The Credit Contracts and Consumer Finance Act 2003 comes into force

On 1 April 2005, the long awaited CCCFA came into full effect. The CCCFA has replaced the Credit Contracts Act 1981 and the Hire Purchase Act 1971 and introduces significant changes in the way in which consumer credit contracts are regulated.

The Credit Contracts and Consumer Finance Act 2003 (CCCFA) is intended to: 

1. improve redress for consumers;



2. disclose more information to consumers to allow them to make better credit decisions; and



3. give consumers a fairer deal in terms of interest charges, fees and early repayment (by, for example, prescribing the amount that can be charged).

The CCCFA regulates all contracts under which credit is provided to consumers or goods are leased to consumers (effectively where the loan proceeds or leased assets are to be used by natural persons for personal, household or domestic use).

Unlike the old law, there are now detailed provisions dealing with the amounts and type of fees that creditors can charge, how commissions must be disclosed and how related contracts such as insurance contracts are regulated.

The old safe harbour for loans greater than $250,000 has been removed and interest-free consumer credit contracts may now be subject to regulation.

While the CCCFA has tightened regulatory control of the consumer credit industry, the effect on business borrowing is the opposite. The introduction of the CCCFA marks a new period of deregulation of non-consumer credit contracts. Such borrowing is now excluded from most provisions of the Act, except for those that allow for the re-opening of oppressive contracts.

The Commerce Commission is responsible for enforcing the legislation. The Commission may conduct civil or criminal proceedings for breaches of the CCCFA and is responsible for promoting compliance within the credit industry.

This is the first time that credit law is being enforced by a regulatory agency. Potential penalties include fines of up to $300,000 and a maximum jail term of one year. However, perhaps of more concern to the credit provider are the discretionary penalties available under the CCCFA. These include a regime whereby, upon the third infringement of the CCCFA, the Commission can seek a court order banning an individual or company from providing credit.

The government has allowed the industry 18 months to implement new policies to ensure compliance with the CCCFA, which was passed in October 2003. However, the Commerce Commission has announced that it will focus on promoting compliance between 1 April and 30 June, with "full enforcement" taking effect from 1 July.

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