Law changes ‘big improvement’

The Financial Services Federation (FSF) hopes the latest changes to lending laws being put forward by the government will be the last for some time and will help free up access to credit for consumers.

However, it warns the amendments will come at a cost to finance companies and dealers as they have to unwind some of the processes put in place ahead of an ill-fated shake-up of the Credit Contracts and Consumer Finance Act (CCCFA) at the start of December last year.

The government has already made tweaks to the legislation this year and plans for further changes to the CCCFA and responsible lending code to address remaining unintended impacts of December’s overhaul of the laws are now out for consultation.

The new measures aim to narrow the expenses that are considered by lenders and relax assumptions lenders were required to make about credit cards and buy-now pay-later schemes. 

Helping make debt refinancing or debt consolidation more accessible, if appropriate for borrowers, is also part of an exposure draft released by the Ministry of Business, Innovation and Employment (MBIE) on September 22. The period for feedback on the proposals runs until October 20.

Lyn McMorran, FSF’s executive director, says the latest measures are a “big improvement” from the “minor” tweaks that came into force in July.

“This exposure draft looks to have a more sensible approach to how discretionary expenses are taken into account by lenders,” she told Autofile Online.

“We have not had a chance to get feedback from members yet as to how we respond to the consultation document but on the first take it looks a much better attempt then the first round of changes by the government.

“The last time we responded to government tweaks our submission ran to 30 pages, so this one will be another big one to make sure the interpretation of the act is correct.

“It would be nice to think that once these changes are implemented it will free up access to credit and puts the CCCFA to bed for a while so everyone can just get on with doing business.”

McMorran, pictured, says the latest proposals will remove the need for detailed conversations with consumers around their discretionary expenses, such as is owning a pet discretionary. 

She adds they will also allow consumers to take control over their expenditure, which is what the FSF was hoping for.

“I think the new rules will allow lenders to take into account a consumer’s fixed expenses and then whatever is discretionary is treated exactly as that. 

“Even if consumers choose to continue with discretionary items, they still have an obligation to meet their loan commitments but these changes will give the power back to consumers again.

“It might also make the processing times shorter because lenders won’t have to go through every single expense line and ask whether those outgoings will continue once the loan is drawn down.”

Compliance costs

David Clark, Minister of Commerce and Consumer Affairs, announced the first round of changes to the laws in March this year following a sharp decline in the percentage of loan approvals since the CCCFA was updated on December 1, 2021. 

He revealed a further batch of alterations to finance rules in August following his consideration of a review of the implementation of the CCCFA by MBIE and the Council of Financial Regulators.

While those measures are now out for consultation, MBIE notes the changes to regulations and the responsible lending code are not expected to come into force until March 2023.

McMorran says the FSF is glad to see the changes but members remain disappointed industry concerns from the outset about the overhaul of the CCCFA  went unheeded.

She notes lenders and dealers spent considerable amounts of time and money in preparing for the December shift and will also have to invest in adjusting their processes again.

“The compliance cost to lenders to get themselves ready for the prescriptive regime that came in on December 1 were huge – in the millions for some of our larger lenders and proportionately large for lenders of all sizes,” she explains. 

“This included changes to documentation, significant project costs and costs associated with systems changes, staff and dealer/agent training, etc – the list goes on. 

“There are going to be costs – although probably not quite as significant – to unwind this process particularly with respect to systems changes and staff training.” 

McMorran laments that FSF members will ultimately have spent 15 months operating in a “prescriptive, silly regime” it warned was not going to work in the first place before a more common-sense system for lending is back in place next year.

She adds the changes and consultations that have happened since December could also have been avoided if industry had been listened to from the start.

“This should never have happened if there had been some sort of process within government to sense check regulation, particularly when industry was so vocally opposed to it and could put up all sorts of reasoned arguments against it.

“Those reasons were not just for the sake of self-interest but also because of the clear impact it would have on consumers. But we weren’t listened to,” she says.

“We’re pleased we’re getting to a sensible place some time next year but it is frustrating having so many months of suffering a regime that was very badly put together in the first place.”