Last night, Commerce and Consumer Affairs Minister Andrew Bayly gave a significant update on the financial services reforms that will impact, in particular, the Credit Contracts and Consumer Finance Act 2003 (CCCFA). The reforms aim to find a better balance between reducing the regulatory burdens on lenders to stimulate lending and maintaining adequate consumer protections.
The official press release can be found here.
We explore the changes that were announced below.
Key reforms
Removal of personal liability for directors and managers
Directors and senior managers of lending entities will no longer be personally liable for breaches of CCCFA obligations. Under the current rules, directors and senior managers could face fines of up to NZ$200,000 for failing to ensure responsible lending practices. The new changes eliminate this risk, which the Minister stated was contributing to excessive risk aversion and inefficiencies in the lending market. The aim is to encourage more lending activity, particularly for smaller loans, while keeping institutions accountable for poor lending practices rather than individuals.
Disclosure obligation relief for lenders
The requirements will be tightened for consumers seeking redress for inaccurate or inadequate disclosure. Under the new proposal, consumers will need to demonstrate actual harm resulting from any deficiencies in disclosure to pursue a claim. This contrasts with the current regime, where technical breaches can trigger liability irrespective of whether any tangible harm occurred. This adjustment seeks to reduce the administrative burden on lenders and ensure that penalties are proportionate to actual harm. The official press release noted:
There will still be repercussions for lenders who make mistakes or issue bad loans, but the changes will move towards a more proportionate, risk-based approach. We want to focus enforcement efforts on instances where there has been genuine financial harm.
Improving the profile of dispute resolution schemes
As part of the broader reforms the Minister emphasised the need to enhance the visibility and accessibility of industry-funded dispute resolution schemes, such as the Banking Ombudsman and the Insurance and Financial Services Ombudsman. The government is considering establishing a single portal for consumers which it says will simplify the process of seeking recourse when financial disputes arise. This initiative seeks to ensure that borrowers know where to turn if they encounter issues with financial service providers and improve the overall performance of these schemes.
New FMA licences
Consumer credit lenders will now be required to hold a licence with the Financial Markets Authority (FMA), which will act as the responsible body overseeing the CCCFA.
Streamlined conduct licencing
The way that banks, insurers, and non-bank deposit takers (NBDT) are regulated will be streamlined. The new regime, which is to be implemented in March 2025, will remove administrative burden and the prescriptive requirements of the current Conduct of Financial Institutions (CoFI) regime. Conduct licences will also be amalgamated into a single conduct licence, to be issued by the FMA.
Without notice FMA inspections
The FMA will be given a “package” of rules, responsibilities and regulation which will enable greater powers in conducting onsite inspections without notice. While these inspections will remain a last-resort for the FMA, the changes will implement appropriate regulatory tools and ensure that dispute resolution services are utilised to enforce good lending practices.
Summary
The reforms represent a significant shift in how lending is regulated, balancing the need for greater flexibility with the demand for responsible lending. By alleviating personal liability concerns and adjusting the burden of proof for disclosure errors, the Government aims to make it easier for lenders to operate without compromising consumer protections. At the same time, the introduction of new FMA licensing requirements and enhanced enforcement powers reflects the Government's continued commitment to regulating the financial services industry effectively. The improvements to dispute resolution schemes also signal an effort to create a more consumer-friendly financial landscape, offering borrowers clear avenues to seek help if disputes arise.
The reforms to the CCCFA will be welcomed by consumer lenders although the devil will be in the detail to see if they go far enough to alleviate all the perverse consequences of the existing regime. Our leading CCCFA team has been working hard to advocate for a more balanced regime focussed more squarely on consumer protection and predatory lenders and will monitor these changes with interest.
For those lenders who are not currently required to hold a conduct licence for any part of their business, the licensing requirement will be a significant change. We have great experience in supporting clients in navigating the complexities of licensing processes.
This article was co-authored by Andrew Walker and Tomas Roche, Law Clerks in our Banking and Financial Services team.
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