Consumer Protection under the Credit Contracts and Consumer Finance Amendment Bill 2012: Improvements and Failures

Abstract

In April 2012 the New Zealand Government released the Credit Contracts and Consumer Finance (CCCF) Amendment Bill Exposure Draft. The Bill aims at introducing the new principle of “responsible lending” into the consumer credit regime. It furthermore provides for a number of amendments and improvements of existing protective measures. The Government, however, refrained from incorporating a price regulation mechanism in the form of interest rate caps into the Bill. In the light of these developments, this article illustrates Government’s suggested amendments and evaluates the idea of a responsible lending obligation. Yet, in order to comprehend these legislative changes, this article at first provides an overview of the existing consumer credit regime as prescribed in the CCCF Act and related pieces of legislation. Alternative consumer protection instruments that have not been incorporated into the CCCF Amendment Bill will also be presented in this paper. In this context it will especially be examined whether or not it was a failure not to incorporate caps on interest rates and/or credit fees. The author argues that the introduction of responsible lending principles, although being subject to a number of risk factors, is the right answer to the ineffectiveness of the existing disclosure requirements. The author furthermore alleges that Government’s arguments for its decision not to incorporate interest rate ceilings are not sufficiently supported by evidence. After assessing the risks and chances of price regulation, the author suggests that interest rate caps form part of an effective consumer credit regime, but that they must be supplemented by further measures in order to prevent low-income consumers from being excluded from any form of credit.