Commerce Commission publishes guide to section 45 of CCCFA

The Commerce Commission has recently explained its approach to section 45 of the Credit Contracts and Consumer Finance Act 2003, which relates to fees and charges passed on by a creditor to a debtor under a consumer credit contract.

Section 45 broadly requires creditors to ensure that any fee or charge payable by a debtor to a creditor in respect of third party costs must not exceed the actual amount payable to the third party by the creditor. Section 45(2) requires the creditor to take into account for this purpose any discount, rebate or other allowance received by it from the third party. However, section 45(5) clarifies that a creditor may charge a reasonable commission in connection with any credit-related insurance taken out by the debtor.

Usefully, the new guide explains that, in the Commission's view, section 45 applies:

• regardless of whether the fee or charge is incurred directly by the creditor (a creditor-third party contract) or paid by the creditor on behalf of the debtor (a debtor-third party contract);
  
  
• regardless of whether the fee or charge meets the definition of "credit fee" under the CCCFA; and
  
  
• to any fee or charge that would not have been incurred or paid but for the consumer credit contract, or that is included in the initial unpaid balance or otherwise added to the amount due under the consumer credit contract.

The intention therefore is that section 45 catches all fees or charges for credit-related insurance that are financed under the credit contract. Credit-related insurance" covers optional, as well as compulsory, insurance.

The Commerce Commission goes on to explain that, in relation to the section 45(5) carve-out for reasonable commissions, it proposes to adopt the Australian approach to interpreting the meaning of reasonable". Under the Australian Uniform Consumer Credit Code, any commission on credit-related insurance that is 20% or less of the gross premium paid by the debtor will be unlikely to be held to be unreasonable.

The Commission has emphasised that this is not a binding legal ruling on the interpretation of section 45(5) and each situation will be assessed on its facts. However, in light of this guide, creditors will wish to consider carefully whether any commission over 20% can be justified.

For more information, see www.comcom.govt.nz

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