CCCFA update - Disclosure and rebate regulations

Friday 7 November 2014

Author: Richard Massey

​​​​​The Ministry of Business, Innovation and Employment (MBIE) has recently released a discussion document seeking submissions on proposed regulations regarding:

  • how lenders must disclose their costs of borrowing;

  • the form of minimum repayment warnings on credit card statements;

  • how rebates of fees paid for repayment waiver and extended warranty products should be calculated; and

  • updates to model disclosure forms to reflect changes to the CCCFA.

The new regulations are expected to come into force at the same time as the amendments to the CCCFA (early June 2015).

In summary, the MBIE’s proposals on these issues are:

(i) Disclosure of fees and charges

MBIE proposes that disclosure should specify:

  • in respect of fees: the dollar amount of the fee; any formulae or calculations used; any basis on which particular fees might vary; the name or category of the fee; and the circumstances in it will be charged.

  • in respect of interest: where a range of rates apply, the factors considered in deciding the actual rate (e.g. provision of security); the annualised rate; whether the rate is fixed, variable, or may be unilaterally changed by the creditor; and any applicable reference rate.

  • in respect of both fees and charges, the time periods for which they apply.  

(ii) Warning borrowers about minimum credit card repayments

Once the amended CCCFA comes into effect, disclosure statements for credit card contracts must contain a “minimum repayment warning.” This is intended to highlight to borrowers the economic cost of only paying the minimum amount due.  Research conducted following the introduction of such a warning in the UK, United States and Australia suggests that it has had an effect on consumer behaviour. 

The main issue on which the MBIE seeks submissions is whether the statement should include a personalised quantification of the consequences of only making the minimum repayment (as in the equivalent US and Australian regimes), or whether a generic written statement, without calculations, would suffice (as in the UK).  

(iii) Proportionate Rebate Formulae

The amended CCCFA will require that, where borrowers fully prepay their debt, creditors must proportionately refund any payments in respect of:

  • repayment waiver products; and

  • extended warranty agreements.

The MBIE has proposed two formulae for the respective refunds, to achieve the desired proportionality.  ​


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Murray King

    Partner Auckland
  • Laura Littlewood

    Senior Associate Auckland
  • Richard Massey

    Senior Associate Auckland
Related areas of expertise
  • Banking and finance