The Commerce Commission says failure by lenders to disclose key information to borrowers in their consumer credit contracts could result in the repayment of all fees and interest on each loan for the period until disclosure is corrected.
It says changes to the Credit Contracts and Consumer Finance Act 2003 in June 2015 mean ldners must disclose specific key information to borrowers.
This includes including the term of the loan, total amount, interest, fees, any security taken and the effect of that security, and the borrower's right to apply for relief on grounds of unforeseen hardship.
The Commission says it has been active in enforcing the law changes and currently has a number of investigations underway involving lenders that have not complied with their disclosure obligations.
Commissioner Anna Rawlings says the consequences for lenders of failing to disclose key information to borrowers are significant.
"If that key information is not adequately disclosed, lenders are unable to enforce any interest or credit fees during the period of non-compliance. For some lenders this could run into the millions of dollars," she says.
Ms Rawlings says that in April 2016 Cash in a Flash returned over $120,000 to customers after being warned by the Commission that it was likely to have breached consumer credit laws.
"The law applies to lenders of all sizes and types, from small payday lenders through to our major banks. The responsibility to ensure contracts comply with the law rests squarely with those lenders and it is essential that they ensure their disclosure documents have been reviewed and they are satisfied that the documents contain all of the relevant key information required by the CCCFA," she says.
"If a lender finds their documents don't contain all the key information they should seek legal advice immediately. We would recommend that they update the documents and disclose the missing information to all their current debtors as soon as possible."