)(a)(i) (making reasonable inquiries so as to be satisfied that it is likely that the credit will meet the borrower’s requirements and objectives), will continue to apply; and
the purposes of the Act to protect the interests of consumers, to promote confident and informed participation of 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 2019.
Date of notification in Gazette: 13 February 2023.
These regulations are administered by the Ministry of Business, Innovation, and Employment.