The code provides guidance on the new lender responsibility principles in the Credit Contracts and Consumer Finance Act. Both come into force on June 6.

Commerce and Consumer Affairs Minister Paul Goldsmith said the code and the lender responsibility principles will give greater protection to consumers when they borrow money.

“They will allow borrowers to have better access to information, and better protection from those lenders who engage in predatory practices. At the same time, they will keep down compliance costs for those lenders who already have good, responsible systems in place.”

The code itself will not be binding, but evidence of compliance with it will be considered evidence of compliance with the binding lender responsibility principles set out in the Act.

Goldsmith said while most lenders already follow responsible lending practices with their customers, a percentage of lenders – such as loan sharks and unscrupulous payday lenders – do not.As such, the code is meant to target these types of lenders who prey on vulnerable consumers.

Mortgage Supply Company chief executive Jenny Campbell said the advent of the code and lender responsibility principles won’t have a massive effect on the market, although they will be taken seriously.

She said most lenders learned valuable lessons from the GFC and already conduct business responsibly. “Most lenders realise they need to be sure that consumers can actually afford to repayloans.”

However, she said it seemed banks were going to address the issue with some changes to their servicing calculations.

“They will probably collect more data for their calculations in order to make sure that their new lending is not too onerous on their customers.” 

Meanwhile, New Zealand Bankers Association chief executive Kirk Hope said he welcomes the code because it will provide greater protection for vulnerable people.

But proper enforcement will have to play a crucial role in the code’s success, he said.

“Regulators will need to be vigilant to ensure the code, and the law behind it, meets its stated aims of cracking down on loan sharks and other unscrupulous lenders.”