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If your business deals with lending money or allowing deferred payments for your products, then consumer credit laws will likely apply to you. Consumer credit laws are regulations set by the government to promote responsible lending practices and protect consumers from oppressive loan schemes. As more business shifts online and payment services like Afterpay and Laybuy become more popular, you may be wondering whether consumer credit laws apply. This article will explain how New Zealand consumer credit laws may affect your online business and how this translates to a digital context.

What Is a Consumer Credit Contract?

A credit contract refers to when a person borrows money or purchases goods using a deferred payment scheme. You, as the lender, have given the borrower (or debtor) credit because you have given them the right to put off paying a debt immediately. If your business deals in any of the following, you are likely handling credit contracts as a lender or creditor:

  • credit sales/hire purchase;
  • buy-back transactions;
  • secured and unsecured loans;
  • consumer leases; and
  • consumer credit contracts.

A credit contract becomes a consumer credit contract when the debtor is a consumer. This means they are:

  • a private individual (that is, not a company or other entity);
  • entering the contract for personal or domestic reasons; and
  • likely paying an interest/credit fee or offering something up as a security interest.

For example, you may sell high-quality electronics through your website. You may allow your customers to purchase these electronics on credit, which means they pay you back over time for the initial price, with interest fees. This would be a credit sale, and therefore consumer credit contract.

Additionally, to qualify as a lender, you must regularly provide credit as part of your business, or a broker has introduced you to the borrower.

Your Responsibilities as a Lender

If you engage in these kinds of credit contracts with your customers as consumers, then you must abide by the regulations set under the Credit Contracts and Consumer Finance Act (CCCFA). These regulations mainly focus on making sure consumers fully understand the contract they are about to enter and setting certain protections if something goes wrong.

Your responsibilities include:

  • acting with due diligence, responsibility, and skill;
  • considering the consumer’s actual borrowing needs;
  • making reasonable enquiries as to the borrower’s ability to pay;
  • helping the borrower reach an informed decision;
  • acting reasonably and ethically;
  • charging reasonable fees for high-cost loans;
  • not engaging in oppressive conduct;
  • complying with all disclosure requirements;
  • not setting oppressive contract terms; and
  • complying with all other legal obligations.

For example, you must inform borrowers of their right to cancel within five days of signing a consumer credit contract, and you cannot profit from the interest fees you charge. Borrowers can also ask for extra concessions if they are suffering from financial hardship.

Other laws that may apply include the Fair Trading Act and the Consumer Guarantees Act. Ensure that you are meeting your obligations under these regulations.

How Do Consumer Credit Contracts Function Online?

These laws for consumer protection apply to all contracts of this nature, regardless of where you entered into them. So, if you engage in online consumer credit contracts, you still need to make sure you meet your responsibilities as a lender. 

However, this may be more difficult in a digital context. If you are not meeting with your customers face to face, it may be more challenging to meet all of your disclosure requirements as a lender. It may also be challenging to make the necessary enquiries about payment ability. 

Therefore, you need to pay particular attention to ensure your customers understand their rights and that you disclose all necessary information for the contract. The borrower needs to agree to receive information electronically, and this information needs to remain available for online access at a later date. 

Tip: Consumer credit contracts require signatures. So, if you are completing these online, ensure that you meet the requirements for signing online contracts.

Buy Now, Pay Later Services

Consumers are increasingly using buy now pay later (BNPL) providers, where companies such as Afterpay will let customers purchase goods on a deferred payment scheme, interest-free. Your online business may allow customers to purchase your products using this as a payment method. Currently, these services do not qualify as consumer credit contracts. However, the law is still developing in this area, so it is worthwhile to keep an eye on any new developments. 

Key Takeaways

When consumers enter into credit contracts, the law requires that lenders are responsible and upfront about the nature of the loans they provide. These still apply when you operate online. If you fail to meet these requirements, you could face impairing legal repercussions. If you would like more information or help with meeting your consumer credit legal obligations at your online business, contact LegalVision’s New Zealand eCommerce lawyers on 0800 005 570.

Frequently Asked Questions

What is a consumer credit contract?

A consumer credit contract is when consumers enter into a loan or similar for their own personal or domestic purposes. This also applies to hire purchase agreements and buy-back transactions.

What is a BNPL service?

BNPL stands for buy now, pay later. These services allow a customer to purchase a product and pay the total price over a period of time rather than upfront without interest fees. They charge fees for late payments.

What are my responsibilities as a lender?

As a lender, you are responsible for making sure your borrower understands the terms of the contract they are entering into and making informed decisions. You also cannot set oppressive loan schemes.

What is a credit sale?

A credit sale is when you sell a good to a customer and allow them to pay you back through a deferred payment scheme. These are also known as hire purchase agreements.

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