FinCap disappointed in safe lending changes
FinCap is disappointed that the Consumer Affairs Minister has indicated changes to current legislation that could lead to directors and senior managers no longer being held personally liable for breaches of the Credit Contracts and Consumer Finance Act (CCCFA).
Currently, a director or senior manager can be fined up to $200,000 if their bank or finance company has inadequate processes in place to ensure it lends responsibly.
FinCap senior policy advisor Jake Lilley says financial mentors have observed that the due diligence duty and personal liability settings are likely a factor in lenders across small and large institutions taking community concerns about potential CCCFA breaches more seriously.
"We have recognised less irresponsible lending since the introduction of the due diligence duty and personal liability for decision makers at lenders," he says.
FinCap is also disappointed that the Minister’s earlier view that high-cost credit provisions should be lowered to contracts with 30% per annum interest has not transpired.
"Loans with over 30% per annum interest are high cost for most whānau and especially for those seeking financial mentor’s support.
However, we are pleased to see the high-cost credit protections endure through a change of Government. These are preventing a repetition of some of the most egregious and predatory lending from the past.
"FinCap will continue to work closely with regulators and encourage borrowers and their financial mentors to reporting irresponsible lending to the relevant regulator."
Meanwhile, Cabinet has also agreed to require consumer credit lenders to hold a licence with the Financial Markets Authority (FMA).
Lilley says FinCap supports this move.
"We believe licensing will allow the FMA to prevent irresponsible lending practices in a more timely manner. Now is also a good time to improve regulator visibility of debt collection markets through licensing.
"We want regulators to keep an eye on debt collectors and to prevent harrasment or coercion to meet unreasonable demands for payment that can potentially lead to child poverty."
Specialist lenders welcome financial reforms announcements
The Financial Services Federation (FSF) welcomes the Government’s announcement on further plans to make it easier for Kiwis to access responsibly-provided credit when they need it.
“Removing the substantial and unindemnifiable personal liability of directors and senior managers of consumer credit providers is a step in the right direction, says FSF Executive Director, Lyn McMorran.
“We support fair and robust enforcement penalties, however this has impacted the risk appetite for lenders and competition to banks, particularly for smaller lenders, as a $200,000.00 fine is a substantial personal liability for a director or senior manager of a small finance company.
“It’s ended up being a deterrent for good people to enter the sector and those already there to put their hand up for senior roles. It has not served New Zealand’s financial services system well, especially when we need to be boosting an environment for competition, and we are pleased that the Government is addressing this.
“These changes will still mean lenders have robust responsible lending obligations and must abide by the principle that they will not lend to people who cannot afford to repay, and enforcement of this law will be key.”
“In principle, we are not opposed to the transition of regulation for consumer credit transitioning from the Commerce Commission to the Financial Markets Authority.
“The devil will however be in the detail, and we look forward to seeing the draft legislation once the consultation period opens.
“One thing we will be watching closely will be the new cost to lenders, and advocating for fair compliance costs that consider proportionality, not a one-size-fits-all.”
A LAWYER'S VIEW
Minter Ellison says the reforms represent a significant shift in how lending is regulated, balancing the need for greater flexibility with the demand for responsible lending.
By alleviating personal liability concerns and adjusting the burden of proof for disclosure errors, the Government aims to make it easier for lenders to operate without compromising consumer protections.
At the same time, the introduction of new FMA licensing requirements and enhanced enforcement powers reflects the Government's continued commitment to regulating the financial services industry effectively. The improvements to dispute resolution schemes also signal an effort to create a more consumer-friendly financial landscape, offering borrowers clear avenues to seek help if disputes arise.
The reforms to the CCCFA will be welcomed by consumer lenders although the devil will be in the detail to see if they go far enough to alleviate all the perverse consequences of the existing regime.
Our leading CCCFA team has been working hard to advocate for a more balanced regime focussed more squarely on consumer protection and predatory lenders and will monitor these changes with interest.
For those lenders who are not currently required to hold a conduct licence for any part of their business, the licensing requirement will be a significant change.
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