New Zealand’s lenders’ responsibilities to the borrower

You might be under the impression that because you are applying for a loan with an esteemed financial lending company, the only party who can default is you, but that’s not the case.

Lenders have a responsibility as well, and they need to ensure that your loan arrangement is affordable to you as well suiting your needs.

Going about insuring loans that are suitable for the borrower

The Lender Responsibility Principles provide clarity on the responsibilities of lenders or creditors to the borrowers. This is specifically related to the affordability of credit that a borrower is required for his/her loan and whether the loan agreement meets their needs.

The responsible lending code

The Responsible Lending Code comprises an elaborate guide to lenders out there on their responsibility in relation to the Lender Responsibility Principles, which was introduced in 2014 by the Credit Contracts and Consumer Finance Amendment Act. It can be used by lenders to show they complied with the principles and didn’t conduct their process in a punitive manner.

A few general principles

If you’re going to lend people money, you are obliged to take care in doing so responsibly:

• When advertising to the market, be honest and upfront.
• Prior to any agreement to provide credit or finance to a borrower
• Going forward in all dealings following the agreement between the lender and borrower

The lenders’ responsibilities

When it comes to lending, the following is expected of the lender, they should:

ENQUIRE all that is necessary before confirming approval and entering into a loan to ensure the satisfaction of the following:  

• The finance provided will suit the objectives of the borrower
• The borrower is in a position to afford the repayments of the loan without suffering any financial burden as a result of the loan 

ASSIST and guide the borrower when it comes to making decisions relating to, or anything about the loan.

ASSIST borrowers by helping them decide whether they should be entering into an agreement at all, and if so, what different options there are when choosing the loan type. Assist with all decisions subsequent to the agreement, by ensuring that:

• Any advertising to the borrower is clear and defined, and not deceptive in any way, leading to confusion about the advert.
• The contract’s terms and conditions are in no way misleading or unclear, allowing for the misconception about what’s expected.
• Information is presented in such a way that the borrower is fully aware of all that is involved and in no way misled by any of the above.

TO act ethically:

• Should any breach of the agreement occur at any time in the duration of a loan
• Should a borrower suffer from any financial burdens that were unforeseen
• During repossession, this:
  • Taking all the necessary steps to ensure the items being repossessed are in good order and no damage has been done
  • Ensuring the storage and protection of goods are adequately provided until the resale of those items

BEING sure to comply with any and all other obligations of borrowers from a legal standpoint and this includes:

• Abiding by rules of disclosure and any unforeseen hardship applications, and credit repossession in the Credit Contracts and Consumer Finance Act
• Avoiding any misleading representations, including unjust terms of the contract as called for by the Fair Trading Act.
• Using the skill sets given, they will carry out their services as called for by the Consumer Guarantees Act.

If the lender doesn’t comply

If a lender doesn’t comply with any of the principles mentioned above in this document of the Lender Responsibilities Code, the Courts are well within their rights to consider all the evidence of this in deciding whether or not:

• THE LENDER has acted oppressively under Part 5 of the CCCFA
• TO MAKE any orders for refunds, compensation or exemplary damages.

This does not constitute, however, that the credit contract or any security interest be unenforceable.