Overhaul to lending rules

The government has announced it will reform financial services to try to make it easier for New Zealanders to get loans.

The changes to the Credit Contracts and Consumer Finance Act (CCCFA) were revealed by Chris Bishop, Minister of Housing, and Andrew Bayly, Minister of Commerce and Consumer Affairs, on April 21.

A shake-up of the regulations comes as part of the National-Act coalition agreement to update the legislation.

In the coming months, the government will remove requirements around loan-affordability assessments from the regulations.

That means lenders will be able to decide whether they need to see an applicant’s recent transactions and check all income sources. They will no longer have to check what applicants spend on food, utilities and so on.

Finance providers will be able to use discretion to decide how thoroughly they investigate how a prospective borrower’s assets or inheritance would affect their repayments.

Cabinet has also agreed to a more in-depth review of the CCCFA “to address areas of under-performance, including liability settings and disclosure obligations”. It will also consider if there’s sufficient regulation around products or lenders offering high-interest loans.

“We are revoking 11 pages of overly prescriptive affordability regulations, introduced by the last government, to enable Kiwis to access finance with confidence,” says Bayly, adding the regulations have created unnecessary compliance costs and amount to an excessive barrier to lending.

The changes will still require lenders to act responsibly, but they will not have to follow a prescriptive, one-size-fits-all process, he says.

“When the affordability regulations were introduced into the CCCFA in December 2021, they threw a bucket of cold ice over banks and financial providers by prescribing minimum steps to assess the affordability of a loan,” adds Bayly.

“The overly arduous checks meant the time it took to process loans dramatically increased. Lenders told me that a small loan that used to take two hours to process suddenly took up to eight hours.”

He says it has become difficult for people to borrow $500 – for example, to repair their vehicles – forcing them to go to high-interest loan sharks.

Bishop adds the time it now takes to process a home loan has increased substantially, making it harder for people trying to get into the market.

However, Labour has warned the government’s changes are likely to put lenders at greater risk from loan sharks.

Arena Williams, the party’s spokesperson for commerce and consumer affairs, says: “It’s important that New Zealanders can access safe, responsible and affordable credit. Kiwis can expect less protection from loan sharks and unaffordable debt.

“Labour responded to feedback, especially from first-home buyers, that banks had gone too far. We made the initial set of changes to strike the right balance and ensure everyone can access credit effectively.”

While the CCCFA has been praised by some for protecting people from predatory lenders, the financial-services sector in particular has criticised as too unwieldy.

The previous government relaxed the rules in May 2023 and July 2022 after conceding changes it made in December 2021 had resulted in “unintended impacts”.

Requirements for assessing the affordability of loans are expected to be revoked in the coming months and “redundant” Covid-19 exemptions from the CCCFA will also be removed. That will be followed by the responsible lending code being updated.

By April 25, companies whose primary business is non-financial goods and services, such as certain car dealers, will be fully exempted from duplicative reporting requirements under the CCCFA.

By the same date, local authorities will be exempted from the CCCFA to allow them to administer voluntary targeted-rates schemes, such as loans to install insulation or heat pumps, without incurring unnecessary compliance costs.

Earlier this year, Bayly announced the responsibilities for overseeing CCCFA would shift to the Financial Markets Authority from the Commerce Commission.

Dispute resolution changes

The rules governing the Insurance and Financial Services Ombudsman (IFSO), Banking Ombudsman, Financial Services Complaints Ltd (FSCL) and Financial Dispute Resolution Service will be aligned.

The maximum amount that can be awarded under the schemes will increase to $500,000 with the government looking to have rules enabling the changes in place by July 18.

It is also supporting the proposed merger of the IFSO and FSCL from July 1 next year. It’s hoped that this move, which was announced on April 19, will assist in streamlining services, creating operational efficiencies and removing duplication.

More changes on the way

The second stage of reforms will include streamlining the CCCFA, Financial Markets (Conduct of institutions) Amendment Act and Financial Service Providers (Registration and Dispute Resolution) Act. Public consultation is set to start in early May.

The review of the CCCFA will include liability settings, disclosure obligations and high-cost credit provisions.

The government will also look at the effectiveness of the financial dispute resolution system, and transferring responsibility for the CCCFA to the Financial Markets Authority.

Regime requirements into the conduct of financial institutions regime, and reviewing the conduct licensing framework in the Financial Markets Conduct Act to ensure there is balance and flexibility, are also on the table.