In New Zealand, the lending process is governed by the Credit Contracts and Consumer Finance Act 2003 (CCCFA), which outlines the responsibilities of lenders and the rights of borrowers. The Responsible Lending Code provides guidance on how lenders can meet their obligations under the CCCFA.
Key Steps in the Lending Process:
Assessment of Borrower’s Financial Situation:
Lenders are required to make reasonable inquiries into a borrower’s financial circumstances to ensure they can make repayments without experiencing substantial hardship. This includes evaluating income, expenses, and existing debts.
Disclosure Requirements:
Before entering into a credit contract, lenders must provide clear and concise information about the terms and conditions, including interest rates, fees, and repayment schedules. This ensures borrowers are fully informed about their obligations.
Affordability and Suitability Assessments:
Lenders must assess whether the credit is suitable for the borrower and that the borrower can make repayments without undue hardship. Recent amendments have refined these requirements to balance consumer protection with access to credit.
Compliance with Responsible Lending Principles:
Lenders are expected to exercise care, diligence, and skill in all dealings with borrowers, adhering to the principles outlined in the Responsible Lending Code.
Consideration of Hardship Applications:
Borrowers facing unforeseen hardship (e.g., illness, job loss) have the right to request changes to their credit contracts. Lenders must consider these applications and may adjust repayment terms accordingly.
It’s important to note that lending procedures can vary depending on the type of credit and the lender’s policies. Borrowers are encouraged to review the terms of any credit contract carefully and seek independent advice if needed.