Mortgage lending should be removed from CCCFA

If ever there was a law designed to do good but in need of a rewrite, it is the CCCFA.

While it’s clear that a heap more financial services regulation under the new coalition government is unlikely, it will rewrite the Credit Contracts and Consumer Finance Act (CCCFA).

The National-Act coalition agreement puts the rewrite as a priority “to protect vulnerable consumers without unnecessarily limiting access to credit”.

That aligns with clause 48 of National’s 100 point plan to “cut financial red tape that is stifling investment, including significantly reducing the scope of the CCCFA which has restricted access to credit”.

How, and to what extent, the CCCFA will be revised is yet to be determined, but mortgage adviser and Advice HQ founder David Green says mortgage lending should be taken out of the CCCFA and given its own legislation.

“Everything is tied up in red tape, whether it’s a mortgage, credit card, business loan or even a truck loan. This blanket worst case scenario approach basically just doesn’t work and is not productive.”

He says the big problem is the application of rules for credit cards and personal loans to mortgage lending. “The risks around security over personal loans and mortgages are very different and should be applied differently.”

Green says if the CCCFA red tape is removed and mortgages are treated like mortgages then that can only be good for the economy and all parties.

“All the CCCFA rules have done is put the balance way down the conservative end of town, when in fact, banks are relatively careful on what they do anyway, and essentially there's never been a problem to solve.”

He says it is always a balance between having credit freely available so markets, businesses and people can operate versus being conservative enough to manage the risk. “The pendulum of CCCFA changes have gone too far the other way for mortgages that are secured against residential property.”

Before the election National’s commerce and consumer affairs spokesman Andrew Bayly, now the minister, said the 2021 legislation and subsequent amendment regulations would be repealed.

He said from there the new government would create a set of regulations, so high cost lenders – the CCCFA intended to target – wouldn't prey on vulnerable New Zealanders who can’t get credit elsewhere are forced to use payday lenders.

However, he said, this may not be enough because some of the tightened lending behaviour by the banks over the past three years is now ingrained into their processes.

Registered banks and non-bank lenders were caught up in the prescribed CCCFA rules and mortgage lending almost stopped in 2021 until tweaks were made to the legislation twice with a third on the cards until it was dumped at the recent election.

The central problem never addressed by the previous government was that directors and senior managers at lending institutions can be personally fined as much as $200,000 for breaching the Act, while companies could be fined up to $600,000. They cannot take out insurance to cover their risk.

That big stick made banks overly cautious around requirements to ensure a “reasonable surplus” after borrower’s expenses.

“A big issue with the affordability directives is they are one size fits all, whether a borrower is seeking a loan from a major bank or a payday lender,” says Green.

To supplement the new requirements, MBIE issued an updated version of the Responsible Lending Code. However the flowchart, which was intended to simplify matters, highlighted the complexity of the new regime and the decision points lenders had to navigate.

Financial Advice New Zealand former chief executive Katrina Shanks said repeatedly the most significant hurdle to the ease of mortgage lending was the directors and senior managers personal liability under the Act.

Shanks said the ease with which borrowers can obtain credit won’t return to pre-2021 levels until the liability provisions have been relaxed – something a new government can do.

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