On 2 August 2022, the Ministry of Business, Innovation and Employment (MBIE) published their final report (the Report) on their investigation into the amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and Credit Contracts and Consumer Finance Regulations 2004 (Regulations) that came into force on 1 December 2021.
Concurrently with the release of the Report, the office of the Right Honourable David Clark (Minister of Commerce and Consumer Affairs) (Minister) has released an announcement outlining some further changes to the Regulations that it expects to make in early 2023. These changes include narrowing expenses to be considered by lenders, providing flexibility into how certain repayments may be calculated and expanding the exceptions from a full affordability assessment under the Regulations.
At a high level, the Report found:
- CCCFA changes contributed to a drop in lending activity across a range of consumer credit products in the market.
- The CCCFA changes are having unintended impacts such as borrowers (across all lending types) who should pass the affordability test being subject to declines or reductions in credit amount and borrowers being subject to inquiries they perceive as intrusive.
- The unintended impacts listed above are a result of lending processes becoming more restrictive than expected from the CCCFA changes. This was a consequence of the way a number of provisions in the Regulations were drafted, combined with interpretational difficulties and many lenders naturally taking a conservative approach to compliance.
The Report has analysed the possible impact of further changes that could be looked into, while not making any policy recommendations. The Report makes clear that further design, analysis and consultation of these options would be required to pursue them. To read the full Report, you can do so here.
Alongside the Report, the Minister released a statement (see the Minister’s statement here) describing among other things, the impact that the December 2021 changes to the CCCFA and Regulations have had. Further, the Minister has alluded to further changes announced by the Government to address the remaining unintended impacts of the changes to the CCCFA, these include:
- narrowing the expenses considered by lenders to exclude discretionary expenses more explicitly – this is to alleviate disproportionate inquiries made by lenders
- providing more flexibility for lenders about how certain repayments may be calculated – this is to alleviate conservative assumptions that lenders are required to make about expenses associated with revolving credit contracts, particularly credit cards and buy-now-pay-later schemes.
- expanding exceptions from undertaking a full income and expense assessment for refinancing of existing credit contracts – this is to help make debt refinancing or debt consolidation more accessible if appropriate for borrowers.
The details of these changes will be subject to further consultation with lenders, financial mentors, consumer advocates and other interest parties through a release of an exposure draft to the Regulations. MBIE expect to open public consultation to the changes on 22 September 2022, with the change potentially taking effect in March 2023.
If you have would like to discuss making submissions on the exposure draft during the public consultation period, the CCCFA and Regulations generally or what the changes announced might mean for you and your business, reach out to one of our experts below.
This article was co-authored by Verniel Virtucio, a Law Clerk in our Banking team.
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