What the recent CCCFA lending rule changes mean for consumers
We explain some of the new Credit Contracts and Consumer Finance Act (CCCFA) lending rules, what they mean for consumers and what’s happening next.
Stories of borrowers finding their loan applications unexpectedly declined by banks have been widely reported since new CCCFA rules kicked in on 1 December 2021. We’ve had similar complaints from consumers struggling to get finance – from home loans to credit cards.
It’s a rapidly changing situation. Here are the basics about the new lending rules, and what might happen next.
What is the CCCFA?
The CCCFA sets out rules that lenders must follow when lending you money. A range of new rules have kicked in over the past two years following a government review of the legislation in 2018.
These changes range from tougher penalties for irresponsible lending to interest-rate caps on high-cost loans or payday loans.
The legislation is aimed at protecting consumers from bad debt and preventing them from taking on too much debt.
On 1 December last year, more changes came into effect including:
- New prescriptive requirements for lenders to follow when assessing the affordability and suitability of loans.
- Duties on bank directors and senior managers to exercise due diligence and penalties (of up to $200,000) for failing to comply.
- New minimum advertising standards.
- Additional disclosure requirements before debt collection begins.
What do the new rules mean for consumers?
The new rules mean consumers are having to jump through more hoops to get credit and lenders are having to do more digging.
There are exceptions in the rules that allow lenders to avoid a deep dive into your finances, such as where preliminary inquiries suggest the borrower will be able to make repayments without suffering hardship. But we’re yet to hear of any bank using this exception.
The CCCFA requires lenders to assess whether a loan is suitable for the borrower and ensure the borrower can make repayments without suffering financial hardship.
Lenders must make “reasonable inquiries” into your financial information to make this assessment but are no longer able to rely solely on information you provide.
So, if you’re applying for a loan you’ll likely be asked to provide three months’ worth of bank statements plus other financial information. Your spending habits may be scrutinized, as well as your income, credit score and any debts including buy now, pay later payments.
There have also been reports in the media of borrowers being denied credit unexpectedly.
Consumers have come to us with similar stories – it has affected a range of people from those applying for a home loan via a mortgage broker to those applying for a credit card.
However, it’s unclear whether it’s the new rules that are causing this or the banks’ interpretation and application of these rules, or elements of both.
The Minister for Commerce and Consumer Affairs David Clark has ordered an investigation by the Council of Financial Regulators into how the new rules are affecting people.
This investigation is currently underway. Advice based on the investigation’s findings is due to be published in April.
On Friday 11 March, Minister Clark said changes would be made to the responsible lending rules to curb any “unintended consequences” caused by the CCCFA.
Some of the proposed changes include:
Clarifying that when borrowers provide a detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
Removal of regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into
Providing alternative guidance and examples for when it’s ‘obvious’ that a loan is affordable
“These initial changes ensure borrower-ready Kiwis can still access credit while we continue to protect those most at risk from predatory and irresponsible lending,” Minister Clark said.
“It must be stressed, today’s changes are not the final word and any further changes to credit laws and the Responsible Lending Code will be considered as part of the remainder of the investigation which is due next month,” he said.
We supported changes to the CCCFA to protect vulnerable consumers. But the rules are creating issues for consumers which need to be investigated and addressed.
We, therefore, support the investigation into how these rules have been implemented and the effect it’s had on consumers and eagerly await the investigation’s findings in April.
Meanwhile, if you’ve been affected by the new CCCFA lending rules, we want to hear from you. Email: [email protected].