CCCFA reaction: a return to common sense

It will make credit more accessible for all consumers, says Lyn McMorran, FSF executive director.

In a major move to free up lending by banks and financial institutions, commerce and consumer affairs minister Andrew Bayly and housing minister Chris Bishop say they want Kiwis to access finance with confidence.

The FSF is the industry association for non-bank lenders and McMorran says the changes won’t open the floodgates to irresponsible lending.

“The CCCFA still requires lenders to abide by the principle that they will not lend to people who cannot afford to make the repayments without hardship and there are still substantial penalties for lenders who breach this principle.”

Under the previous Labour government, the affordability regulations required lenders to examine borrowers’ expenditure to such a granular level that responsible lenders were often unable to assist people in need of access to finance.

They effectively treated every borrower as being in vulnerable circumstances, even when they were not, McMorran says.

Bayly says while the overly prescriptive rules will go, in many cases lenders will still need to carry out inquiries.

"Whilst we're giving greater discretion to lenders to work out appropriately how they're going to assess affordability, the other side of the coin is strengthening the dispute mechanisms. Also, I've asked the Commerce Commission to pursue with vigour any poor actors."

McMorran says the changes will make the process of obtaining credit for all purposes, including buying a home and taking out small personal loans for situations like car repairs, easier and less intrusive for all consumers.

While FSF members are keen on the new changes, McMorran says they have been fully supportive of the CCCFA defining a high-cost loan and placing limits around the amount that can be charged in interest and fees under such loan contracts. “But there has been a significant increase in responsible lenders having to decline loan applications from people they would have been able to before the introduction of the affordability regulations in December 2021.”

Borrowers’ needs have not disappeared just because a lender is unable to assist them. The alternative for these people is to seek credit from loan sharks, McMorran says. 

Bringing back flexibility

New Zealand Banking Association chief executive Roger Beaumont says the Government’s changes should help fix the one-size-fits-all approach that treats all types of lending and borrowers the same.

“This will help bring back flexibility and discretion for banks to help customers in need, for example in emergency situations, and better recognises that banks already have their own prudent lending policies, which help ensure borrowers can afford to repay any debt.”

Aside from the lending rules, Bayly is ringing in other significant changes, such as reducing personal liability for directors and senior managers.

Beaumont is pleased to see moves to simplify other matters in the CCCFA, especially personal liability for directors and senior managers, the requirements for disclosure of information to borrowers and the updating of the Responsible Lending Code guidance, to get the balance right and help ensure consumers don’t see a prescriptive approach reintroduced.