CCCFA update: new insights into upcoming changes

Both lenders and customers are likely to welcome upcoming changes to the Credit Contracts and Consumer Finance Act (CCCFA) – read on for an outline of the reforms.

Phase one of the financial services reforms includes repealing the CCCFA’s prescriptive affordability regulations altogether. Click here to read the full April 2024 announcement from Commerce and Consumer Affairs Minister Andrew Bayly.

If you have questions about the upcoming changes or your obligations under the CCCFA more generally, please contact our Banking and Finance team.

Phase one details

While the finer details are expected to be confirmed “within the coming months”, we expect the proposal will be welcomed by both lenders and customers in the first instance.

The current regulations were intended to clarify what constitutes “reasonable inquiries” when assessing customer affordability, however, in practise the requirements were considered highly prescriptive. This often translates into disproportionately high compliance costs for lenders, and hurdles for customers.

A key thing to note is that repealing the regulations will not affect the overarching responsible lending principles. Lenders will still need to make “reasonable inquiries” when assessing customer affordability.

However, rather than working through a prescriptive checklist, lenders will instead be guided by the responsible lending principles when designing affordability assessment procedures that are fit for purpose.

In theory, this should provide greater flexibility for lenders. However, it remains to be seen whether the proposed repeal will result in any substantive change for lenders in terms of their current credit assessment process. This is because the Minister has also signalled that the Responsible Lending Code will be updated to clarify for lenders how they are expected to ensure compliance with the lender responsibility principles.

As they say, the devil is always in the detail.

Additional phase one changes

Several other changes will be introduced in the first phase of the reforms, including:

  • Standardisation of the rules for the four approved financial dispute resolution schemes (Banking Ombudsman, the Insurance and Financial Services Ombudsman, Financial Services Complaints Limited, and the Financial Dispute Resolution Service). This includes an increase in the maximum compensatory amount to NZ$500,000 across all four schemes.
  • New exemptions for local authorities under the CCCFA for voluntary, targeted rates schemes from 25 April 2024 – for example, loans to install insulation or heat pumps.

Phase two changes

 As part of the announcement, the Government provided insight into what will be included in the second phase of the reforms, including: 

  • Legislative reforms to facilitate the transfer of CCCFA regulatory obligations from the Commerce Commission to the Financial Markets Authority.
  • Review of the liability settings for directors and senior managers of lenders under consumer credit contracts, disclosure obligations and high-cost credit provisions in the CCCFA.

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