As all consumer lenders are very aware of, on 1 December 2021 several major changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) came into force. Central to the changes is increased prescription on the scope of lenders’ suitability and affordability assessments.
Since the changes have come into force, the media has highlighted difficulties consumers now face obtaining credit. Examples include loan applications declined reportedly on account of excess spending on takeaways or streaming service subscriptions or high net worth retirees being criticised for what many would consider as enjoying their life.
Due to these media reports and important efforts to highlight the issues by key players in the credit market, the Commerce and Consumer Affairs Minister David Clark has brought forward an inquiry by the Council of Financial Regulators (comprising the Reserve Bank, Treasury, Financial Markets Authority, MBIE and Commerce Commission) into the new CCCFA regime.
The inquiry will aim to ascertain whether lenders are implementing the new rules as intended and to what extent lender behaviour in respect of the CCCFA is driving the changes to banks’ lending.
The substance of the inquiry is still to be confirmed, with it being originally characterised as informal, “low key” and without terms of reference. However, it is reported the decisions as to the (i) terms of reference, (ii) scope and (iii) timeline of the inquiry will be made once the Minister David Clark has been briefed by MBIE officials.
We welcome the inquiry and the promptness of the response. Advising on the regime has highlighted its limitations and the challenges lenders have in applying it. In our view, the regime is too prescriptive – taking a “one-size fits-all” approach to vastly different categories of credit. The regime also does not take into account data difficulties or adequately reflect the nuance of the art of credit decisioning.
If you have any questions on the inquiry or require any help with matters relating to the CCCFA, get in touch with one of our experts, we will be happy to help.
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