‘Marked decline’ in car loans

An investigation ordered by the government has revealed changes made to the Credit Contracts and Consumer Finance Act (CCCFA) last year led to a “marked decline in new vehicle loans”.

A report from the Ministry of Business, Innovation and Employment (MBIE) says amendments to the laws in December last year had resulted in a number of unintended consequences.

The study found more borrowers across all lending types who should pass the affordability test are subject to declines or reductions in credit amount.

MBIE adds borrowers are also subject to unnecessary or disproportionate inquiries that are perceived as intrusive.

The findings of the investigation, which MBIE conducted alongside the Council of Financial Regulators, notes a subgroup of non-bank lending institutions are focused in the vehicle lending sector to households. 

“Reserve Bank of New Zealand [RBNZ] data shows lending from this sector fell 0.5 per cent in the year to February 2022,” the report says. 

“The stock of vehicle consumer loans has been relatively flat for the past six months and increased by $4.6 million from December 2021 to reach $1,533.7m in February 2022. 

“It is hard to discern if CCCFA changes have had an impact on vehicle finance loans at an aggregate level.

“In contrast to RBNZ data, credit reporting agency data shows a marked decline in new vehicle loans from December 2021. This may signal that the amount of outstanding vehicle loans will fall in the coming months.”

Monthly index of new vehicle loans

‘Restrictive’ processes

The investigation says the unintended impacts of the CCCFA changes meant lending processes have “become more restrictive and onerous than was expected” when the regulations were introduced.

“This is a consequence of the way a number of specific provisions in the regulations are designed and drafted, combined with interpretational difficulties and many lenders taking a naturally conservative approach to compliance given the CCCFA’s strong liability regime,” it adds.

“The prescriptive nature of the CCCFA changes and their application to almost all consumer lending also mean that lending has been impacted outside of high-risk consumer lending.”

The summary of the report, titled Early implementation and impacts of 1 December 2021 credit law changes, notes that financial mentors and consumer advocates suggest most of the benefits sought by the CCCFA changes will take six to 12 months to be visible. 

“While it is too early to say whether or not the CCCFA changes are likely to be successful in achieving their intent, financial mentors have already reported that the CCCFA changes, particularly new record keeping requirements, have increased their ability to identify irresponsible lending and to make complaints to dispute resolution schemes.”

Officials completed their investigation ahead of the government introducing tweaks to consumer finance laws and the responsible lending code in July, which were designed to address some of the unintended consequences of the original changes.

David Clark, Minister of Commerce and Consumer Affairs, announced a further set of proposals to adjust the regulations on August 2, at which time MBIE’s report was also made publicly available.

The suggested amendments include narrowing the expenses considered by lenders, providing more flexibility for lenders about how certain repayments may be calculated, and expanding exceptions from a full income and expense assessment for refinancing of existing credit contracts.

A consultation period on the latest changes is due to commence in September and if the plans are approved by cabinet they will come into force in March 2023.