Fixing faulty legislation, not protecting big banks, the goal of these law changes

Friday, 16 May 2025

It’s been claimed these changes will extinguish the rights of thousands of customers, all to protect the interests of two large Australian-owned banks. This is not correct, say Beaumont and Joseph.

Roger Beaumont is the chief executive of the New Zealand Banking Association, while Philip Joseph KC is a professor of law at the University of Canterbury. He has been engaged by the New Zealand Banking Association in a professional capacity. However, the views and opinions expressed in this article are his own.

OPINION: The proposed amendment to the Credit Contracts and Consumer Finance Act is intended to ensure just and equitable outcomes for consumer borrowers in the banking industry. Yet it has caused hand-wringing in some circles.

It has been claimed that this change will extinguish the rights of thousands of customers in contravention of the rule of law – all to protect the interests of two large Australian-owned banks.

This is not correct. No rights will be extinguished. Debtors will still be able to claim from lenders for non-compliance under the disclosure regime.

Disclosure requirements in the Credit Contracts and Consumer Finance Act are very prescriptive and technical, and lenders can breach them in manifold ways.

The Credit Contracts and Consumer Finance Act provides protections for consumers of banking services, which include disclosure requirements. So, if a borrower, for example, changes to a new fixed rate or changes the frequency of repayments, the lender must provide disclosure about the change. Many of the disclosure requirements are very prescriptive and technical, which lenders may breach in manifold ways: for example, by merely including the wrong address for a dispute resolution provider, or by being a matters of hours late to provide disclosure.

In June 2015 the act was amended in a sub-optimal way. On one interpretation, a lender which failed to make a required disclosure forfeited the entire return on the loan. All fees would be returned to the borrower, and the loan would become “interest-free” until the error was corrected.

Disclosure failures may result from technical discrepancies, such as the inadequacies of computer programmes or auditing systems. These failures can persist undetected for a considerable time and affect a large number of customers. Consequently, a lender could (on this interpretation) be required to refund hundreds of millions of dollars in fees and interest payments to customers who have suffered no demonstrable harm. A customer who suffers actual harm may independently claim statutory damages and compensation under the act.

This problem was partially addressed in December 2019, when a remedial amendment gave the courts the power to make “just and equitable” adjustments to refunds found to be owing. The amendment lists a range of factors for the court to take into account.

Korea’s Kookmin Bank breached the CCCFA in failing to disclose properly on nearly loans between 2015 and 2021, leading the bank to have to stump up with $11 million to borrowers and eventually pull out of New Zealand.

So, what does the proposed law change do?

It provides that the just and equitable adjustment to refunds applies also to the period between June 2015 and December 2019. This change avoids the draconian outcome of a “full-forfeiture” regime. In addition, it removes a lingering uncertainty in the legislation whether a court at present would have the implied jurisdiction to make just and equitable adjustments.

That identifies the only part of the proposed change that has a backwards looking element. Does this offend the principle against retrospectivity?

It is presumed that the law should operate prospectively, not retrospectively, but the presumption is of varying application and strength. It is at its strongest when applied to criminal legislation – legislation that would make unlawful actions that were lawful yesterday. Retrospective criminal offences offend the principle of legal certainty and the rule of law.

The presumption also applies where legislation would otherwise work an injustice: for example, where it would retrospectively extinguish legally recognised rights or impose some additional liability or impost.

In other contexts, retrospective legislation may be desirable in the public interest to achieve legitimate policy objectives. The principle against retrospectivity does not apply where legislation has a remedial purpose and does not extinguish rights enforceable at law. The bill to amend the Credit Contracts and Consumer Finance Act is of this nature.

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There are numerous examples of retrospective statutes that serve the public interest. The Illegal Contracts Act was enacted over 50 years ago to remedy the manifold defects in the common law governing contracts. The act was lauded for remedying defects applying to existing as well as future contracts.

The Homosexual Law Reform Act 1986 was likewise lauded for applying retrospectively to decriminalise conduct that occurred before the legislation was operative.

Moreover, twice in 2001 Parliament intervened retrospectively to override Court of Appeal decisions that had untoward downstream effects. These statutes were remedial rather than punitive, and warranted retrospective application.

The amendment before the House is likewise remedial, warranting retrospective application from 2015.

There are compelling reasons for this limited retrospective change. On the full-forfeiture interpretation relevant to the period 2015-2019, a lender could face a potential liability large enough to put it in breach of its capital ratios or other prudential requirements, or even threaten its solvency. This eventuality poses seriously adverse outcomes for depositors, shareholders and the financial system as a whole.

There are ample consumer protections presently under the act. A borrower who suffers prejudice or loss through a disclosure failure has multiple avenues for relief. In contrast, under the full-forfeiture interpretation, borrowers receive an unprecedented windfall – cost-free loans through full reimbursement of fees and interest. The complexity of the legislation renders it fanciful that consumers would organise their affairs, knowing they would receive an interest-free loan if inadequate disclosure were subsequently discovered.

What will change is that the just and equitable method for calculating consumer refunds will apply from 2015. Under the “full-forfeiture” interpretation from 2015, debtors receive an unprecedented windfall – cost-free loans through full reimbursement of fees and interest. Rather than secure unexpected windfalls, the amendment will expressly confirm a fair and equitable regime balancing consumer interests and lenders’ disclosure obligations.