New Zealand Ad Hoc Government Discussion Papers
Last Updated: 18 April 2020
CONSUMER CREDIT LAW REVIEW
OVERINDEBTEDNESS, INSURANCE AND
CONSUMER CREDIT LAW REVIEW
OVERINDEBTEDNESS, INSURANCE AND
33 Bowen Street, PO Box 1473
Wellington, New Zealand
Phone: 64 (4) 474-2750
Fax: 64 (4) 473-9400
This document is the fourth public consultation document in the Consumer Credit Law Review. It deals with three important topics: each raises issues on which the Ministry seeks comment.
Each topic is discussed in a separate chapter. The topics are:
2. CALL FOR SUBMISSIONS
The Ministry encourages
written submissions from interested parties on the content of this document. The
purpose of the submissions
will be to inform the Ministry as it proceeds with
the Consumer Credit Law Review. Ultimately, the submissions will inform the
on any decisions it chooses to make with respect to the reform of
consumer credit law.
Issues for Discussion
The Ministry welcomes your views on the content and proposals of this consultation document.
There are specific questions contained in the text.
Final date for submissions and contact details
date for receipt of submissions is Friday 1 December 2000.
Comments and submissions should be addressed to:
Consumer Credit Law Review Team
Ministry of Consumer Affairs
PO Box 1473
Rob Bowie 64 4 474-2927 firstname.lastname@example.org
Bob Hillier 64 4 474-2944 email@example.com
Nick McBride 64 4 474-2818 firstname.lastname@example.org
Fax: 64 4 473-9400
OFFICIAL INFORMATION ACT 1982
In providing your submission, please advise us if you have any objections to the release of your submission. If this is the case, please advise us of the parts of your submission that you would wish withheld, and the grounds for withholding. In preparing and releasing any summary, and in considering any formal Official Information Act requests that might be received, the Ministry will carefully review any representations that you make in this regard.
PRIVACY ACT 1993
personal information that you supply to the Ministry in the course of making a
submission will be used by the Ministry in conjunction
with consideration of
matters covered by this consultation paper only.
When preparing any summary of submissions for public circulation, it is the Ministry’s usual practice to set out the names of parties making submissions. Your name will be included in any such summary unless you inform the Ministry that you do not wish your name to be included. In order to indicate your wishes, or to view personal information held about you in respect of the matters covered by this discussion paper, or to request correction of that information, please contact the Ministry of Consumer Affairs, ph (04) 474 2750.
Overindebtedness occurs when borrowers find themselves with a higher level of debt than they can service.
There are some indications which suggest that levels of consumer debt are increasing, and that this is resulting in overindebtedness:
Overindebtedness causes financial distress and ultimately can lead to bankruptcy. The consumer, or one of their creditors, can petition for bankruptcy if the consumer is totally unable to repay their debts. Bankruptcy, however, has serious consequences for both the consumer and the lender – and it is a situation that both parties have good reason to avoid.
3.1 The nature of consumer debt
Personal overindebtedness is typically caused by one of the following:
3.1.1 Credit which consumers cannot repay
For a variety of reasons – such as desperate need, or not understanding the full extent of what they are committing themselves to – some consumers obtain credit when, rationally, there is no likelihood they can repay it within the prescribed term.
This raises the question of whether lenders sometimes deliberately lend to consumers who have little prospect of repaying the full amount of their debt. The argument is often made that lenders may “overlend” if, in the event of default, they have sufficient security, or a guarantor, to cover the debt. Credit may also be arranged by a retail seller (not by the lender directly) who fails to properly assess the credit rating of the consumer, being more concerned to sell the merchandise.
Lenders dispute that there is an incentive to overlend: they claim it is irrational to overlend, that there are significant transaction costs in realising security, and that (apart from loans secured against real property) the value of security is rarely enough to cover the debt and the lender’s enforcement expenses. If the outstanding debt and the enforcement expenses are not recovered through the security, the lender will be obliged to recover this cost through its interest rate, placing it at a competitive disadvantage.
3.1.2 Changing circumstances
Consumers can find themselves in circumstances which were not anticipated when credit was obtained. This can occur through illness, job loss, or the breakdown of a relationship. Alternatively, an anticipated event may not occur, for example a pay increase or a legacy may not eventuate.
Circumstances such as job loss and illness can be insured against – but even if insurance is taken out, the terms of the policy may not sufficiently cover the debt. For example, the circumstances of a consumer’s job loss may not meet the requirements of the policy, or an exclusion in the policy may mean that a claim made by a consumer is rejected.
3.1.3 Guarantors and “relationship debt”
There is also the risk that a guarantor – a consumer who guarantees repayment of the debt on behalf of a borrower – could end up suffering the consequences of overindebtedness. This can occur if the person who borrowed the money defaults and the guarantor is called on to honour repayments.
Some guarantors have neither appreciation of the obligation that they have undertaken by agreeing to guarantee a loan, nor ever expect to have to fulfil the guarantee.
In some instances, the guarantor is under psychological pressure from a partner or relative to guarantee the loan. Similar pressure may result in a partner becoming a “joint signatory” to the loan, even though the loan is not for their use. In the event of default by the principal debtor, the co-signatory may have the debt enforced against them. Because the co-signatory is usually the partner of the principal debtor, this is often referred to as “sexually transmitted debt” or “relationship debt”.
The Credit Contracts Amendment Act 1998 aims to alleviate some of these problems, by requiring lenders to disclose the cost of credit to guarantors. This may influence some consumers in their decision whether or not to guarantee a loan. However, since it only came into effect on 1 March 1999 it is premature to evaluate its effectiveness.
3.2 Policy response
This section examines provisions that could be included in consumer credit legislation as an attempt to deal with overindebtedness.
The Ministry of Consumer Affairs believes consumer credit legislation has only a limited role in preventing overindebtedness. Borrowing money is a widespread and legitimate activity in a consumer society. Without credit, numerous transactions of benefit to both businesses and consumers would not occur. Inevitably, however, if consumers continue to borrow, some of them will become overindebted. We do, however, touch on some broader considerations for dealing with overindebtedness in the final part of this chapter.
Within the confines of consumer credit law, extending and improving “disclosure” requirements should help more consumers to understand their obligations when signing up for a consumer credit transaction. In turn, understanding their obligations should generally discourage consumers from taking out credit if they know they are unlikely to be able to meet the repayments.
Further options include:
At the margin, such measures may have some impact on the credit market, measured in terms of aggregate funds loaned and the cost of credit. It is unlikely, however, that the overall impact would be material.
3.3 Allowing contracts to be varied in cases of hardship
In Australia, section 66(1) of the Consumer Credit Code allows a consumer to apply to the lender to change the terms of the contract, if they are unable to meet their obligations because of illness, unemployment or another reasonable cause. There must also be a reasonable expectation that the obligations can and will be discharged if the contract is restructured.
If the lender refuses, the borrower has the right to apply to the Court for a variation.
Section 66(1) does not restrict the right of the parties to negotiate, or to agree to vary the contract. What it does do, (in addition to the above) is to provide the grounds for a Court application in cases where the parties are unable to agree on appropriate changes.
Section 66(2) sets out the changes that may be agreed upon. A change may be sought to extend the period of the contract (and therefore reduce the amount of each repayment), or to postpone the due dates on which repayments are required. A lender may agree to both.
A “hardship” provision would provide a further incentive for lenders to negotiate a variation to the contract when consumers get into genuine difficulties, rather than putting consumers into default or implementing enforcement proceedings. Negotiating revised arrangements for payment is easier than terminating and enforcing a contract.
It would also encourage consumers to approach their lender when they face repayment difficulties, rather than trying to ignore the issue because of fear that the lender might take immediate action to recover the debt. A “hardship” provision in statute may increase the likelihood of consumers becoming aware of and understanding this right.
Such a provision may be successful in preventing some consumers from becoming severely overindebted and incurring consequential financial distress.
The inclusion of a “hardship” provision in consumer credit legislation would inconvenience those lenders who would prefer to exercise their right to enforce the contract immediately if consumers are likely to default.
The provision may be used opportunistically by borrowers in response to enforcement actions by lenders – and would need to be carefully drafted to minimise this.
3.3.3 Additional issues
If legislation were to include a “hardship” provision, then consideration needs to be given to whether or not a monetary limit should be applied. In Australia, the hardship provision outlined above applies only to contracts up to A$125,000 – unless otherwise prescribed by regulation.
Should a “hardship provision” be enacted in New Zealand consumer credit legislation?
If so, is it necessary to have a monetary limit? Why?
3.4 Reopening guidelines: allowing transactions to be reopened if lenders have not appropriately ascertained the ability of consumers to repay
New Zealand’s Credit Contracts Act 1981 (section 9) allows a contract to be reopened if it is oppressive; and section 11 of the Act sets down guidelines as to when a contract will be considered to be oppressive. These guidelines allow the Court to have regard to all the circumstances relating to the making of the contract – but they would not necessarily allow the Court to consider the situation where a lender has not appropriately ascertained the consumer’s ability to repay.
The Australian Consumer Credit Code allows the Court to reopen transactions that are “unjust”. In determining whether a transaction is unjust, the Court may consider a number of matters laid out in the Code. One criteria is if it appears that the lender knew or should have known, at the time the contract was entered into, that the consumer was unable to repay the money due. A guarantor is also able to apply to the Court for a reopening under this provision.
The aim of the Australian provision is to encourage lenders to consider the consumer’s financial commitments, income, and expenditure (and perhaps also job stability) when assessing credit applications – rather than just applying credit-scoring techniques that focus more on a borrower’s past credit record.
The standard Australian text on the Code explains that, at first glance, the provision can be read as indicating that a credit contract will be unjust if the lender relied on the loan’s security rather than credit-checking as protection against the risk of non-payment. However, the Minister responsible for the introducing the Code into Parliament explicitly stated that the Code was not intended to be used against a lender if, at the outset of the loan, the borrower made it clear that they might have difficulty meeting their obligations and that they wished to proceed despite this. Rather, it is intended to deal with those lenders who consciously lend without making appropriate enquiries about the borrower’s ability to repay.
Two other criteria the Court may have regard to when considering an application to reopen a contract are:
The Code requires the Court to have regard to the public interest, and to all the circumstances of the case when considering any reopening application.
Such a provision provides an incentive for lenders to make full inquiries into the borrower’s ability to repay. Lenders who have not made appropriate enquiries about a consumer’s ability to meet their repayments will share in the cost of consumers’ default.
Such provisions may be effective in making a lender responsible for being sure that a guarantor understood the nature of the guarantee he/she was signing. In some situations, it will be incumbent on the lender to suggest the guarantor receive legal advice. This may protect some consumers in “relationship debt” scenarios.
Reopening provisions of this kind must be drafted clearly. For instance, it is important that it is clear whether the provision is concerned with the circumstances surrounding the making of the loan, or with the actual terms of the loan. If it is not clear, this may result in different interpretations by the judiciary – as has happened in Australia under similar legislation. This in turn leads to uncertainty for lenders.
It is often difficult to prove the conduct giving rise to an application; thus, these provisions are difficult to invoke. On the other hand, these provisions may be invoked opportunistically to frustrate the enforcement of the contract.
Is it appropriate to allow for the reopening of credit contracts based on:
- a lender’s failure to make proper inquiries as to the borrowers ability to repay?
- whether a guarantor or co-signatory was encouraged to get independent advice?
- whether the effect of the terms of a contract or guarantee where sufficient explained to the borrower or guarantor?
What are your reasons for or against the inclusion of such provisions in consumer credit legislation?
3.5 Requiring lenders to undertake a “proper” budgeting process with borrowers
The Consumers’ Institute has argued that the law should require lenders to provide written proof that they have undertaken a “proper” budgeting process with a borrower, to ensure that the borrower can afford the loan. This would include having copies of bank statements to confirm the client's income and making a credit check with a credit-reference agency.
In most cases, it can be presumed that lenders do make credit checks to ascertain a client’s ability to repay. This proposal has the added elements of a “proper budgeting process” and “written proof”.
This process may be helpful for consumers, and will force lenders to turn their attention to the consumer’s current financial circumstances.
“Written proof” of a “proper budgeting process” would place an unreasonable burden on those lenders who already take care over checking the ability of consumers to repay, and it will increase the cost of credit administration. This will ultimately be passed on to borrowers. Borrowers with a good credit rating may also find the process very inconvenient and uncomfortable.
It would also be difficult to define a “proper budgeting process”.
In the Ministry’s view, a more desirable outcome would be achieved by a lesser test – that is, by requiring lenders to make a “reasonable attempt” to ascertain the consumer’s ability to repay the debt. This requirement is already assumed in the option discussed above concerning the provisions in the Australian Consumer Credit Code – that is, the “reopening” of contracts in cases where lenders have not appropriately ascertained the ability of consumers to repay.
Should lenders have to go through a budgeting process with prospective borrowers before granting credit?
How might such a process work?
3.6 The wider picture
Social policy considerations relating to credit are largely outside the scope of the Consumer Credit Law Review. The Ministry believes that broad goals such as reducing personal indebtedness (including bankruptcy filings) and dealing with poverty are more appropriately dealt with by wider policy instruments. Two options for this are considered below.
3.6.1 Education and dissemination of information
Education of consumers and lenders about their rights and responsibilities in relation to credit may help consumers in their financial decision-making. The aim would be to help consumers avoid over-committing themselves.
Consumer education and budgeting advice could receive more prominence in the school curriculum. People become consumers from childhood and might benefit from more life-skills instruction, including aspects of decision-making in relation to credit.
Another way of educating consumers is to target consumer information to beneficiaries and low income earners. Agencies that work with low income earners could be given this responsibility. It is apparent that beneficiaries and low income earners have a greater propensity than others to become overindebted: their economic position means that they are more likely to borrow out of desperation and without being able to repay. Also, they have a more limited range of sources for credit, and the money they borrow will typically incur higher finance charges (reflecting their greater likelihood of default).
3.6.2 Support for community agencies
A greater role might be played by the voluntary welfare groups which both educate consumers on good money management and assist consumers in financial distress. Currently, these groups include a nationwide network of Budget Advisory Services, as well as other community groups such as church and marae-based social services.
It may be possible to persuade lenders to give more support to these financial counselling agencies. Such a scheme – the Consumer Credit Counselling Service (CCCS) – was established in the United Kingdom in 1993. CCCS employs full-time counsellors who work with clients to restructure their expenditure and to make agreed adjustments to their estimated budget. Repayment of debts with priority creditors (usually those who can disconnect essential services) are negotiated, and these payments are made on a monthly basis. If there is residual income, it is made available to non-priority creditors on a pro-rata basis. The unique feature of CCCS is that it is funded by subscribing lenders who voluntarily donate 15% of the money recovered from their debtors. There is no charge to debtors for the service.
There may be other ways in which lenders could provide assistance to borrowers – for example, by providing borrowers with written information, over and above the statutory disclosure requirements, about the consequences of default and also about avenues for assistance when problems arise in paying the debt. For instance, such notices could be sent with overdue account notices.
Are there other measures that could be introduced to assist consumers in avoiding becoming overindebted?
What is the role of:
4. CREDIT-RELATED INSURANCE
It is in the interests
of both lenders and borrowers to ensure that a borrower is able to continue
repayment of a loan and –
if the loan is secured – that adequate
security is maintained. A means for achieving this is credit-related insurance.
Credit-related insurance is provided as part of a credit arrangement. The most common forms of credit-related insurance are:
4.1 The benefits of credit-related insurance
Both borrowers and
lenders benefit from credit-related insurance.
Where a good is purchased on credit, both the supplier of the goods and the lender can use goods insurance to reduce the risk of financial loss if the goods are lost or destroyed in some way. Other forms of credit-related insurance such as CCI help a lender avoid financial loss if a consumer defaults.
For consumers, goods insurance means that, if the goods they have purchased on credit are lost or stolen, they do not have to continue paying for them. CCI can lessen the difficulty of having to meet repayments if they fall ill or lose their job.
4.2 Problems with credit-related insurance
In the Ministry of Consumer Affairs’ view, the nature of credit-related insurance is such that consumer detriment can easily arise. Common problems in credit-related insurance include:
4.2.1 Excessive premiums
There is a widespread
belief that credit-related insurance tends to be overpriced when measured
against the value received. This is
particularly so for CCI.
Studies in Australia have concluded that CCI is priced uncompetitively. This may also be the case in New Zealand. Industry organisations, as well as consumer groups, have often considered that CCI is overpriced, and the existence of overpricing is supported by a volume of anecdotal evidence.
CCI premiums are relatively high because CCI is costly to administer and distribute, compared with other insurance products. The main reason for this is that CCI is sold “on commission” through lenders and suppliers, rather than directly from the insurer to the consumer. The cost of the commission is added to the cost of the insurance. Costs are also high because of the specialised nature of CCI, and because sales volume is relatively low.
There are additional factors that further weaken competitive forces, and inflate prices:
“reverse competition” occurs: insurers bid against one
another, offering more (rather than less) expensive policies on
lenders/suppliers can recover higher commissions.
4.2.2 Policies not fully disclosed
Lenders, suppliers and
insurers currently have no obligation to ensure that consumers are aware of the
terms and conditions of credit-related
insurance policies. Inevitably, some
consumers are not even aware that they have purchased insurance. The disclosure
entry is often
noted merely as “CCI” (or “PPI”) –
and the application for insurance cover may be “buried”
printed contract, which the customer is often encouraged to sign without
adequate consideration and comprehension.
Such limited disclosure in insurance policies prevents consumers from understanding essential terms, such as the amount of the premium, claim entitlements, the extent of insurance cover provided, and the term of the policy. This will restrict their ability to compare insurance products and – where they have the choice – to determine whether they should accept the insurance cover at all.
Furthermore, some suppliers do not offer insurance through an independent insurer. Instead they “self-insure” through devices such as repayment waivers (see page 17 for a discussion of repayment waivers) and extended warranties. In these situations there is less likely to be full disclosure. Independent insurers, by contrast, will generally have a standard-form written contract, which has disclosure of its main conditions and is usually given to the consumer.
4.2.3 Inappropriate insurance cover
Consumers are sometimes
required by lenders or suppliers to take out insurance that covers unlikely
risks – or that does not
cover likely risks. Typical examples that have
come to the Ministry’s attention include:
At a more general level, the Ministry notes that consumers are commonly required to take out CCI in spite of it being reasonable to assume that they are unlikely to lose their job or that, if they do, they will still be able to service the loan. There is nothing in legislation to prevent suppliers from requiring goods insurance and/or CCI.
4.2.4 Duplicate insurance cover
Sometimes consumers are
required to purchase credit-related insurance cover for goods when their
existing contents insurance policy
would adequately cover this. They are
effectively paying twice for the same cover.
4.3 Policy response
From its analysis of the problems discussed above, the Ministry has identified seven areas for possible reform. These are:
4.4 Defining credit-related insurance
Any regulation of
credit-related insurance will need to define “insurance” for the
purpose of credit legislation. Some
contractual devices, not always understood
to be insurance contracts, can be used by lenders and suppliers to avoid
requirements. These include extended warranty contracts and
4.4.1 Extended warranty contracts
An extended warranty
contract is an agreement where, in return for an additional payment, the
supplier will repair or replace defective
goods outside the usual
manufacturer’s warranty period. If the warranty extends to risks that are
unrelated to the quality
or suitability of the product, an extended warranty
contract can be considered to be
insurance. This is particularly
so if the warranty is given by a third party.
An extended warranty may be a device used to avoid regulatory requirements in relation to insurance.
Should credit-related insurance be defined to include or exclude these forms of extended warranty contracts?
4.4.2 Repayment waivers
A repayment waiver is an
arrangement whereby a lender or supplier agrees to waive their rights to
repayments if the consumer dies,
or becomes incapacitated or unemployed. The
consumer can “purchase” a repayment waiver, at an additional
The High Court has held, in a judgement concerning the application of the Insurance Companies Deposits Act 1953, that this arrangement is not an insurance contract. However, in the consumer credit context, the impact of the ruling may be undesirable because, generally, a repayment waiver appears to be identical in function to CCI – which suggests that repayment waivers should be regarded as credit-related insurance.
Should credit-related insurance be defined to include or exclude repayment waivers?
4.5 Should the lender have the right to require insurance?
A lender or supplier
currently has a right to require any type of insurance. There is nothing in
legislation to prevent them from
insurance. Thus, a lender or
supplier has the right to require CCI to be taken out by borrowers –
either from a third party or
through a device such as a “repayment waiver”.
New Zealand is at variance with Australia on this. The Australian Consumer Credit Code (section 133) provides that a lender cannot insist on insurance being taken out by the debtor unless the insurance is “compulsory insurance”, insurance over mortgaged property, or mortgage indemnity insurance. There is provision for regulations to be made to include other forms of insurance in this list, but there are as yet no such regulations.
The discussion now deals with the lender’s right to require credit-related insurance in four areas:
4.5.1 Consumer credit insurance (CCI)
These policies can be
expensive, and are often of dubious benefit. If the lender also takes security
sufficient to cover the balance
outstanding under the contract, then it is
already protected from the possibility of loss.
There are three key arguments (and counter-arguments) to be considered here:
Argument 1: For the lender, CCI provides an alternative source of repayment if the borrower defaults.
Counter-argument: If the loan has sufficient security, there is no justification for requiring CCI. There may, however, be a case for CCI when the loan is unsecured or under-secured.
Argument 2: Consumers who do not wish to pay for CCI can seek out other lenders who do not require CCI.
Counter-argument: There can be significant transaction costs for a consumer in negotiating credit deals, or in obtaining quotations. Also, in some markets, or for some categories of consumer, it may be difficult to find credit offers that do not include compulsory CCI. (There is no real opportunity for consumers to shop around for different CCI policies, as CCI is not sold direct to the public.)
Argument 3: CCI reduces the uncertainty of lending to consumers who are not good credit risks (for example, because they are likely to become sick, injured or be made redundant). Without purchasing CCI, these consumers are likely to be denied credit.
Counter-argument: Lenders should not be encouraged to make credit available to high-risk consumers. Nor should low-risk consumers have to cross-subsidise insurance for high risk consumers. It is not in the interests of insurers to allow CCI to be sold regularly to high-risk
consumers. CCI is for unexpected contingencies rather than likely defaults,
and it is not a substitute for adequate risk-assessment
of a borrower.
Should lenders be prevented from making CCI a compulsory condition of entering into a credit contract? or
Should lenders have the right require borrowers to take out CCI as a condition of getting credit?
Should lenders be permitted to make CCI a compulsory condition of an unsecured loan only?
4.5.2 Life Insurance
Lenders often require
life insurance to be taken out as a condition of a loan particularly for home
finance. The borrower then assigns
the life insurance to the lender, to protect
the lender’s interest in the event of the borrower’s death.
The arguments concerning whether lenders should be able to make life insurance a compulsory condition of a loan are similar to those for CCI. However, one difference is that life insurance policies are available more generally than CCI, providing the consumer with an opportunity to “shop around” or to assign to the lender an existing life insurance policy.
Should lenders be permitted to require life insurance as a condition of receiving credit?
What conditions should be placed on the lender’s right to require life insurance?
4.5.3 Lender’s mortgage insurance
It is a common
requirement of home finance that the borrower pays for the lender’s
mortgage insurance, particularly when the
consumer has little equity in the
property. The high value of the mortgage may justify this. Furthermore, real
estate values have
on occasions dropped significantly, substantially reducing
the borrowers equity. When this happens it leaves the lender vulnerable
In the Ministry of Consumer Affairs’ view, lenders should not be prevented from requiring mortgage indemnity insurance.
4.5.4 Insurance of secured goods
A lender has a
legitimate interest in maintaining the value of property over which it has
security. If the property is damaged before
the loan is repaid, the lender
effectively loses its security unless it can receive the insurance proceeds.
Therefore, lenders are
entitled to require consumers to make special
arrangements with their existing insurers or alternatively take out separate
for those goods.
The Ministry of Consumer Affairs supports the status quo – that is, there should be nothing in law which prevents lenders from requiring insurance over secured goods.
4.6 Should the lender have the right to both require insurance and choose the insurer?
The Hire Purchase Act
allows a lender to require goods insurance to be purchased from a nominated
insurer. Lenders in other credit-contract
arrangements may also require
insurance to be taken out with a nominated insurer.
Allowing lenders to require insurance and also to nominate an insurer limits competition at the point of sale, which in turn allows lenders and suppliers to charge higher premiums than they would be able to if they were in a competitive situation. It can also oblige consumers to duplicate their insurance cover for goods, if they already have contents insurance.
New Zealand differs from both Australia and Canada on this:
There are five arguments (and counter-arguments) to be considered here.
Argument 1: If consumers are not satisfied with the lender’s insurer, they can “shop around” for a lender who gives a choice of insurer. (Some hire-purchase retailers advertise the fact that they give the consumer a choice of insurer.)
Counter-argument: There are transaction costs for a consumer in negotiating or obtaining quotations for any type of financial arrangement. In the hire-purchase market, consumers are more likely to focus their “shopping around” on the goods they are buying, rather than on the insurance deal.
Argument 2: The provision of insurance as part of the credit contract allows lenders to extend credit to high-risk consumers. If consumers were free to chose their own insurers, low-risk consumers would be more likely to choose their own insurance and the lender’s insurers would be left with the high-risk consumers. The insurer would most likely refuse to continue providing insurance through that lender, to the detriment of high-risk consumers.
Counter-argument: Lenders should not be encouraged to lend to high-risk consumers (even if these consumers do take out insurance). Also, low-risk consumers should not be cross-subsidising insurance policies
for high-risk consumers, who otherwise would be unlikely to receive credit
– ultimately, an insurer will not provide insurance
through a lender who
has a significant proportion of high-risk customers.
Argument 3: Because lenders have an interest in the insurance policy, they often enter into special arrangements with insurers to note this interest. For example, the insurer may agree that, if there is non-payment of the premium, they will not let the policy lapse without first notifying the lender. These sorts of agreements are efficient for lenders and insurers.
Counter-argument: Insurers will generally agree to note the interest of lenders, when a consumer enters into a secured credit contract. Lenders should be entitled to impose a duty on the consumer’s insurer to notify of any lapse in policy. Following the Australian approach, it would seem reasonable to allow lenders to restrict the consumer’s choice of insurer to those insurers with which the lender has an agreement of this kind. Nonetheless, the borrower still must have a choice of insurer.
Argument 4: Consumers may allow their credit-related insurance cover to lapse, or may cancel it. When insurance has been arranged independently by the borrower, it is difficult for a lender to monitor whether this insurance is being maintained.
Counter-argument: As above, in counter-argument 3, lenders should be able to require insurers to provide notification if the consumers let a policy lapse. Consumers who fail to keep the goods insured will be in breach of the contract. A breach of contract gives the lender certain rights – including seizing the security, cancelling the agreement, or demanding full payment of the amount outstanding. If these rights of the lender have been disclosed, the borrower will have an incentive not to let the policy lapse.
Argument 5: Preventing lenders from nominating the insurer may limit innovation. For example, the ability to provide “bundled” credit products where, in return for purchasing particular insurance, the consumer may be offered a lower cost of credit.
Counter-argument: Lenders and suppliers could still offer such bundled credit products. The proposal will not prevent lenders from reducing the cost of credit, in return for the consumer’s acceptance of its insurance policy, provided that where the prospective borrower declines to take out the insurance or to take out that insurance with a particular insurer, the credit is still available, albeit without the proposed reduction in the cost of that credit.
4.6.1 Additional issues
Lenders have an interest in ensuring that insurance is taken out with reputable companies. If consumers were to have a choice of insurer, it appears reasonable to allow for a lender’s right to approve the consumer’s choice of insurer. Approval should only be withheld on reasonable grounds.
The Hire Purchase Act provides that if a consumer is to be required to insure
with a particular insurer, this must be an independent
insurer. An independent
insurer means “any reputable insurer carrying on business in New Zealand
except an insurer which is owned or
controlled by the vendor or the dealer or
which is a subsidiary or the holding company or a subsidiary of the holding
the vendor or the dealer.” It does not prevent the supplier or
lender from entering a commission arrangement with the insurer.
Which option do you support:
- The status quo: lenders should be permitted to require borrowers to take out insurance with a nominated company.
- Lenders should be permitted to require borrowers to take out insurance with an independent nominated company.
- Prohibiting lenders from requiring borrowers to take out insurance with a particular company unless the insurer is the only one providing insurance of the relevant kind.
4.7 Disclosure of policy
Under current law,
lenders are not required to disclose the terms of the insurance cover sold to a
The Ministry of Consumer Affairs proposes that credit-related insurance policies should be clearly disclosed to the borrower within 15 working days of acceptance by the insurer.
There are no obvious disadvantages to consumers or lenders in this proposal, although attention will need to be given to the form and extent of the disclosures.
Information that could be usefully disclosed to consumers includes:
4.7.1 Additional issues
One issue raised in the
past has been whether lenders and suppliers should be required to disclose
the insurance commission they receive. Requiring the disclosure of
commissions may have a competitive effect if consumers believe they can get a
similar policy elsewhere
for a smaller commission. They may resist signing up to
policies with a high commission.
On the other hand, consumers may attach relatively little importance to this information. In deciding whether to accept an insurance policy, and in comparing policies, consumers may be more concerned with the total cost of the insurance.
How should credit-related insurance policies be disclosed to consumers?
What items should be disclosed? Should the amount of commission be disclosed?
4.8 A reconsideration (“cooling-off”) period for credit-related insurance
A further issue is a
reconsideration (“cooling-off”) period for consumers purchasing
credit-related insurance. This would
allow consumers to evaluate the terms of
the contract in an unpressured setting. Consumers usually have little
opportunity to read
a contract before signing but will be expected to comply
The Credit Contracts Act already gives borrowers three days to cancel their credit contract once disclosure has been made. Cancellation of a credit contract will also have the effect of cancelling any credit-related insurance contract. However, consumers do not have the right to cancel the insurance on its own.
A reconsideration period for the insurance contract would make the two contracts consistent.
This would also allow the consumer opportunity to focus their attention on the insurance aspect of the overall arrangement. Because the consumer is primarily interested in the goods being sold, and in whether or not they can get credit, they are less likely to consider the terms of the insurance policy at the time of signing up for the credit. A reconsideration period may allow them to do this (and to seek alternative insurance).
A reconsideration period for insurance, however, may lead to uncertainty for lenders about whether the goods are insured during this period. Any proposal for a reconsideration period would need to take account of this risk.
Should consumers be entitled to a cooling-off period after the disclosure of a credit-related insurance contract?
How long should the cooling-off period be?
4.9 Requiring insurance to be appropriate
Section 40 of the Hire
Purchase Act makes it an offence for a supplier to require a borrower to insure
goods against risks, or on
terms and conditions, that the supplier would not
require if they had arranged the insurance for themselves.
This requirement, however, exists only for insurance of goods that are on hire-purchase. It does not cover the insurance of goods bought under other forms of credit. Nor does it cover other types of credit-related insurance such as CCI.
The Ministry of Consumer Affairs believes that legislation should prevent a lender or supplier from making unreasonable requirements about the terms on which insurance is to be taken out.
This is similar to the Australian Consumer Credit Code’s section 133(2)(b). It is also broadly consistent with section 40 of the Hire Purchase Act.
Any legislative provision on this would need to be carefully drafted to make it clear what is intended by the phrase “unreasonable requirements”.
4.9.1 Restriction on commissions
The Australian Credit
Code limits to 20 percent the commission that can be received by a lender or
supplier from an insurer, or that
an insurer can pay. This measure was passed in
response to the problem of excessive premiums.
It has been noted in Australia that this restriction is unlikely to be effective in reducing the premiums for CCI. Increased administrative and compliance costs involved in capping commissions may offset the benefits. Further, lenders and insurers have found innovative ways to avoid this restriction, such as by establishing a joint venture company so that profits can be distributed through dividends.
The Ministry does not propose a cap on the commissions received by lenders/suppliers or paid by insurers.
5. CREDIT CONTRACTS VIA THE INTERNET
Banks, many finance
companies and some financial brokers now have Internet sites that give prices
and information about their consumer
products. Some of these allow
consumers to apply for personal loans over the Internet. But they do not allow
the credit arrangement to be completed
online – largely because current
legislation does not accommodate electronic credit transactions.
As internet banking and the associated technology continues to develop, pressure is likely to come from consumers and lenders for the law to recognise e-credit transactions. A number of submissions in response to the Ministry of Consumer Affairs’ introductory paper in this series urged that attention be given to the issue – and, in particular, to the relationship between e-credit and the current requirements for written documents and signatures.
5.1 Effect of current legislative requirements on e-credit
There are several Acts
that currently limit the expansion of e-credit – either by requiring
information or notices to be given
in writing, or by requiring that documents be
5.1.2 Credit Contracts Act 1981
The Credit Contracts Act
contains a number of disclosure requirements. Section 20 and 21 of the Act also
make it clear that these
disclosures must be in writing, and in a form in which
they can be “given” to the consumer or sent by post.
Section 22 gives a borrower the right to cancel a controlled credit contract – but only by giving written notice to the lender.
These requirements appear to exclude the use of electronic transactions.
5.1.3 Hire Purchase Act 1971
Section 5 of the Hire
Purchase Act requires that every hire purchase agreement must be in writing. It
must be “executed”
(signed) by the consumer.
Section 7 provides that the agreement must be given to the consumer. It also contains other requirements as to the form of the agreement.
It is doubtful whether electronic transactions would meet the requirements of the Hire Purchase Act.
5.1.4 Credit (Repossession) Act 1997
When a lender seeks to
repossess the secured goods of a defaulting borrower, sections 8 and 9 of this
Act require the lender to serve
a pre-possession notice on the borrower. This
notice must be in writing and must be either personally served or sent by post.
Similar requirements are in place to cover the situation after the goods have been repossessed. Section 21 provides that a post-possession notice must be served on the borrower who had their goods repossessed.
Electronic notices would not meet the requirements of the Credit Repossession Act.
5.1.5 Other requirements
The Chattels Transfer
Act 1924 provides that any secured loan pursuant to an Instrument by Way of
Security must be in writing and
signed. This Act is soon to be repealed. It will
be replaced by the Personal Property Securities Act 1999, which gives electronic
documents the same recognition as paper-based documents.
The requirement that
notices or contracts be in writing does not in itself rule out electronic
communications in consumer credit.
This is because the Interpretation Act 1999
has the effect of allowing electronic equivalents to satisfy legislative
for writing. However, the additional requirements in legislation
that notices be given and/or signed do appear to rule out electronic
5.2 Implications of the proposed Electronic Transactions Bill
The Government is
considering the enactment of an Electronic Transactions Bill. Broadly speaking,
the Bill is likely to contain provisions
to facilitate electronic communications
by recognising them as being as legally valid as more traditional paper-based
– which means that a requirement that something be
“posted” could be fulfilled by electronic delivery, and that
electronic signature would be adequate whenever something must be signed.
The Bill would override all existing paper-based requirements, except for those specifically exempted. Exemptions may include the “notice” provisions of the Credit Repossession Act.
Where the Bill does apply, it would allow electronic documents to be used in place of written documents. Any requirement to keep original copies of a document will be fulfilled if the document can be stored on a computer – e.g. as a web page or on a hard drive – in its original form. Electronic signatures will suffice for written signatures. Lastly, e-mail or electronic delivery will likely have the same status as a physical mailing.
There are, however, some qualifications to this. One is that both parties must consent to the use of electronic communications: the Bill will be facilitative and will not require anyone to use electronic communications who does not wish to do so.
This qualification may be weakened, however, if lenders’ standard-form contracts contain a clause denoting the consumer’s acceptance of electronic communications. As consumers do not usually read the “fine print” contained in standard-form contracts, they may consent to electronic communications without realising it. This has the potential to negate their right to refuse electronic communications.
5.2.1 The principles behind the recognition of e-transactions
The key principles behind the Bill and its recognition of electronic transactions are functional equivalence and technological neutrality.
5.3 Policy response
In certain contexts
electronic communications are not desirable. This is where there is strong
justification for requiring something
to be on paper, or to be manually
There are important policy objectives for requiring that consumer credit contracts be in writing, or that such contracts be signed. These can be described as:
The evidentiary objective of writing is to ensure the existence of a durable record of information; the evidentiary objective of a signature is to ensure that there will be admissible and reliable evidence.
The cautionary objective of a signature is its capacity to encourage deliberation and reflection before action. It signifies that the document has legal consequences.
The protective objective of a signature is to provide evidence for others that the signature-maker has given their full attention to the document.
The record-keeping objective of writing is to create a durable record of an arrangement and its terms; the record-keeping objective of a signature is to record the parties to an arrangement.
It is important that these objectives are not undermined by the policy of functional equivalence. For instance, an electronic signature on an electronically formed loan contract must be reliably authenticated for it to satisfy the evidentiary objective of a handwritten signature. Similarly, the act of making the electronic signature must convey the same caution and sense of legal significance to the consumer that the act of manual signature conveys. Otherwise, the cautionary objective is not met.
The Ministry of Consumer Affairs believes that consumer credit regulation should not prevent electronic transactions. As more and more business moves to the online environment, it will become anomalous and unhelpful if credit transactions are excluded. The challenge, however, is to maintain the policy objectives of evidence, caution, protection, and record-keeping.
The Ministry has identified seven issues in e-credit transactions that need further discussion:
5.3.1 The reliability of electronic communications
In general, there are
likely to be few problems with electronic communications. However, many factors
beyond the control of a consumer
can make electronic communications less
reliable than regular postage – such as problems with hardware, software,
Service Providers, and electricity suppliers. By contrast, a physical
posting address is usually more
This suggests some restrictions on electronic communications may be necessary. Such restrictions might include:
These restrictions would still allow electronic delivery of most “notices” – such as those required for continuing disclosure under the Credit Contracts Act.
Where a notice or other information has particular significance, however, these restrictions may be inadequate for protecting consumers.
One example of this is default or repossession notices that require an urgent or time-bound response.
The Ministry proposes that electronic delivery of such notices should not be permitted to substitute for physical mailing.
Another example is initial disclosure. Under the Credit Contracts Act, the borrower has three working days to cancel a contract after receiving initial disclosure. As electronic communications are not always reliable, there may be a case for requiring that the borrower receives paper-based disclosure as well as electronic disclosure.
Should initial disclosure under the Credit Contracts Act remain paper-based?
5.3.2 Date of commencement of a contract
The law is currently
unclear in determining when an electronic contract has been formed. The time at
which a contract was made is
important because most of the statutory
requirements for contracts run from (or for) a certain time period.
A contract is formed through a process of offer and acceptance – and the commencement date of a contract depends on the time of “dispatching” (sending) and the time of receiving the offer/acceptance. The Electronic Transactions Bill is likely to take steps towards clarifying the commencement date of a contract, by creating a default rule for the times of dispatch and receipt.
Under the Bill, the time of dispatch is likely to be deemed to be when the
electronic communication enters an information system,
which is outside the
control of the originator of that communication. The time of receipt will be
deemed to be either when the communication first reaches the
addressee’s information system (if the recipient has designated an
for this purpose), or when the communication comes to
the attention of the addressee.
It is likely that the default rules will be alterable by agreement between the parties. This could be a problem in consumer contracts, especially when the contract is a standard-form contract. Standard-form contracts can alter the default rules in ways that are unfair to consumers – for example, by deeming that information has been received within a certain time of having been sent by e-mail.
In Australia it was recommended that reliance on any variation to a default rule should be subject to section 68A(3) of the Trade Practices Act 1974. This provides that, in determining whether reliance on a term of the contract is fair and reasonable, a court shall have regard to the circumstances of the case – particularly the strength of the bargaining position of the parties. New Zealand has no equivalent provision.
The Ministry therefore proposes that the default rules as to time of dispatch and receipt proposed in the Electronic Transactions Act should not be departed from.
5.3.3 Verification of the sender
The issue of default
rules also arises in verifying who sent the communication. The Electronic
Transactions Bill is likely to state
that (unless otherwise agreed) the
purported sender and the recipient of an electronic communication are bound by a
only if the communication was indeed sent by that
sender, or with their authority.
It may be desirable to place a limit on departures from these default rules, as problems may arise if standard-form contracts use other rules.
The Ministry proposes that the default rules as to the verification of the sender proposed in the Electronic Transactions Act should not be departed from.
5.3.4 Confirmation of consent to purchase credit
consideration has been given to whether the instantaneous nature of the Internet
means that a consumer might purchase
credit inadvertently, or with less
consideration than they
For instance, it may be inappropriate for a credit contract to be completed
after a single click of a mouse. Clicking “OK”
icons is a routine
aspect of using the Internet. It may not bear the significance necessary to meet
the cautionary and protective
objectives inherent in written documents and
signatures. The conclusion reached by officials in Australia was that the actual
should not be denoted by a mere click, and that a digital signature
would be a more appropriate device for denoting agreement.
One Australian commentator has further suggested that a “clicking” process should mark the commencement of a formal contracting process, separating it from the initial advertising and product-information stage.
The OECD’s guidelines on consumer protection also propose a multi-step confirmation process. In this process, a consumer confirms their interest in contracting and their agreement to all the terms and conditions. A multi-step process is likely to increase the chance that a consumer’s agreement is informed and unambiguously expressed.
What safeguards should be provided to insure consumers consent to purchase e-credit knowingly?
Should an electronic signature be required?
Should a “multi-step” clicking process be required?
5.3.5 Form and presentation of information
contractual information generally was discussed in Consumer Credit Law
Review, Part 3: Transparency in Consumer Credit: Interest, Fees and
Disclosure. The Ministry
suggested there that a performance standard, rather than prescribed details,
should govern the presentation of contractual
and disclosure information. This
now raises the question of whether a performance standard is appropriate for
e-credit transactions – or whether more prescription is necessary. The principle of “technological neutrality” would suggest that a performance standard be applied to all credit transactions, regardless of whether they are electronic or paper-based.
Australian consideration of this issue concluded that there should be size-specifications for the fonts used in electronic documentation – but this is consistent with their requirements for font size-specifications in paper-based documents. It was also suggested in Australia that consumers should have to scroll through the contract before agreeing to it, to ensure that they “saw” the entire document.
The Australian review also noted that, to be effective, statutory warnings and disclosures need to convey a sense of significance. This could be undermined if, say, a warning was combined with flashing advertising icons, which are common on web pages and which may distract the consumer. It is important that contractual information be separated from advertising material.
What provisions are appropriate to regulate the form and content of contractual information provided electronically?
Is a performance standard sufficient?
5.3.6 Storage and reproduction of documents
legislation places various requirements on lenders to “give”
information to a consumer – usually
the contract document, or a disclosure
document. This ensures that the consumer has a copy that can be stored and
retrieved as a
record of the transaction, and of its terms and
The main issue here is that the documents must be in a form that the consumer can keep and retrieve.
E-mail messages or attachments can be saved on a computer and printed out – and so can be easily stored and retrieved by the consumer.
But if a lender posts information on a web page rather than communicating directly with the consumer, this presents the consumer with problems of storage and retrieval. The approach taken in the US is that if information is to be posted on a web page, the consumer must be given notice of this. They must also be given instructions on how to download the page, so that it can be saved. (Matters that might be notified on a web page include changes in interest rate.)
A further issue is that information needs to be free from subsequent alterations. Its “integrity” is important for determining whether it is the original document agreed to by the parties. The Electronic Transactions Bill is likely to specify that a document can be regarded as original only if its integrity is assured. This will put an onus on lenders to ensure that their electronic documents are tamper-proof.
What views do you have on the issues concerning the storage and reproduction of electronic communications?
Should statutory information be permitted to be disclosed on a web page?
If so, are any safeguards needed?
5.4 Cross-border consumer credit
One of the features of
electronic commerce is the breaking down of international borders. New Zealand
consumers increasingly purchase
goods over the Internet from all around the
world, and it is possible that in the future they will be able to access credit
It would be possible for New Zealand law to provide statutory rights to
consumers borrowing from overseas. However, the benefit of
this would be
questionable if the Government was unable to effectively regulate the conduct of
overseas based lenders.
The Ministry of Consumer Affairs does not foresee significant issues arising in this area because there are legal and practical barriers to the extension of cross-border credit. The legal barrier is that of jurisdiction – determining which country’s law applies in relation to cross-border credit transactions. The practical barrier for lenders is the difficulty in enforcing their rights when they are located in another country; the practical barrier for consumers is that New Zealand consumer-credit laws will not necessarily protect New Zealanders who enter into an e-contract with an overseas firm. Clearly, there are risks for both parties. In the Ministry’s view, truly international consumer credit is unlikely to become widespread, at least in the foreseeable future.
Do you think the development of cross-border credit is likely? What are the main issues?
Current regulation of credit-related insurance
extent to which credit-related insurance is regulated by legislation, and by the
market itself, is outlined below.
Chattels Transfer Act 1924
The Chattels Transfer Act gives lenders and suppliers the right to require insurance against fire and to approve the insurer used by the borrower.
This Act will be repealed when the Personal Property Securities Act 1999 becomes law (this date is yet to be set). The Personal Property Securities Act, however, does not contain any requirements that relate to insurance.
Hire Purchase Act 1971
The Hire Purchase Act allows hire purchase suppliers to require the purchaser to insure, and to keep insured, goods that are the subject of a hire purchase transaction. The insurer must be independent. The supplier has the right to nominate the insurance company.
Section 40 of the Act makes it an offence for a supplier to require a borrower to purchase insurance against risks, or on terms and conditions, that the supplier would not require if it had arranged the insurance personally. But there is nothing in the Act to prevent a supplier from requiring “duplicate” insurance – that is, requiring insurance for an item when the borrower already has a policy that would cover it.
Section 23 of the Act specifies that a borrower who repays a hire-purchase transaction early is entitled to a rebate of the premium.
The Hire Purchase Act makes no reference to consumer credit insurance (CCI).
Credit Contracts Act 1981
The Credit Contracts Act does not currently regulate credit-related insurance.
Land Transfer Act 1952 and Property Law Act 1952
Covenants implied under these Acts oblige a borrower to insure the mortgaged property against damage by fire. The insurer must be approved by the lender.
Self-regulation of the insurance market
The Insurance Council of New Zealand and the Life Offices Association have established self-regulatory complaints resolution schemes.
The Insurance and Savings Ombudsman is one of these schemes. Approximately 75
companies participate in the scheme, and complaints
insurance provided by these companies can be heard by the scheme’s
Insurance provisions in Australian Consumer Credit Code
Meaning of credit-related insurance contract
Requirement to take out insurance or to insure with particular insurer or on particular terms
Financing of insurance premiums over mortgaged property
Commission for consumer credit insurance
Supply of copy of credit-related insurance contract by insurer
Rejection of debtor’s proposal for insurance
Termination of consumer credit insurance contract if credit contract terminated
Termination of insurance contract over mortgaged property if credit contract terminated
 C Thorp and B Ung “Trends
in household assets and liabilities since 1978” (2000). Reserve Bank of
New Zealand: Bulletin Vol. 63 No. 2, p 17. The survey does not include small
lending institutions such as cash-loan companies as the amount of money lent
taken as deposits is trivial in this
 The term “consumer bankrupt” denotes a bankrupt whose debts are of a domestic nature.
 In 1986/87 the Australian consumer-insolvency rate was 0.5 per 1,000 of the population. By 1996/97 it was 1.2 per 1,000 of the population (quoted from T Caddock (1998). Comparative Macro Statistical Overview of Bankruptcy Rates in North America and Selected Overseas Countries, Office of the Superintendent of Bankruptcy Industry, Canada p 24).
 This applies particularly to contingencies such as default.
Ministry of Consumer Affairs, (April, 2000). Consumer Credit Law Review, Part
3, Transparency in Consumer Credit: Interest, Fees and
 The Code became law in all Australian states in November 1996.
 Section 66(3) of the Consumer Credit Code. No variation to the monetary limit is currently prescribed by regulation.
 The wording of the code is: “whether, at the time the contract, mortgage or guarantee was entered into or changed, the lender knew, or could have ascertained by reasonable inquiry of the debtor at the time, that the debtor could not pay in accordance with its terms or not without substantial hardship” (section 70(2)(i)).
 A Beatty, A Smith & A
Barclay, (1997). Annotated Consumer Credit Code and Regulations,
 A Duggan and E Lanyon, (1999). Consumer Credit Law, Butterworths: Sydney, at 356-359.
 The Contracts Review Act 1980 (NSW) on which the Australian reopening guidelines were based. The reopening provisions under the both statutes have been strongly criticised by Duggan, (1991). “Some reflections on consumer protection and the law reform process”, Monash Law Review 17(2), 252, at 273-77, and Consumer Credit Law, supra.
 Consumers Institute, (August, 1998). The Reform of Consumer Credit Law in New Zealand. Also available on the Institute’s website www.consumer.org.nz/other/credit.
There may be issues under the Privacy Act 1993 as well. Information Privacy Principle One provides that information shall not be collected by any agency, unless:
(a) The information is collected for a lawful purpose connected with a function or activity of the
(b) The collection of information is necessary for that purpose.
15The Ministry notes that the review of New Zealand insolvency law currently being undertaken by the Ministry of Economic Development focuses on bankruptcy administration (i.e. the process once a borrower reaches the stage of bankruptcy) rather than on the causes of bankruptcies.
 The Credit Counselling Service is still in existence. See its Internet site at www.cccs.co.uk.
 Trade Practices Commission, (June, 1991). “The market for CCI – a study of the competition, efficiency and welfare of consumers” Report; Australian Competition and Consumer Commission, (July, 1998). Consumer Credit Insurance Review, Final Report. No studies have been conducted in New Zealand.
 For example, complaints made to the Ministry of Consumer Affairs about hire purchase contracts show little relationship between the amount of a CCI premium and the cash price of the good being financed. The premiums are often a remarkably high proportion of the cash price.
 This is the position in US case law: in Ollendorf Watch Co v Pink 17 NE (2d) 676 (1938) a seller of a watch also provided a warranty that the watch would be replaced if stolen. The Court held this went further than a warranty and deemed the contract to be one of insurance.
 As a result of the decision in Motorcycle Specialists Ltd v Attorney General (1988) 2 NZBLC 103 358, per Davison CJ. The decision concerned the application of the Insurance Companies Deposits Act 1953. This Act requires a company to make a deposit, or otherwise secure a deposit with the Public Trustee, if it is carrying on certain types of insurance business. The reasoning in this case has been criticised on various grounds e.g. D Kelly and M Ball (1991). Australian Insurance Law (2nd Ed.); U Jagose (1994). Consumer Protection Insurance in New Zealand: An Examination of Law and Practice, LLM Thesis, Victoria University of Wellington.
We are not proposing that repayment waivers should be treated as insurance for the purposes of the Insurance Companies Deposits Act or other general insurance statutes.
 The only restriction is in section 40 of the Hire Purchase Act, which requires lenders to use an independent insurer. This provision applies only in the context of a hire-purchase arrangement.
 In Australia, the supply of
goods or services on condition that the purchaser acquire goods or services from
a particular third party,
or the refusal to supply because the consumer will not
agree to that condition, is called “third-line forcing”. Third-line
forcing is illegal under the Trade Practices Act 1974.
 That is, compulsory third-party injury insurance.
 This section summarises
arguments that have been made by lenders and retailers when similar issues have
been raised in the past by
the Ministry of Consumer Affairs and the Department
 Sometimes called “concessions agreements”.
 “Unreasonable” is not defined in the Australian Code. However, Duggan and Lanyon suggest that a requirement may be unreasonable if it is unreasonably difficult to comply with, or not reasonably necessary for the protection of the legitimate interests of the lender or supplier, or where the terms of the transaction are not justified in light of the risks undertaken by the party. They also suggest that the Court may draw on the provisions for unjust contracts in section 70 of the Code, supra, at 316.
 Most banks also provide
Internet banking for consumers. This usually covers services such as account
information, bill payments, and
 Ministry of Consumer Affairs, (June, 1999). Consumer Credit Law Review, Part 1, Setting the Scene.
 There is no definition of “electronic signature”. It is understood as being any means of electronic authentication of the identity of a person and of the intent of that person to be associated with the signature.
 The remainder of this chapter owes much to the following source: Ministerial Council of Consumer Affairs, (June, 1999). Uniform Consumer Credit Code Post Implementation Review Final Report, at 106-130 (available at www.creditcode.gov.au); also E Lanyon, “Hybrid consumer credit products in the electronic age – a challenge for regulators”, Paper presented to the International Association of Consumer Law Biannual Conference, Helsinki, Finland, May, 1999; New Zealand Law Commission (1999). Electronic Commerce Part Two: A Basic Legal Framework.
These policy objectives have been detailed in the Australian context by Associate Professor Mark Sneddon (1998). “Legislating to facilitate electronic signatures and records: exceptions, standards and the impact on the statute book”, UNSW Law Journal, 21(2), 334-403. Sneddon also describes a “channelling” objective, however it appears to be indistinguishable from other objectives listed above and is therefore not discussed.
 Ministry of Consumer
Affairs, (April, 2000). Consumer Credit Law Review, Part 3: Transparency in
Consumer Credit: Interest, Fees and Disclosure. The Ministry discussed the
advantages of the Internet for price comparison between lenders and for
overcoming problems with disclosure,
such as the timing of information (section
6.3, on pp 31-32). The possibility of a centralised third-party disclosure
also raised (section 9.5, on pp
 The Ministry is satisfied that notices being lost in the post is a rare event.
 The Bill is also likely to
create a default rule for the places of dispatch and receipt.
“Place”, however, is rarely
an issue in consumer
 Ministerial Council of Consumer Affairs, supra, at 123-125.
 Lanyon, supra.
 Recommendation of the
Council Concerning Guidelines for Consumer Protection in the Context of
Electronic Commerce, December, 1999.
The guidelines are available at www.oecd.org/dsti/sti/it/consumer.
 Ministerial Council on Consumer Affairs, supra, at 118-119.