Client Newsletter

Thursday, 17 March 2022

Credit Contracts and Consumer Finance Act Update

We have received the following notice from MBIE.

As you'll likely be aware, the Minister of Commerce and Consumer Affairs asked MBIE to take a closer look at the changes to the Credit Contracts and Consumer Finance Act (CCCFA) and regulations made late last year, in collaboration with other members of the Council of Financial Regulators (CoFR). The initial findings from this investigation suggest that while there's an early indication that the new affordability and suitability measures are having some of the intended impact, a number of potential unintended consequences has also emerged. On Friday 11 March 2022, the Minister announced that the Government would be making practical amendments to responsible lending rules to curb any unintended consequences caused by the recent change. The proposed changes include:

  • Removing regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into when assessing the borrower's likely 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' 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.

Both the draft regulations and draft changes to the Responsible Lending Code will be released for public consultation. We will be in contact in the coming weeks to provide you with details on how you can be involved and have your say.

It is important to note that these are only initial changes and as these proposals are progressed, the remainder of the investigation will continue. Any further changes to credit laws and the Responsible Lending Code will be considered as part of the remainder of the investigation, which is expected to conclude in April. For further details on the Ministers recent announcement, the Cabinet paper outlining the CCCFA investigation initial findings and proposals, and the CCCFA investigation please see the below links.

Ministers recent announcement can be found here on the Beehive website.

Cabinet paper on the CCCFA investigation initial findings and proposals can be found here on MBIE's website.

Detail on the investigation can be found here on MBIE's website.