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STATUTORY HARDSHIP APPLICATIONS

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					DECEMBER 2008


STATUTORY HARDSHIP
APPLICATIONS
TOGETHER WE HAVE ACHIEVED A LOT FOR DEBTORS THIS YEAR – ALMOST
7,000 DEBTORS HAVE RECEIVED OVER $1.4 MILLION IN REFUNDED CREDIT
FEES. WE WANTED TO TAKE THIS OPPORTUNITY TO REMIND YOU ABOUT A
PARTICULARLY IMPORTANT CONSUMER RIGHT UNDER THE CCCF ACT. THE
FOCUS OF THIS ISSUE IS ON THE DEBTOR’S STATUTORY RIGHT TO MAKE
HARDSHIP APPLICATIONS.

We thank you for your support,              have defaulted on their loans. The
encouragement and your continued            statutory right is not available to debtors
vigilance in reporting possible             who are currently in default under their
breaches of the CCCF Act. We wish           loan or if it was reasonably foreseeable
you all a safe and merry Christmas          at the time the loan was entered into
and look forward to continuing to           that the debtor would be unlikely to be
work with you in 2009.                      able to meet their obligations because
                                            of illness, injury, loss of employment,
                                            the end of a relationship or other
Before the year ends however we
                                            reasonable cause.
wanted to take this opportunity to
remind you about a particularly
important consumer right under the          FALSE OR MISLEADING
Act. Under the Act, debtors are given       REPRESENTATIONS ABOUT THE
a right to make hardship applications       STATUTORY HARDSHIP RIGHT
to creditors if they face unforseen         The Act sets out the statutory hardship
hardship. The statutory hardship            right. The right cannot be waived by
right is the focus of this issue of         either creditor or debtor. Conduct or
Credit Matters.                             representations by creditors which
                                            purport to waive or otherwise restrict
                                            this right is likely to breach section 13(i)
                                            of the Fair Trading Act.
Adrian Sparrow
Director of Fair Trading
                                            WHERE CAN I FIND MORE
                                            INFORMATION ABOUT THIS
                                            STATUTORY RIGHT?
                                            Sections 55-59 of the Act deal with
ALTERNATIVE REPAYMENT                       hardship applications. Page 48 of the
ARRANGEMENTS                                Commerce Commission’s General
The statutory hardship right is different   Guide for the credit industry also
to other repayment arrangements             contains more information.
creditors may agree to when debtors
       LIMITATIONS UNDER THE ACT
THERE ARE SOME KEY LIMITATIONS ON THE STATUTORY RIGHT THAT YOU
NEED TO KNOW ABOUT. WE DISCUSS THESE BELOW.




THE STATUTORY HARDSHIP TEST                  can only be made when the credit limit
A debtor who is unable to meet their         is no longer exceeded.
obligations under a consumer credit
contract (as a result of illness, injury,    3. HARDSHIP MUST BE
loss of employment, the end of a             UNFORESEEN
relationship or other reasonable cause)
                                             The right gives debtors who suffer
and who can reasonably expect to
                                             unforeseen hardship the opportunity to
meet their obligations if the contract is
                                             adjust their obligations.
changed in one of the ways provided for
in section 56 of the Act can make a
statutory hardship application. This test    The types of hardship specified within
is set out in section 55 of the Act.         the Act are illness, injury, loss of
                                             employment, the end of a relationship
                                             or other reasonable cause.
You can find the Act at
www.legislation.govt.nz
                                             WHAT CHANGES CAN BE MADE
                                             UNDER A STATUTORY HARDSHIP
THERE ARE SOME LIMITATIONS
                                             APPLICATION?
Section 57 of the Act sets out three
                                             Changes able to be made under a
restrictions where statutory hardship
                                             statutory hardship application are listed
applications cannot be made.
                                             in section 56 of the Act. Possible
                                             changes include:
1. DEFAULTING DEBTORS                                Extending the term of the
EXCLUDED                                             contract and reducing the
The first restriction is that a debtor who           amount of each payment
has defaulted on a payment cannot use                Postponing the dates on which
this statutory right while the default               payments are made
continues. However section 57(2) of the
                                                     Extending the term of the
Act allows a debtor who has remedied
                                                     contract and postponing the
the default to make a hardship
                                                     dates on which payments are
application. It may be useful to
                                                     made
remember this when working through
budgets and deciding how to manage           The Act does not allow increases (or
debt repayments and other bill               decreases) in the annual interest rate
payments or priorities.                      under the contract in these
                                             circumstances.

2. UNAUTHORISED OVERDRAFTS
EXCLUDED                                     The changes must also not be more
                                             extensive than is necessary to enable
The second restriction is that if a debtor
                                             the debtor to reasonably expect to
has caused a credit limit to be
                                             discharge his or her obligations. The
exceeded (ie has gone into an
                                             changes must be “fair and reasonable
unauthorised overdraft) an application
                                             to both debtor and creditor in all the
                                             circumstances”.
                     PRACTICAL ISSUES
ONCE YOU HAVE DETERMINED IF YOUR CLIENT IS ELIGIBLE TO MAKE A
STATUTORY HARDSHIP APPLICATION AND YOU HAVE DETERMINED THE
NATURE OF THE CHANGES YOU WANT TO MAKE IN THAT APPLICATION
THERE ARE SOME FURTHER PRACTICAL ISSUES YOU WILL NEED TO
CONSIDER.

HOW DO I MAKE A STATUTORY                     District Court, the Court may stay any
HARDSHIP APPLICATION?                         enforcement proceedings until it has
The Act does not provide a model              considered the application. The same
template for an application and it does       ability to ‘freeze’ enforcement action will
not specifically say that the application     not apply for matters taken to the
must be written. However from a               Disputes Tribunal.
practical perspective it is sensible to
keep written records of the details of the    It is important to ensure that you
application, the date it was provided to      provide the hardship application to the
the creditor and the responses received       correct party – the creditor. The
from the creditor. The Commission             disclosure document and loan
suggests that as much as possible any         document should clearly identify the
application or subsequent agreement is        creditor (Have a look at the January
recorded in writing.                          2008 edition of Credit Matters for details
                                              about disclosure).
WHAT OBLIGATIONS DO
CREDITORS HAVE WHEN THEY                      Do not make hardship applications to a
RECEIVE A STATUTORY HARDSHIP                  loan broker, second hand car dealer or
APPLICATION?                                  retailer of goods purchased using
The creditor must consider the                finance unless they are also the creditor
application if it meets the test in section   involved in the loan agreement.
55 of the Act. The creditor does not
however have to approve each
                                              The Commission cannot consider
application it receives.
                                              hardship applications and does not
                                              have the power to overturn a creditor’s
Creditors must also make variation            decision to decline or reject an
disclosure when changes are made              application.
under the section 55 statutory hardship
right.
                                              THE COMMISSION’S ROLE
                                              Under section 103 of the Act it is an
WHO DO YOU GIVE THE HARDSHIP                  offence to breach the hardship
APPLICATION TO?                               provisions. While you should report any
The application should be made to the         alleged offences in relation to these
creditor. If the creditor does not agree      provisions to the Commission it is
to change the contract in the way             important to also consider whether your
suggested by the debtor, the debtor           client wants to pursue the issue through
may then apply to the Court to change         the Disputes Tribunal or District Court.
the terms of the contract.

The application can be made either to
the Disputes Tribunal or to the District
Court. If an application is made to the

				
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