Yesterday, the Ministry of Business, Innovation and Employment (MBIE) announced a consultation on proposed changes to the Responsible Lending Code (Code) to be made alongside the revocation of the CCCFA affordability regulations. More information on the revocation of the affordability regulations is available here.
This consultation is part of “Phase 1” of the financial services reforms. It is separate from MBIE’s “fit for purpose” financial services reform consultation, which was announced last week as part of “Phase 2” of the reforms. See here for more information on the “fit for purpose” consultation.
A link to the Responsible Lending Code consultation website (and discussion document) can be found here. Note that the time available to make submission is even shorter than the “fit for purpose” consultation – with submissions closing on 10 June 2024.
Significance of changes to the Code
The proposed changes to the Code will play an important part in ensuring the revocation of the affordability regulations has the desired effect. The unique role of the Code in the regulatory landscape means lenders have tended to treat many parts of the code as being mandatory – despite it being expressly ‘not binding’ under the CCCFA.
MBIE’s discussion paper states that changes to the Code should allow flexibility of approach to different situations and acknowledges the need to avoiding perpetuating any problems that lenders had with the soon-to-be-revoked regulations.
The proposed changes to the Code are particularly important for any banks or other financiers who found the regulation unduly restrictive. This is a great opportunity to shape the changes to the Code to ensure sensible alternative approaches to the affordability assessment are supported.
As a starting point, MBIE is looking to the 2017 version of the Code – which is the most recent version that predates the problematic affordability regulations.
What next?
We recommend all banks and financial institutions engage in the process by considering the discussion documents and providing input on matters that affect them.
Our experts would be happy to discuss any aspect of the consultation process or reforms outlined above.
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