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Credit law toolkit

Disclosure (Part 2 Division 1 and 2 NCC)

Main Points

  • The Credit Law requires disclosure about the credit provider/ broker and key information about the loan.
  • If key information is not contained in the contract, the consumer may be entitled to a reduction in the interest charged and compensation.
  • Disclosure can also be useful in identifying the parties to a contract, and whether any prohibited amounts have been charged.
  • Key Facts Sheets must be provided to the consumer for new credit cards and home loans

Why does disclosure help?

There are two types of disclosure required under the Credit Law:

  • Disclosure about the entity the consumer deals with. This is called a Credit Guide. It must be provided by all credit providers, credit representatives, brokers and any other intermediary who provides “credit assistance” directly to the consumer. This is covered in Finance brokers and Responsible lending conduct.
  • Disclosure about the loan contract itself. These disclosures help the consumer to identify the main terms of the loan. This chapter deals with this second type of disclosure.

The Credit Law has a list of disclosures that are required in all loans. The disclosure helps the consumer to identify the main terms of the loan.

It is worth being familiar with where the main disclosure information is located in a contract.

For example, clients can sometimes be confused about who is the credit provider under their contract. They may have dealt with a broker and/or a mortgage manager and may not have had any direct contact with the credit provider. It is important to check who the credit provider is so that if you are raising a dispute on behalf of your client, you are complaining about the right entity. It is the credit provider under the contract who must comply with the National Credit Code.

A failure to disclose by the credit provider as required by the Credit Law may entitle the consumer to compensation, or in the case of key requirements, the credit provider could be penalised and interest refunded to the consumer. The key requirements are marked with a tick in the checklist below.11

Most credit providers generally comply with the disclosure requirements in the Credit Law. Failure to disclose is more likely to be found in fringe lending contracts, including particularly where the credit provider has not been caught by the Code in the past, or has successfully avoided it. If so, it can be a useful tool in problem solving.

11 - There is an additional key requirement under s. 23 that deals with fees and interest charged that are prohibited by the Credit Law. See How to Guide on high cost loans for an example of when this key requirement may be breached.

A checklist of the required disclosures

Disclosure requirement Relevant section of the NCC Key requirement ?
Information Statement about the contract. s. 16(1) (b)
The credit provider’s name. s. 17(2)
The amount of credit to be provided or credit limit and who it is to be paid to. s. 17(3)(a) and (b) Yes (s. 17(3)(b) only is a key requirement for credit cards, lines of credit)
The cash price of the goods or land in the case of a sale of goods by instalments or a purchase of land by instalments. s. 17(3) (c) Yes
The annual percentage rate or rates and how they apply. If there is a reference rate, it must include the name of the rate, any margin on top of the rate, and where the rate is published. s. 17(4) Yes
The method of calculation of the interest charges and the frequency of when the interest is charged. s. 17(5) Yes
The total amount of interest charges and repayments payable if the loan term is less than 7 years.

s. 17(6) *and (7) (iii)

Yes (s. 17(6) is not a key requirement for credit cards and lines of credit)
The amount of the repayments and how this amount is calculated. s. 17(7) (a) (I)
The number of repayments (if known). s. 17(7) (ii)
When the first repayment is due and the frequency of repayments. s. 17(7) (a) (iv)
The amount (or method of calculation if the amount is not known) of credit fees and charges that are payable and when. The total amount of credit fees and charges should be disclosed if known. s. 17(8) Yes
If the interest rate or fees can be changed, a statement to this effect. s. 17(9) Yes
The frequency with which Statements of Account are to be issued (except in the case of contracts where the interest rate is fixed for the whole term, where statements are not required to be issued). s. 17(10)
The default interest rate and how it applies. If there is a reference rate used for the calculation of the default interest rate it must include the name of the rate, any margin on top of the rate and where the rate is published. s. 17(11) Yes
A statement that enforcement expenses may become payable in the event of a breach of the contract. s. 17(12)
If there is a mortgage, a statement that a mortgage has been taken and a description of the property being mortgaged. s. 17(13)
If a commission is to be paid by a credit provider, it must state this, the amount, who is paying the commission, and who is receiving the commission. s. 17(14)
If the credit provider knows that the consumer will be entering into a credit related insurance product, it must state: the name of the insurer, the amount payable to the insurer, the kind of insurance, and the amount (can be as a proportion) of any commission. s. 17(15) NCC) (s. 17(15) is not a key requirement for credit cards and lines of credit)

Key Facts Sheets

Key Facts Sheets are required to be provided to consumers getting a new credit card or home loan. The information sheet contains basic information about the loan or credit card.

What if there are required disclosures missing from the contract?

There are two levels of seriousness when a credit provider fails to disclose required information:

  1. Key requirements (s. 111 NCC) (these are marked with ticks above). If the credit provider fails to disclose this information, it may be liable for a penalty.
  2. Disclosure requirements that are not key requirements and not subject to a penalty.

In both of the above cases, the consumer can claim any loss caused by the contravention.

In the case of a breach of a key requirement, the maximum penalty that can be awarded to the consumer is (s. 114 NCC):

  • All interest charges (except if 2 and 3 below apply)
  • All interest charges (if a credit card or line of credit) for the statement period where a statement did not contain the interest charge for the statement period or interest charge (s. 34(6) NCC)
  • If there is a breach of a prohibited monetary obligation (s. 23 NCC)(eg, if there is an interest rate cap, charging more interest than the cap) all interest charges from the date of the contravention
  • Any other established losses (s. 114(2) NCC)

This penalty can be awarded in relation to each breach so if, for example, there were four breaches of key requirements, up to four times the penalty could be awarded.

If there is a breach of a disclosure requirement, the only way to get compensation is to go to court. EDR Schemes cannot make orders for compensation for breaches of disclosure requirements. Get legal advice.