The Credit Contracts and Consumer Finance (Break Fee Disclosure) Amendment Bill

May 6th, 2009 at 7:00 pm by David Farrar

National List MP has put together a useful private member’s bill. It will:

require banks and other credit providers to include the dollar amount of any break fee payable in the credit contract, as well as a plain English description of the calculation.

Transparency is a good thing. This is the first private members bill by a National MP since the election, so hopefully it will get picked from the ballot.

The full bill is after the break:

1 Title

This Act is the Credit Contracts and Consumer Finance (Break Fees Disclosure) Amendment Act 2009.

2 Commencement

This Act comes into force on the day after the date on which it receives the Royal Assent.

3 Principal Act amended

This Act amends the Credit Contracts and Consumer Finance Act 2003.

4 Purpose

The purpose of this Act is to amend the Credit Contracts and Consumer Finance Act 2003 to require every creditor under a consumer credit contract to disclose any fees that will be incurred by a debtor should the debtor break that contract.

5 Definition of break fees

The principal Act is amended by inserting the following definitions into section 5:

break fees means fees or charges payable in dollar terms to the creditor under a consumer credit contract when the debtor breaks or voluntarily ends the life of that contract before its agreed expiration date

Minister means the Minister of Commerce”

6. New section 17A

The principal Act is amended by inserting a new section 17A as follows:

17A Disclosure of break fees

(1) In addition to the disclosure of the information required under section 17, every creditor under a consumer credit contract must disclose any break fees that may be payable in relation to the contract.

(2) Where break fees may be payable under a consumer credit contract every creditor must provide—

(i) a plain English explanation of how the applicable break fees are calculated; and

(ii) a formula for how the break fees are calculated; and

(iii) a schedule of break fees payable calculated over a range of possible interest rates in whole percentage points and possible break dates in whole calendar years.

(3) The information disclosed under subsections (1) and (2) must be included in the individual details of each consumer credit contract. It is not sufficient disclosure for the information to be contained in general terms and conditions referred to in, or appended to, the contract.

(4) Disclosure under this section must be made—

(a) before the contract is made; or

(b) within 5 working days of the day on which the contract is made.”

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20 Responses to “The Credit Contracts and Consumer Finance (Break Fee Disclosure) Amendment Bill”

  1. billyborker (1,102 comments) says:

    Is this sort of populist nonsense all we are going to get from National?

    a schedule of break fees payable calculated over a range of possible interest rates in whole percentage points and possible break dates in whole calendar years.

    How is this an improvement?

    Its simple, people. If you don’t understand the contract, don’t sign it. If you don’t want to pay break fees, don’t go in to fixed mortgages. If you don’t like something in the T&C’s, ask for a change, or don’t sign.

    And where the fuck is the cycleway I was promised? Not a single sod turned yet, while the economy wilts and people are thrown on the scrap heap. Come on Jonkey, man up and DO something.

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  2. alex Masterley (1,438 comments) says:

    Well meaning twaddle. More crap to explain to people who don’t care until they want to repay a mortgage.

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  3. Christopher (425 comments) says:

    Is this sort of populist nonsense all we are going to get from National?

    a schedule of break fees payable calculated over a range of possible interest rates in whole percentage points and possible break dates in whole calendar years.

    How is this an improvement?

    Its simple, people. If you don’t understand the contract, don’t sign it. If you don’t want to pay break fees, don’t go in to fixed mortgages. If you don’t like something in the T&C’s, ask for a change, or don’t sign.

    Hold on one tiny fucking second here….

    … did billy just endorse freedom of contract?

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  4. Nicholas O'Kane (168 comments) says:

    Good work Aaron. However it is not the first bill by National to be put in the ballot post-election. Todd McClay, new National MP for Rotorua has one on Easter trading here (http://www.scoop.co.nz/stories/PA0904/S00082.htm, which will allow each community to decide their own Easter trading laws.

    On the other side of the House, No Right Turn mentions Ian Lees Galloway (new Labour MP for Palmerston North) has one to ban the retail displays of cigarettes and tobacco products in shops. Mita Ririnui (Labour list) has one to entrench the Maori seats in parliament, and Jim Anderton has one, which I very strongly support especially in light of the Mt Albert by-election, to stop list MPs standing in byelections, without resigning their seat in Parliamnet first (interesting question, if an incumbent electorate MP stood in an by-election, say Pita Sharples in Mt Albert, would he or she have to resign his existing electorate sea, even if the or she lost?)

    If anyone knows of any other new members bills post details below. It would be nice if there was a website listing all bills in the ballot.

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  5. billyborker (1,102 comments) says:

    did billy just endorse freedom of contract?

    When have I not?

    Now, where’s that fucking cycleway?

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  6. Christopher (425 comments) says:

    When have I not?

    My mistake. So you would support the repeal of the ERA then?

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  7. toad (3,654 comments) says:

    Shit, a decent consumer-focused Bill from a Nat MP! Well, I’ll be buggered.

    Well done Aaron! Mind you, as a newbie, you should know there are powerful people in your Party who have very different ideals and ideas. Beware!

    But keep this sort of stuff up and the Greens will be courting you if your relationship with the Nats turns to shite!

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  8. Kimble (4,092 comments) says:

    “If you don’t want to pay break fees, don’t go in to fixed mortgages.”

    Of course, if you dont know what a break fee is, or what the impact of it would be to you, then you wouldnt know that you didnt want to get into a fixed rate mortgage.

    It is a sensible and reasonable law and comes at a time of low interest rates when a lot of people will be looking at fixing.

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  9. Kimble (4,092 comments) says:

    “Shit, a decent consumer-focused Bill from a Nat MP!”

    Shit, a greenie is surprised that anyone from another party could actually CARE about people! And the bugger has no idea how incredibly offensive that is.

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  10. mickysavage (786 comments) says:

    Er um

    Most of a break fee depends on the interest rate at the time the loan is repaid. It will be rather difficult to put this in the contract unless the Bank has a good crystal ball.

    Populist?

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  11. Michael E (274 comments) says:

    I agree with Mickey.

    Break fees are dependent on several factors – the interest rate the repaid amount can be lent at, the length of time until the fixed term ends, the amount being repaid, the costs involved in documentation, etc. Even though the act only specifies providing examples, there are too many variables to easily calculate this.

    And remember, there are no fees if you repay a loan when interest rates are higher!

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  12. toad (3,654 comments) says:

    Kimble said: Shit, a greenie is surprised that anyone from another party could actually CARE about people!

    Come on Kimble, don’t be such a sanctimonious prick.

    I think I might give Sue Kedgley a call tomorrow suggesting areas that she and Aaron Gilmore might be able to work together on.

    [Brace myself for upcoming attack by mickeysavage on that one!]

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  13. mickysavage (786 comments) says:

    toad

    If this meeting results in the improvement of the lot of ordinary people then it has my support!

    Just avoid the desire to take part in a press conference. The Nats use this for brownie (greenie?) points to gain political support.

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  14. toad (3,654 comments) says:

    mickysavage said: The Nats use this for brownie (greenie?) points to gain political support.

    Not if they crap out on the MoU agreements. The Greens could have used that against Labour last time around. But didn’t. Because we really didn’t want a National-led Government. But we’ve got one now, and it’s Labour’s fault, not ours.

    An MoU is a two-edged sword – if the Nats don’t deliver on the (small number of) policy agreements in it – and I believe they won’t – is that not a stronger position to attack them from at the next election than sitting on the sideline asking a few questions at Question Time and putting up Claytons amendments to legislation through SoPs.

    Strategy, micky, strategy! I think the Greens have it. I don’t think Labour does yet. You see, we Greens are used to being in Opposition, because we have always been there. So we have the experience of oppositional politics – you in Labour largely don’t.

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  15. Gooner (995 comments) says:

    It’s a bullshit Bill as I explain here.

    The Commerce Commision came out just this week and said the banks were not ‘gouging’.

    Consumers can decide whether the consumer or wholesale rate of lending applies to their break fee and borrow accordingly. But of course they can only do this if they are smart enough to understand it, which is what this is all about: legislating for stupidity.

    [DPF: This is not about gouging. This is about having clear information about break fees made available when a mortgage is taken out. Are you against having clearer information?]

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  16. Subway (13 comments) says:

    The problem with mortgages is that this problem rarely occurs when rate increases/decreases are gradual rather than accelerated as they have been over the past couple year or so. People have submitted themselves to onerous mortgage contracts that they assumed would pay off in an appreciating property market. In this instance I think advisors and those negotiating the mortgages need regulating to make the costs absolutely clear. People may be struggling at the moment with mortgages, but they were the ones that assumed the debt by signing on the dotted line. Break fee calculators should be easily available (they are already, its just as I previously said, these conditions are rare) i.e stated on the banks website clearly. In these testing times banks should be affording customers more leniency in repayment holidays and levels of repayment, which some clearly are. But remember, they are running a business. A business with mum and dad shareholders, employing thousands of kiwis nationwide, and they need to remain profitable.

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  17. KiwiGreg (3,129 comments) says:

    Of course all the cost of complying with this and doing all the calculations and so on will be borne by the money pixies who fund all the compliance costs of government regulation. It wont costs consumers a cent. God forbid people should have to (1) read and understand contracts they enter into (2) understand and be responsible for the consequences of their actions.

    [DPF: Loan agreements are computer generated and it will be easy to insert in a calculation of break fees - a one off cost only really]

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  18. bharmer (686 comments) says:

    The sad reality is that many members of the public are neither as worldly wise, articulate or literate as many here, and have great difficulty comprehending contracts.
    And really, what are the compliance costs in revealing the break fees?

    Presumably the mortgagor already knows them otherwise would be unable to enforce them when the contract is broken. They seem to be able to do it quickly in those circumstances.

    Surely the only argument is about the timing of the disclosure, upfront where it might act as a deterrent to bad decisions, or later, once the fish is landed.

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  19. gazzmaniac (2,269 comments) says:

    The break fee formula for my mortgage was explained well and included in the contract. The only thing that might be required for this new law would be a table for the break fees every year for the term of the loan – this could potentially run to hundreds of pages, to account for any scenario.
    I feel it would be much simpler to simply include the formula for the calculation and that’s it. If people are too stupid to do third form maths then they won’t be understanding anything about how their home loan works anyway, and may not have even read the contract.

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  20. Gooner (995 comments) says:

    Sory DPF, I do not agree this is acceptable despite what you say. In effect it is the government interfering in the commercial world by dictating what lenders must put in contracts: it is an interference with/in a contract which is unacceptable and unlawful by individuals but now seems to be okay if you’re the government.

    I also do not see how it can work over say a five year fixed loan that could be repaid at any time, when interest is calculated daily and the wholesale and consumer rates change regularly also. What’s the contract going to do, list all 1,825 days and the repayment amount for each day? What about voluntary lump sum repayments in the interim? It’s madness to me.

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