On 2 August 2022, the Minister of Commerce and Consumer Affairs announced that additional changes will be released in a further attempt to counter the unintended consequences from the implementation of the recent December 2021 changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA). This announcement came shortly following the Government’s implementation of certain clarificatory amendments in July 2022 to guide lenders in their affordability and suitability assessments. We covered these July 2022 amendments in our previous update here.
The Minister stated that while the July 2022 changes are a step in the right direction “to address the most clearly articulated concerns in the shortest timeframe”, there was more work to be done.
The August 2022 announcement by the Minister was made concurrently with the release of the final report (dated June 2022) by the Ministry of Business, Innovation & Employment (MBIE), which investigated changes to the credit market since December 2021 (Investigation Report). You can access a copy of the Investigation Report here.
The Investigation Report noted that while the intended impacts of the December 2021 CCCFA changes may take 6-12 months to be visible, financial mentors are already noticing some positive impacts in the form of better record-keeping requirements from the lenders, which is improving their ability to identify irresponsible lending.
However, the Investigation Report’s findings also show that the December 2021 CCCFA changes are having some unintended impacts, which have a contributing effect on decreased consumer lending activities across a range of consumer credit products (including home loans, personal loans, credit cards and vehicle loans) since December 2021. A range of other potential factors alongside the December 2021 CCCFA amendments have also been identified as potential influences on the decrease in lending activities, such as LVR policy restrictions, cost of living pressures and rising interest rates.
In response to the findings in the Investigation Report, the Government has announced that it will make some further regulatory changes, namely:
- To narrow the scope of expenses considered by lenders to exclude expenses which are discretionary in nature (for example, Netflix or takeaways) and only require lenders to estimate expenses which are essential or which borrowers would be “unwilling to give up if faced with hardship”.
- To relax the assumptions that a lender is required to make in relation to revolving credit contracts (such as credit cards and buy-now-pay later products) for borrowers “who use these facilities for day-to-day transactions and pay them off quickly”.
- To broaden the exception to the full affordability assessments for a refinance or debt consolidation under the CCCFA regulations so that a borrower is able to refinance with lenders other than their existing lenders where this is in the best interest of the borrower.
These changes are expected to come into force in mid-March 2023.
While the Government attempts to strike a healthy balance between ensuring access to consumer lending and protecting vulnerable consumers, it is important that you are prepared to navigate the ever-changing credit market.
If the latest CCCFA amendments may affect your lending business, feel free to reach out to the Banking and Finance team for advice on how to best prepare for these changes.
