FSF backs finance review
A new vision for regulating New Zealand’s financial services sector to recognise that not all Kiwis are vulnerable consumers is a step in the right direction, says the Financial Services Federation (FSF).
In response to plans officially announced by Andrew Bayly, Minister of Commerce and Consumer Affairs, the FSF feels the sector is now being listened to.
“We will always support the intent to protect vulnerable consumers,” says Lyn McMorran, pictured, the federation’s executive director.
“But the sector signalled in 2018 – in submission after submission – the negative consequences which the overly prescriptive Credit Contracts and Consumer Finance Act [CCCFA] affordability regulations would have on everyday New Zealanders’ access to credit.
“We are just as committed now as we were then to get a better outcome for businesses and consumers.
“We are delighted to be part of the conversation about how the regime could be improved to ensure all New Zealanders, including those in vulnerable circumstances, can access responsibly provided credit when they need it.”
The FSF fully supported initial changes to the CCCFA that put a definition into the law of high-cost lending, and the parameters on high-cost loans with respect to maximum interest and fees that could be applied to these.
It believes these changes have had the desired effect of limiting the amount of high-cost lending taking place.
McMorran says: “The FSF will be working with the minister and his officials to develop a CCCFA regime that will provide necessary protections to consumers who need them, but which doesn’t treat every borrower as being vulnerable or incapable of managing their own finances.
“We have already provided some suggestions as to how this could be achieved to provide a sustainable regulatory framework for consumer credit that will serve consumers for years to come.”
As for over-regulation, the FSF agrees with Bayly that successive governments – albeit with the right intentions – have added layer upon layer of compliance requirements on financial services without any of them stepping back and looking at the overall regulatory framework to consider where there are overlaps or gaps.
The resultant complex licensing regimes for various aspects of a financial services provider’s business have “sadly led to a lack of access to appropriate products for many consumers”.
The FSF cites the CCCFA’s affordability regulations as an example. Rather than protecting vulnerable consumers from irresponsible lending practices as they were intended to do, they have resulted in many people being excluded from access to responsibly provided credit because they don’t tick all the boxes.
The question is, poses McMorran, since the need is still there where do they then go? “It has also led to higher compliance costs for providers, which are inevitably passed on to the customer,” she adds.
As for the Conduct of Financial Institutions (CoFI) Act, the FSF also supports the minister’s request to the Financial Markets Authority (FMA) that it issues clear guidance for smaller institutions to meet conduct requirements.
FSF agrees with the Bayly that it’s essential all financial services providers have fair-conduct programmes that cover aspects of their businesses that ensures they:
• Engage appropriately with clients and customers.
• Develop new policies and products to be fit for purpose, and meet regulatory requirements.
• Establish transparent fee structures and charging arrangements, particularly if they work with intermediaries.
• Have an adequate complaints process.
In the FSF’s view, more work needs to be done to be certain that Bayly’s suggestion of moving enforcement of the CCCFA from the Commerce Commission to the FMA will lead to lower compliance costs for institutions.
“It’s the experience of FSF members subject to the CoFI regime that levies they will pay to the FMA to regulate their conduct has added significant further compliance costs,” says McMorran.
“There’s the question as to whether the cost for the FMA to set themselves up as the consumer credit regulator would also be passed on to their regulated entities.”
That said, the FSF is pleased the government is listening to the concerns of financial services providers with respect to the complexity of the regulatory framework, and that the minister is committed to improving it for both regulated entities and consumers.
