Responsible lending training for dealers

Introduction

About us and our values

Avanti Finance Limited (Avanti) is a New Zealand-owned finance company. Since 1989, we’ve helped thousands of New Zealanders by providing finance to buy a car, pay a bill, or buy a home.

At Avanti, we live and breathe our values. We put people first and treat everyone we deal with as individuals with unique circumstances because we know that sometimes “life happens”. We do what’s right, too, holding ourselves to the highest ethical standards. This is a responsibility we take very seriously.

Purpose

Lenders are regulated by the Credit Contracts and Consumer Finance Act (CCCFA) and guided by the Responsible Lending Code (Code). The purpose of this manual is to assist you in understanding the obligations owed to our mutual customers.

Acknowledgement

By signing the Dealer Agreement (Agreement), you acknowledge that all staff interacting with our mutual customers will comply with the terms of the Agreement, this manual and any other relevant instructions and/or documentation provided by Avanti.

Consequences of non-compliance

Non-compliance with the CCCFA (including the lender responsibility principles) can result in serious consequences for Avanti:

• Penalties are $200,000 for an individual and $600,000 for a business for each offence; and
• The Court can also award statutory damages, which can add up quickly if the claim involves multiple customers.

The CCCFA and Responsible Lending

The CCCFA sets out a range of lender responsibility principles.

Lending Responsibility Principles

The lender responsibility principles impose obligations on lenders when advertising, before entering into a loan, and during all subsequent dealings with borrowers and guarantors.

There are two lender responsibility principles:

What is the code?

The Code elaborates on the lender responsibility principles and provides guidance on how lenders can comply with the lender responsibility principles.

Avanti endeavours to comply with the Code

While the CCCFA provides that the Code is not legally binding, evidence of a lender’s compliance with the provisions of the Code will be treated as evidence of compliance with the lender responsibility principles.

The Code is designed to make sure that consumers are treated fairly by lenders when they borrow money and that they are:

• Offered finance and insurance products which are suitable for them;
• Offered finance and insurance products which they can afford;
• Able to make informed decisions about whether to borrow or take up insurance; and
• Treated ethically and responsibly at all times, even when payment or other problems arise.

More information about the Code and CCCFA is available on the Commerce Commission website www.comcom.govt.nz.

Application

When does the CCCFA apply?

The Code only applies:

• When a lender is lending to an individual/consumer(as opposed to a company or borrower is a trustee acting in their capacity as a trustee of a family trust); and
• When the credit is to be used for personal, domestic or household purposes, e.g. a car for personal use.

Which products does it apply to?

• Any non-business loans will be covered by the Code, including but not limited to our car loans.
• Any credit related insurance and repayment waivers we finance under a loan agreement, even if it’s not provided by us.

No oppressive terms or conduct

In accordance with the lender responsibility principles, lenders must ensure loans are not oppressive, do not induce borrowers to enter into loans through oppressive means, and do not exercise their rights under the loan oppressively. In other words, the loan and the lender’s /dealer’s conduct must not be oppressive, harsh, unjustly burdensome, unconscionable, or in breach of reasonable standards of commercial practice.

Introducing customers and your role

When you are introducing Customers to Avanti, you are required to complete the following:

• Providing information about our products to a potential customer;
• Making preliminary inquiries about a potential customer’s requirements and objectives (including but not limited to a customer’s affordability and suitability);
• Collect the required information to complete an application; and
• Submitting applications on behalf of potential customers.

If an application is conditionally approved or approved by Avanti, we also require you to:

• To provide customers with copies of the loan agreement, credit related insurance terms, and all related documents in hard copy or by email (refer to the section on initial disclosure) and, in some cases, arrange for the loan agreement and any other documents to be signed and returned to us.
• Assist with compliance with any special conditions as required by us.

It is important to remember that you must never give a customer or third party the impression:

• That you are our agent or representative;
• That you are able to make promises, take action on our behalf or have any control over the outcome of the application; or
• In particular, that you are able to provide financial advice or to hold or handle money on our behalf. (You should also only provide financial advice in your own capacity if you hold the required licence – please seek your own advice on your requirement to be licenced).

Advertising

The Fair Trading Act (FTA)

The general rules contained in the FTA are that advertising can’t:

• Contain unsubstantiated representations; or
• Be likely to be misleading or deceptive.

These rules apply to all consumer advertising used in your business.

CCCFA general rule

Under the CCCFA, consumer finance and credit related insurance advertisements can’t contain unsubstantiated representations or be likely to be misleading, deceptive or confusing.

An average member of your target audience should be able to understand the advertised offer easily.

Unsubstantiated representations

An unsubstantiated representation is a claim made in relation to representations that do not have any reasonable basis. It applies to all types of representations – whether statements are made within marketing brochures, on websites or verbal statements made.

If you make a claim, the claim must have appropriate evidence to justify it (even if the claim is true). For example, if you advertise a “great rate”, you must be able to prove it is objectively a competitive rate in the market at the time you’re advertising. If you state a fact, you must ensure it is accurate and record your proof.

Advertising using our name/brand

If you advertise finance using our brand names or trademarks, including on your websites, you must only use marketing materials which are either:

• Provided by us; or
• Approved by us in writing before you use them.

Advertising without using our brand names or trademarks

If you advertise finance or credit contracts generically, without using our brand names or trademarks, you must do so in a way that complies with the FTA Code and all other laws that apply to that advertising.

You should make it clear which of our entities is the lender/provider of the finance.

You remain responsible for ensuring your own advertising doesn’t breach any law or standards (please refer to our advertising checklist as a guide included in the pack of documentation we provided you).

Minimum advertising standards

Lenders must meet the minimum advertising standards prescribed in the regulations. These regulations require that lenders advertising consumer credit must ensure their advertisements comply with the following:

• If the advertisement states a payment amount, it must also display the total amount of payments if ascertainable, or the annual interest rate or rates for the advertised products and (for credit sales) information about lump sum payments;
• If the advertisement includes an interest rate, it must also state the annual interest rate or range of rates that may apply, as well as any mandatory credit fees;
• If the advertisement includes an interest rate, it must state if an annual interest rate is fixed for the term, or any part of the term or if the interest rate is not fixed for that term;
• If a lender advertises interest free credit contracts, the advertisement must include any mandatory credit fees; and
• The above matters must be stated in plain language in a clear, concise and intelligible manner. For example, if there are qualifying conditions to be eligible for a finance offer, these shouldn’t be in the fine print and should be clear from the body of the advertisement.

Suitability

Reasonable enquiries

Suitability is a key lender responsibility principle. We are responsible for ensuring that we collect and assess information so that we are reasonably satisfied that the proposed credit product will suit the customers’ requirements and objectives.

Additional information

We also need to consider the following in making the suitability assessment:

• Fees and charges: We need to be sure that the borrower is aware of and accepts all fees and charges. This includes your fees and the fees for any insurance product. In the case of our fees, they must also be aware of and must accept that those fees will be added to the loan on drawdown (and that we will charge interest on them).
• Lump-sum payments: If the proposed repayment structure includes any lump-sum payments, we need to be sure that the borrower would prefer that to regular payments or, if not, whether another product or repayment structure might be more suitable.
• Refinancing: If the purpose of the loan is to refinance a customer’s existing debt, we need to understand the borrower’s objectives and make sure they are aware of and accept the likely costs of the refinancing (including the fees to be charged for the new borrowing, as well as any break fees or other costs which might be payable on repaying the existing borrowing).

Application process

Working through our application process with a customer will capture most of the information we need to assess suitability. It is important to obtain the necessary details from the customer to enable us to confidently assess whether a product is suitable for a customer. The information in the application needs to accurately reflect what the customer has told you about their requirements and objectives (for the loan).

Affordability

Reasonable enquiries – affordability, borrowers

Affordability is a key lender responsibility principle.

We must make reasonable enquiries about a borrower’s income, expenses, credit history and any changes the customer anticipates (e.g. anticipated likely changes to income(s)/expenses as a result of an event – change of job, pregnancy, etc.) to assess whether the loan is affordable for the borrower (i.e., that they will be able to make payments without suffering substantial hardship).

We’re also required to make reasonable enquiries about a guarantor’s ability to pay before we take a guarantee.

Collecting affordability information

Avanti will be responsible for carrying out the affordability assessment for potential customers.

You will be involved in collecting the required information so that we can make that assessment (for example, you might collect copies of the customer’s bank statements or notes of a conversation with the borrower).

Income and expenses

The income and expenses information we need is included in our application form. We will separately verify the information provided in the application (to the extent verification is required). Credit reporting information will alert us if customers have other debts they’re not disclosing.

Keep us informed

You must inform us immediately if you have any reason to believe that any information provided by a borrower or guarantor (verbal or written) may be inaccurate or misleading and/or might influence Avanti’s decision of whether or not to lend to the applicant(s).

INFORMED DECISIONS

Another of the key lender responsibility principles is the obligation to assist borrowers and guarantors in reaching informed decisions about whether or not to borrow or give a guarantee and, in either case, to be fully aware of all of the implications of doing so.

Key features

We must ensure each borrower and guarantor fully understands what they’re signing up for. The most effective way to do this is to talk through the key features one by one.

The key features of each loan are set out clearly on the front pages of each loan agreement before the general terms. The key features include but are not limited to, the total amount of the loan, the interest rate, fees and charges, the repayment structure and security.

For customers (also referred to as borrowers):

We need to make sure they understand the key features of the loan.

For guarantors and co-borrowers, where the co-borrower is not receiving the benefit of the loan:

We need to ensure that they fully understand they are also liable for the loan and may be required to pay the full amount of the loan if the borrower defaults.

Initial disclosure

The next step is to ensure that each borrower and guarantor is given a copy of the loan agreement for review and execution. This can be done by physically handing it to each of the parties or by sending it to them by email or post to an address they give you for that purpose.

Independent legal advice

Each borrower and guarantor must have the opportunity to take the loan agreement away, read it carefully and seek independent legal advice (or choose to waive the right to do so) before deciding to sign.

EXAMPLE:
Borrower A has asked Guarantor B to guarantee their car loan. You attempt to explain the terms of the guarantee to Guarantor B, but it becomes clear that Guarantor B didn’t previously understand and is struggling with the idea that a guarantor may be liable to pay the whole loan. You should let us know immediately, as we will likely require that Guarantor B obtains independent legal advice. Remember to record a summary of your conversation with Guarantor B.

The parties will then be sent a copy of the executed contract with our welcome letter.

Right to cancellation (“Cooling off period”)

A customer may cancel anytime if an initial disclosure has not been provided.

If an initial disclosure has been provided, a statutory cooling-off period applies whereby a customer can cancel the consumer credit contract. The cooling-off period ensures a customer can change their mind about entering into a finance agreement and is designed to respond to situations where a customer may have felt pressured.

In most cases, Avanti will provide initial disclosure electronically (i.e. via email) to a customer. If a customer wishes to cancel during the cooling-off period, the Customer must provide written notice within seven (7) working days from the initial disclosure date.

Other timeframes:

1. If initial disclosure was provided in person to a customer:
   The Customer must provide written notice within five (5) working daysfrom the initial disclosure date.
2. If the initial disclosure provided was sent by posting the documents to the customer:
   The Customer must provide written notice within nine (9) working daysfrom the initial disclosure date.

We also need to inform the customer of any cancellation fees that may apply under the finance agreement they seek to cancel.

If the customer is within the cooling-off period and has not taken possession of the vehicle:

1. Let us know as soon as possible that the customer has indicated their intention to cancel the finance agreement.
2. Avanti must accept the customer’s request to cancel the finance agreement but will require that the request be communicated to Avanti in writing.
3. Avanti will ask you (the dealer) for the return of any monies paid out in respect of the purchase – including the payment of the purchase price (or any portion of it) and any commission.
4. If you wish to enforce the VOSA against the customer, the customer must find an alternative payment method for the purchase price. If they cannot produce the funds for the purchase, then the outcome may be that you also cancel the VOSA. However, you will need to seek your own advice in relation to the customer’s ability to cancel the VOSA / your rights to enforce the transaction, the purchase of the vehicle itself being a separate transaction to the finance provided by Avanti (and cancelled by the customer).

If the customer is within the cooling off period and has already taken possession of the vehicle before changing their mind:

1. Again, let us know as soon as possible that the customer has indicated their intention to cancel the finance agreement and/or if they also seek to cancel the VOSA.
2. If the customer has taken possession of the vehicle, this does make the situation more complex.
3. Legally, Avanti can require the customer to repay. However, the reality is that the customer is unlikely to have those funds available.
4. Usually, the best outcome is one which is reached between Avanti, you (the dealer) and the customer and will vary depending on the reason for the cancellation (e.g. if the customer is alleging a defect with the vehicle vs. an allegation that they were pressure sold the vehicle).
5. Again, the customer may need to find another way to pay for the purchase of the vehicle, particularly if the customer has no right to cancel the VOSA. Again, you will need to seek your own advice in relation to the customer’s ability to cancel the VOSA / your rights to enforce the transaction.

In our experience, these scenarios inevitably end up in dispute tribunals (or similar), which often find in the customer’s favour. If there is a way that all parties can walk away without having to go through that process, this is desirable – however, sometimes the process needs to play out.

If the customer is not within the cooling-off period but has changed their mind about the purchase:

1. Avanti is not obliged to cancel the finance agreement; however, it will assess each situation and the possible resolutions/outcomes on a case-by-case scenario.
2. Again, please let us know if this scenario arises and keep us abreast of any developments (for example, your attempts to rectify defects with a vehicle).

Vulnerable customers

When is a customer vulnerable?

A customer will be vulnerable if we know, or ought to know, that:

• They are unlikely to understand their obligations, either as a borrower or a guarantor; and/or
• They appear to be under significant pressure either to borrow or to give a guarantee.

A customer is likely to be vulnerable if they:

• Do not have a good understanding of English;
• Do not have a basic understanding of financial matters;
• Are being pressured by someone else to borrow or give a guarantee; or
• Are under pressure to borrow to fund everyday necessities.

You must immediately alert us if there are signs that a borrower or guarantor might be vulnerable, under pressure or otherwise unable to protect their own interests.

If we know a borrower or guarantor does not have a good grasp of English, for example, we can recommend that they seek assistance from translation services.

If we are concerned a guarantor is being pressured by a family member to give a guarantee, we can insist that the guarantor obtains independent legal advice so that they fully understand the implications of providing the guarantee.

CREDIT RELATED INSURANCE

A credit related insurance product is insurance associated with the finance being provided.

For example, some of the common types of insurance we fund are:

The same obligations as with the finance will apply to credit related insurance – the insurance must be suitable and affordable, and borrowers must be able to make an informed decision when selecting whether to take out a policy.

The cooling-off period also applies to credit related insurance.

Additional information

Suitability assessment for credit related insurance includes:

• Whether the cover meets their needs.Is this specific product suitable for the needs of this borrower?
• Other insurance
  We should consider whether the borrower already has insurance in place that might provide the same cover (for example, whether any existing income protection insurance might cover loan repayments, making payment protection insurance unnecessary duplication)
• Ineligibility
  For example, whether their employment status, residency, or age may make them ineligible to claim some or all of the benefits under the proposed insurance.

You must:

• Make initial enquiries about the customer’s requirements and objectives with respect to credit related insurance.
• Make sure they understand the key features of the proposed insurance and make an initial disclosure of the terms.
• Explain key features of the insurance. The key features include the amount of the premium, the amount of the cover, the term of the cover, and the exclusions.
• Make it clear to the borrower that they can elect to pay any credit-insurance premium separately rather than having the premium added to the loan (in order to avoid paying interest on the premium).
• Ensure the customer understands that, even if we require a car to be insured, we never require that the insurance be obtained from a particular insurer, and the customer understands they can explore alternative options.

In general, the aim should be that each customer purchases insurance that meets their needs and makes sense for them and that they’re not paying a premium that seems excessive when measured against the risk the insurance covers.

Once you’ve explained the key features, you must make an initial disclosure regarding the insurance contract on our behalf. This means making sure that each borrower is given a copy of the insurance contract, either by handing it to them or by sending it to them by email to an email address they give you for that purpose.

EXAMPLE

Borrower A is excited to purchase his first brand new car, and even though the vehicle comes with a 5-year warranty, he would like to purchase mechanical breakdown insurance. The fact that the warranty already covers the risk of mechanical breakdown means that MBI insurance is unlikely to be suitable.

Fees and commission

Our fees

Our fees are reviewed regularly to ensure they are ‘reasonable’. We have to be able to show that each fee is set at a level that reflects our reasonable costs in carrying out the relevant activity.

Your fees

You will need to consider your fees, albeit you may not be subject to the same rules. In keeping with the intent of CCCFA, we still expect that the fees you charge are reasonable (taking into account your time and effort in performing the activities for which the fee is charged) and that they are properly disclosed.

Commissions

You must always clearly disclose to a customer when you are receiving a commission on finance or credit related insurance, either from us or from an insurer.

Adequate recordkeeping

We are required to keep records relating to all CCCFA transactions (including unsuccessful applications for consumer loans). We may, at times, need to reach out to you for information about an application.

We ask that you maintain records of each Transaction, whether relating to a successful or unsuccessful application, including quotes provided, customer credit proposals, your suitability assessment, disclosure document and customer file notes; and, where relevant, copies of a customer’s identification and their privacy consent.

In any event, such records will be important evidence of how you have complied with your obligations under your Agreement with us.

Retention

We must keep these records for seven years from the date they are created.

Post purchase communications

It is critical that you keep us informed of any communications between you and any customer of yours who is also a customer of ours.

Customer complaints

From time to time, a customer may contact you about a vehicle they have purchased from you or their loan from us – and if they do so, you must notify us and forward the complaint to us.

You must immediately inform us if a customer:

• Returns a vehicle;
• Makes a complaint regarding vehicle quality;
• Has not received their vehicle (including your reasons why this might be).
• Wants to swap the vehicle for another vehicle (security swap)
• Wants clarification on any aspect of a loan or makes a complaint regarding any of the loan terms

Your obligations under other legislation

As a seller of goods, you also have obligations under other pieces of legislation which you are required to comply with as per the terms of your Agreement with us, for example, under the Consumers Guarantees Act (CGA), Fair Trading Act (FTA) and Motor Vehicle Sales Act (MVSA).

The Consumer Guarantee Act (CGA)

The CGA sets out quality guarantees any business or person in trade must provide to their customers.

It ensures customers get what they pay for and, if needed, a repair, refund or replacement for a faulty product or substandard service.

You must offer products (vehicles) that:

• Be of acceptable quality.
• Be fit for a particular purpose that you asked about.
• Match the description in advertisements or sales brochures or by the sales assistant.
• Sold at a reasonable price (if no price or pricing formula has been previously agreed)

You must also:

• Make sure deliveries arrive at the agreed time and in acceptable condition (where the supplier is responsible for delivery). When no time is agreed, delivery must still be within a reasonable time.

Where there is a serious issue with the vehicle, you will need to take reasonable steps to remedy the issues raised by the customer.

The Fair Trading Act (FTA)

Fair Trading Act – Dealers must also comply with the FTA.

The FTA says you must talk fairly about what you sell — in person, in print or online. This ensures traders don’t oversell or make false promises, which means they can’t make false or misleading claims about a vehicle.

It covers pricing, advertising, information about the product or service, sales techniques and financing. It also covers product safety and trading practices.

Any trader breaching the FTA can be fined up to $600,000.

The Motor Vehicle Sales Act (MVSA)

The MVSA applies to any person or business that buys, sells, imports or auctions vehicles, including online sales and vehicles sold at car markets or fairs.

A motor vehicle dealer must:

• Be registered
• Comply with consumer laws that apply to all retailers, e.g. Consumer Guarantees Act and Fair Trading Act
• Display a consumer information notice (CIN) for second-hand vehicles in the window or online listing
• Give each buyer a copy of the sales agreement
• Keep copies of sales agreements, either electronic or on paper, for at least six years.

Privacy

We (as lender) and you (as dealer) have separate privacy obligations to our customers. How we both collect, hold, use and disclose the Personal Information we each collect from customers is of prime importance. We must both meet our obligations under the Privacy Act 2020 and act in accordance with the privacy principles.