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CCCFA notes:  Credit Contract and Consumer Finance Act 3003 came in to full force on 1st April 2005 it repealed Hire Purchase Act 1971 an Credit Contracts Act 1981.  A consumer credit contract is a contract where a borrower is given credit for personal use, such as through a mortgage, credit card...

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CCCFA notes:  Credit Contract and Consumer Finance Act 3003 came in to full force on 1st April 2005 it repealed Hire Purchase Act 1971 an Credit Contracts Act 1981.  A consumer credit contract is a contract where a borrower is given credit for personal use, such as through a mortgage, credit card, arranged overdraft, personal or cash loan, or pawnbroking pledge.  A consumer lease is a lease contract where someone is leasing goods for personal use and either has an option to purchase the leased goods, or the term of the lease is over one year.  A buy-back transaction is where a homeowner transfers their home (or an interest in their home) to a transferee, who typically pays their debts or gives them money. The former homeowner (the occupier) has the right to continue living in the home and to buy it back at some time in the future.  In Hire Purchase agreements possession goes to buyer but title remains with vendor until all the installments are paid. Whereas with credit sale, property is transferred to the buyer immediately so passing of property is not contingent on payment of full purchase price. A loan is the temporary transfer of an asset(funds) from lender to borrower, in return for payment of interest.  Credit transaction fell into 2 categories: deferred payment sales(hire purchase and credit sales) and loans.  Growth of the use of credit has a dark side, the less wealthy and less educated were being taken advantage of. Consumers pay less attention to requirements of credit documentation they enter into, some consumers lack sophistication to understand what they are agreeing to. This enables the unscrupulous to indulge in predatory practice, deceit and other abuses. Which led to the need to regulation and governance. The aim was to regulate the finance industry with credit provisions and protect borrowers. This led to the enactment of the “cooling off” period where consumers can reflect on what they entered into and reconsider.  CCCFA was enacted to protect interests of consumers, it doesn’t aim to govern business and investment credit.  Burke v Advanced Securitiesct. warned that CCCFA doesn’t replicate the old Credit Contracts Act so caution needs to be exercised when applying authorities determined under old Act.  Further amendments made to protect unwary consumers from unscrupulous credit providers especially ‘Third tier lenders” whose target was low socio-economic sections of society, offering them “pay day lending” (loans form week to week) with questionable lending practices.  The Amendment Act 2014 elevates consumer protection to be the primary purpose of Act. introduced responsible lending, extends cooling off period, requires reasonable fees. Put 3A in place to deal with repossession of consumer goods.  Agreements entered into prior to 6 june 2015 continued to be governed under old law.

Overview of the Act:

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Deals with 3 classes of transactions. 1: credit contracts. 2: consumer leases. 3: buy back transactions of land. S3 sets out purpose of Act (print) S3(1) makes it clear “ primary purpose” of Act is protect interest of consumers in relation to above 3 transactions. These are the purpose of the Act: to protect the interests of consumers under credit contracts, consumer leases and buy-back transactions of land. The “purpose” specifies that this protection applies to the entry into the agreements and lasts for their duration; d)To provide remedies for debtors, lessees and occupiers (including consumers) in relation to oppressive credit contracts, consumer leases and buy-back transactions of land and for oppressive conduct by creditors, lessors and transferees with regard to such transactions. Section 3(2) states that it is also the purpose of the Act: a) to promote the confident and informed participation in markets for credit by consumers; b) to promote and facilitate fair, efficient and transparent markets for credit. Act divided into parts: Part 1 deals with preliminary matters including commencement, purposes, an overview and interpretation. •Part 1A concerns lender responsibilities and sets out the principles that must be complied with by creditors under certain credit contracts and transferees under buy-back transactions. •Part 2 deals with consumer credit contracts. This Part sets out when a lease of goods is to be treated as a consumer credit contract and not a consumer lease. It deals with disclosure, interest charges, fees, payments and changes to consumer credit contracts on the grounds of unforeseen hardship. •Part 3 contains provisions relating to consumer leases, credit-related insurance, repayment waivers, extended warranties and buy-back transactions of land. •Part 3A contains the provisions concerning the repossession of consumer goods under credit contracts (this Part is dealt with in a separate chapter: see Ch 49). •Part 4 contains provisions concerning civil remedies, injunctions, offences and the role and function of the Commerce Commission. •Part 5 deals with the reopening of oppressive credit contracts, consumer leases and buy-back transactions of land. •Part 6 deals with such miscellaneous matters as contracting out, regulations, consequential amendments and transitional provisions. Can make and election: The Act applies to every credit contract, consumer lease and guarantee made after its commencement: s 141(1). For those made before the commencement, it enables creditors to make an election that the Act apply to any credit contract and any guarantee made in connection with the credit contract from a date, known as “the effective date,” which must be a date subsequent to the date of election: s 142 If election made old CCA and HPA wont apply, if election not made then the old ones apply-s143(1).

This means that some of the provisions in the 2014 Amendment Act will apply to variations, hardship applications and disclosures that occur after 6 June 2015 even if the contracts were entered into before that date.  Mayes v Southern Cross Finance Ltd: Judge found that D didn’t make and election to have CCCFA apply or it was not notified that they made the election- failed to notify P, Andrew J held the period of 5 working days where they must notify defendant is key and this didn’t happen so election not valid.  Now all financial service providers need to be registered under the Act in order to operate in this jurisdiction.  Section 9C: lender responsibilities. States that every lender must comply with the lender responsibility principles.“lender” is defined in s 9B: s 9B definitions Borrower means any person who has entered into, or is seeking to enter into, an agreement with a lender Lender means a creditor under a consumer credit contract or a credit contract to which Part 3A applies (repossession of consumer goods):  Section 9C(1) requires that every lender comply with the principles. The Act does not impose penalties for non-compliance in itself, nor does noncompliance cause the credit contract or security interest to become unenforceable.  Lender now under s9C has duties to make enquiries: make enquiries to ensure that the borrower will make the payments under the agreement without suffering substantial hardship – s 9C(3)(a)(i) (affordable) - make enquiries to ensure the credit or finance provided under the agreement will meet the borrower’s requirements and objectives; – s 9C(3)(a)(ii) (suitable) - assist borrowers to reach an informed decision when entering into the contract and subsequently (variations) s 9C(3)(b) & (c) - treat borrowers and their property reasonably and in an ethical manner s 9C(3)(c)(d) (e.g when exercising rights)  Section 9G makes provision for the government to prepare and issue a Responsible Lending Code.  Code is not to be treated as a “safe harbor” its not exhaustive. Compliance with code is evidence of compliance with the lender responsibility principles. The Code is divided into the following sections: a)Obligations that apply before and throughout the agreement b)Advertising c)Inquiries into and assessment of borrowers’ requirements and objectives d)Inquiries into and assessment of substantial hardship e)Assisting borrowers to make an informed decision f)Assisting guarantors to make an informed decision g)Credit related insurance and repayment waivers h)Fees i)Subsequent dealings j)Default and other problems k)Repossession l)Oppression

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Consumer credit contract: defined in s7(1): contract under which credit is or may be provided.  Section 11(1) defines a credit contract as a consumer credit contract if: (a)the debtor is a natural person; and (b)the credit is to be used, or is intended to be used, wholly or predominantly for personal, domestic or household purposes; and (c)one or more of the following applies: interest charges or credit fees are or may be payable under the contract, or a security interest may be taken under the contract; and (d)when the contract is entered into, one or more of the following applies: the creditor, or one of them, carries on a business of providing credit, or makes a practice of providing credit in the course of a business carried on by the creditor, or makes a practice of entering into credit contracts in the creditor’s own name on behalf of others, or the contract results from an introduction of one party to another party by a paid adviser or broker. (So if these are present then credit contract) A creditor who wishes to avoid the incidents of the Act would have to prove that the credit contract was not a consumer credit contract. s 13 creates a presumption so that, in any proceeding in which a party claims that a credit contract is a consumer credit contract, it is presumed that it is a consumer credit contract; but this is rebuttable. S14(1) a credit contract is not a consumer contract if debtor makes declaration before entering into contract that the credit is to be used wholly for business purposes.  S 15 excludes from “consumer credit contract”(a) Short term credit sales – agreed price is to be paid within 2 months, and; (b) a persons account merely going into overdraft – unless an overdraft facility has been agreed.  S15A pawn broking contracts are also excluded from consumer credit contracts.  Howe v Westpac: parties entered into consumer credit contract. How defaulted loan. Parties then entered into deed under which new payment schedule set up Howes defaulted. Howes argued this deed was a consumer credit and required disclosure and interest from previous loan didn’t continue, the court held interest continued to accure under the original loan agreement.  S 16 sets out the requirements for a lease of goods to be treated as a consumer credit contract.  “Credit sale” is defined in s 5. It is a contract involving the sale of property or the provision of services under which payment of the whole or a part of the purchase price is deferred.  Layby: a layby sale agreement is not a credit contract for the purposes of that Act if no interest charges and no credit fees are payable under the layby sale agreement. In other words, layby sale agreements that provide for interest charges or credit fees are subject to the CCCFA. Protection of consumer:  Act makes provision to protect consumers who have entered into consumer credit contracts. They are disclosure of information, a right to cancel the contract, control of interest charges and fees, provisions governing 

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payment and prepayment of the purchase price, provisions enabling changes to be made to the contract because of unforeseen hardship, remedies, prohibitions and the reopening of oppressive credit contracts. Subpart 2 of Part 2 deals with disclosure. Where there is a consumer credit contract, creditor must ensure that disclosure is made to the consumer. Function of disclosure is: ensure consumer knows at all times the financial obligations they are undertaking, so they know what their debt is. Disclosure at the outset of a credit transaction, coupled with a “cooling-off period” and a right of cancellation, enables consumers to bring their judgment to bear on whether they are able to cope with the terms of credit offered to them and facilitates “comparison shopping”, colloquially referred to as “shopping around”, for more suitable credit terms. S 32(1)(a) disclosure to be in writing. May be done electronically(s32(4) (2 requirements for online, info must be readily accessible, consumer must consent to electronic disclosure) S35 governs the procedure for disclosure. Under s 35(1)(a) disclosure must be made by giving the disclosure statement to the person to whom disclosure is to be made. Section 35(1)(b) allows disclosure to be made by way of post National Australia Finance Ltd v Fahey disclosure under the Credit Contracts Act 1981 was made not to the debtor personally but to the debtor’s attorney who had been duly appointed under a power of attorney. This was held to satisfy the requirements of the Act. Disclosure must express it clearly, concisely and in a manner likely to bring the information to the attention of a reasonable person: s 32(1)(b) and (c). Commerce Commission v Betterlife Corp Ltd: D plead guilty to breach of s32(1)(c) as the info was in small size font, condensed into columns, providing no space between terms and conditions. Info was obscured and difficult to read particularly for someone with low income and low degree of education. Found guilty. S32(1)(d): disclosure must not be likely to deceive or mislead a reasonable person with regard to any material particular The Act makes provision for the use of model forms for disclosure statements: s 32(1)(ba). Where disclosure is required by regulations to be made in a form prescribed by regulations, and it is made in the form and manner prescribed. What is in the form: the name and address of the creditor, credit details, payment details, interest details, credit fees and charges, the purpose of continuing disclosure, what could happen if the debtor fails in his or her commitments, full prepayment, an explanation of the right to cancel the contract, what to do if you suffer unforeseen hardship and the name of any dispute resolution scheme S 17: initial disclosure. The creditor must disclose as much “key information” (set out in sch 1) as is applicable (s 17(1)), plus a copy of all the terms of the contract not otherwise disclosed: s 17(2). The “key information” is reflected in the Model Disclosure Form: Form 1 of sch 2 of the CCCF Regulations.

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Ss18-21: continuing disclosure: for all consumer credit contracts. (he doesn’t talk about this in slides, but if you want more info on this read 22.4.4- 22.4.8 in readings) s. 35 – method of disclosure and disclosure date - by giving (handing) posting or emailing to debtor. If post – disclosure date is 4th working day after day of posting – s 35(3) If email then 2nd working day after day of sending – s 35(4) s. 27(1) – Gives debtor “cooling off” period in which to reconsider and cancel (for consumer credit contract). A debtor under a consumer credit contract can cancel by written notice to creditor within 5 working days if disclosure properly made or, or at any time if disclosure not properly made. but different provisions apply depending upon whether ccc is a credit sale or not. credit sale of goods (e.g. hire purchase) where debtor has not taken possession or disclosure not properly made - then debtor can cancel entire contract (must return goods if possession has been taken) despite the ccc being a credit sale… S 27(1)(b) Cancellation: S 28(1) Written notice of cancellation may be expressed in any way that shows the intention of the debtor to cancel or withdraw from the consumer credit contract. Effect of Cancellation s30 – consumer credit obligations terminated. Creditor has to return property/release securities (if any). The debtor is only liable for interest up to when contract cancelled plus reasonable fees. S 29(1): There is no right of cancellation where the credit is provided for a specified period of less than 2 months and no part of the credit is used to pay amounts owing to the creditor or a related company under another credit contract. R v Senate Finance Ltd: senate finance breached s17 Remember s 99(1) – contract unenforceable by creditor if s 17 not complied with. King v Norfolk Nominees Ltd: reasoning = Section 99(1) provides that no person (other than the debtor) may enforce the contract, if disclosure is required under s 17 … before that disclosure is made ...so unenforceability is not forever – it is for the time being until disclosure made. Credit Fee: these are fees in addition to price of goods and interest on the amount of credit. Defined in s5- establishment fees. S 41 – a consumer credit contract must not provide for a credit fee or default fee that is unreasonable. S 43 contains a test for determining whether a prepayment fee under a consumer credit contract is unreasonable; s 42 sets out matters a court must have regard to when determining whether an establishment fee under a consumer credit contract is unreasonable. Section 44 does the same in determining whether a credit fee or default fee is unreasonable. Section 44A does this with regard to default fees. Under s 44B compliance with the Responsible Lending Code is evidence that fees are not unreasonable.

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Sportzone Motorcycles Limited/MTF v CC [2015]- There must be a connection between the fee and the specific loan transaction concerned. Fees should not be for general operating costs (overheads) or profit. Overheads/profit should be paid out of interest. Toogood J developed the close relevant test to determine what is a reasonable fee. “To be reasonable, the cost the creditor seeks to recover must be sufficiently close and relevant to the establishment of the particular loan, to the administration and maintenance of a particular loan, or to the actual consequences of the particular default, such that it can reasonably be said that the cost was incurred in connection with or in relation to the relevant matter”. Applying this test to the case before him, his Honour decided that this does not permit the imposition of fees to recover costs which are not “closely relevant to the particular transaction but which are merely referable to the general business of selling motorcycles or of lending money CC V Galistar Enterprises Ltd: the creditor was fined for a breach of s 13(i) of the Fair Trading Act 1986. The creditor had failed to comply with the disclosure requirements in s 17 of the CCCFA. The Court held that when the creditor issued repossession notices, this constituted a representation that it had a right to enforce its contracts whereas the creditor was prohibited from doing so because of its failure to comply with the disclosure requirements in s 17 of the CCCFA Payment: Borrower can prepay outstanding balance in full at any time – s 50. S 54, a creditor must calculate the reasonable estimate of its loss arising from a full prepayment using either a procedure prescribed by regulations or an appropriate procedure set out in the consumer credit contract for calculating the loss Lender can recover reasonable estimate of loss for prepayment – to be calculated in accordance with ss 51 & 54. Reasonable estimate of loss – balance: Amount that the lender would have got if repayments had proceeded (loss) vs - lender’s ability to mitigate loss (reinvest). CC v Avanti Finance: contract with 90 days unearned intrest. AFL argued that any funds paid off early by the debtor would be used to repay amounts AFL owed to its creditors; the funds would not be lent to someone else. This meant that AFL’s loss arising from a full prepayment was the unearned interest for the unexpired term of the loan less the cost to AFL of borrowing those funds from its creditors over the same period. The 90 days’ interest charged was a reasonable estimate of this loss. The Commerce Commission challenged this as an unreasonable estimate and, as such, an offence under...