The government has started its changes to the Credit Contracts and Consumer Finance Act (CCCFA), by repealing some parts of it.
Commerce Minister Andrew Bayly and Housing Minister Chris Bishop said the government is revoking 11 pages of what it calls "overly prescriptive affordability regulations," introduced by the previous government.
“These regulations created unnecessary compliance costs and are an excessive barrier for lending. And worse, the regulations failed to protect the most vulnerable Kiwis – the very people they were intended to safeguard," the ministers said in a statement.
“When the affordability regulations were introduced into the CCCFA in December 2021 it threw a bucket of cold ice over banks and financial providers by prescribing minimum steps to assess the affordability of a loan. 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.
They went on to allege it was no longer affordable for many providers to offer small loans.
"It became very difficult for everyday Kiwis, who need $500 to fix their broken-down car, to access a safe line of credit. They were effectively frozen out of the market and many vulnerable Kiwis were instead forced to borrow from high-interest loan sharks,” Bayly said.
Bishop says the time it took to process a home loan increased substantially and thousands of Kiwi families, who would have previously qualified, were locked out of the market.
They say the changes being made will make the home loan application process simpler for borrowers.
“The previous government tried to amend the regulations, but they failed to fully address these unintended, bad outcomes. Lenders are still required to treat all borrowers with the same amount of risk regardless of whether they want a $1,000 overdraft or $1 million home loan,' the ministers say.
Under the proposed changes lenders will have act responsibly and ensure lending will not cause hardship, but lenders will not have to follow a prescriptive, one-size-fits-all process, Bayly says.
Besides revoking the affordability regulations the government is introducing a package of reforms by regulations that include:
- Improve dispute resolution to better protect consumers
- Exempt councils from the CCCFA so they can offer low-risk financial products to help households improve their energy efficiency by installing heat pumps and insulation
- Remove duplicate reporting requirements
“This is only the first phase of financial reforms. We will open public consultation on a range of matters in the coming weeks, including other known pain points,” Bayly says.
