On Friday morning Commerce and Consumer Affairs Minister David Clark revealed a set of proposed changes (see below) to Credit Contracts and Consumer Finance Act CCCFA regulations and the Responsible Lending Code, which came into effect on the 1st December 2021.
The Ministry of Business, Innovation and Employment (MBIE) are in consult with the industry on the proposal and initial changes are scheduled by June. The Council of Financial Regulators, which includes representatives from MBIE, the Financial Markets Authority, Treasury, Reserve Bank and Commerce Commission, will keep investigating issues around the CCCFA more broadly.
The proposed changes shows some aspects clarified and others completely changed.
They’re largely aimed at removing the risk of lenders interpreting the rules too conservatively, removing the blanket requirement for lenders to go through borrowers’ spending habits with a fine-tooth comb, and recognising borrowers’ spending habits may change once they take on debt.
Below is a summary of the proposed changes – in David Clark’s words:
- Removing regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into when assessing the borrower’s future expenses.
- Clarifying that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions.
- Clarifying that where lenders choose to estimate future expenses from recent bank transaction records, they are permitted to obtaining information about how their current expenses are likely to change once the contract is entered into.
- Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records.
- Providing further guidance on when a lender needs to allow for a ‘reasonable surplus’ (the amount left over when the borrower’s estimated expenses are subtracted from their income) and how lenders should set surplus requirements.
- Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.