Point of Order: A bit of regulatory tidy-up.....

.......here’s hoping they get things right this time with the latest changes to borrowing rules

The Credit Contracts and Consumer Finance Act again has been mentioned in despatches from the Beehive: this time Commerce and Consumer Affairs Minister Duncan Webb has announced changes to come into force next month, “improving safe access to credit for Kiwis”.

These changes suggest they didn’t get things right when the previous changes took effect less than 18 months ago.

The press statement affirms this:

“Whilst not departing from the original policy aim to ensure borrowers can repay loans without hardship, this tidies up the December 2021 changes to the CCCFA and Credit Contracts and Consumer Finance Regulations.” said Dr Webb.

His news of the Government putting things right is found in the latest batch of Beehive announcements –

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Government takes further steps in improving safe access to credit

The Government has announced that changes to the Credit Contracts and Consumer Finance Act (CCCFA) will come into force in May, improving safe access to credit for Kiwis, said Minister of

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Jan Tinetti’s statement as Minister for Child Poverty Reduction deserves more attention than it will be given here today. Perhaps Lindsay Mitchell will be giving the figures a more critical look.

Tinetti has highlighted (or cherry-picked) these figures from the Child and Youth Wellbeing Strategy Annual Report 2021-22 (here).

• 15% decrease in notifications to Oranga Tamariki compared to 2020/21
• 13% of children aged 0-14 years lived in households where food runs out sometimes or often, compared with 15% the previous year and 20% in 2019/20
• 91% of young people aged 15-24 years reported their physical health as good, very good or excellent
• 88% of young people aged 15-24 years were in employment, education or training
• 85% of students aged 12-18 years had good social support, and an adult they could turn to in a difficult time
• 12% decrease in offending rates across all children and young people aged 10-17 years, compared to 2020/21

While the report shows the majority of children and young people continue to do well across most wellbeing outcome areas, Tinetti says, she acknowledges it also highlights that disparities persist for many groups, in particular for Māori, Pacific, ethnic, rainbow and disabled children and young people.

But our focus today is on the regulation of borrowing.

Kris Kaafoi was Minister for Commerce and Consumer Affairs in June 2019 when changes were made to the Financial Markets Authority licensing regime and rules.

He promised consumers would have more peace of mind dealing with financial advisers under the new licensing and rules regime he was announcing.

These were “the latest strand of a suite of measures being delivered by the Government to protect consumers. The regulation of financial institutions will help build the trust consumers need on a day to day basis when taking financial decisions”.

Under the new regime anyone who gave financial advice to retail clients were required to operate under a licence granted by the Financial Markets Authority (FMA).

In December 2020 David Clark was the Minister.

He announced the Government was building on work the previous year to crack down on loan sharks and was “making the rules clearer for all lenders to help protect borrowers from unaffordable loans”

Lenders had high-level obligations to check borrowers would be able to pay back a loan, but there were hundreds of lenders, and – surprise, surprise – “some are much less careful and diligent than others”.

Before approving a loan, all lenders would need to:

• make consistent inquiries about the borrower’s needs and objectives, to help ensure the credit product is suitable
• verify the borrower’s income and expenses to be satisfied that the repayments are unlikely to put the borrower into significant hardship.

“Last year we took action to take the bite out of loan sharks with changes to the Credit Contracts Legislation Act. These new requirements also mean that all lenders will need to do income and expenses checks when considering whether to grant a top-up loan or increase a credit limit,” said David Clark.

The detailed requirements would be complemented by the Responsible Lending Code, which provides guidance for lenders on their obligations. The Government intended consulting on the Code to ensure it was updated in time for the new requirements coming into effect on 1 October 2021 under the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020.

On 11 March last year, Clark said the Government was “making practical amendments to responsible lending rules to curb any unintended consequences being caused by the Credit Contracts and Consumer Finance Act”.

The changes amounted to:

• Clarifying that when borrowers provide detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
• Removal of regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into
• Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records.
• Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable

“Following my meetings with the banks at the end of last month to hear their concerns, I detected little enthusiasm for wholesale changes to the Act, but instead a preference for some practical amendments to be made to ensure the purposes of the legislation are best met.

“Meanwhile, a broader investigation, led by MBIE and the Council of Financial Regulators, into the early implementation of the CCCFA amendments is ongoing.

“Thus far investigations have thrown up no reasons to believe the CCCFA is the main driver in reduced lending.”

Banks might be managing their lending more conservatively, Clark mused. This was likely due to global economic conditions.

And a number of factors affecting the market had occurred at the same time as the CCCFA changes, including increases to the Official Cash Rate, R, loan to value restrictions, and an increase in house prices and local government rates.

“It must be stressed, today’s changes are not the final word and any further changes to credit laws and the Responsible Lending Code will be considered as part of the remainder of the investigation which is due next month,” David Clark said.

Duncan Webb became the Minister when Chris Hipkins became Prime Minister.

On 16 February he announced measures aimed at making it easier for people in financial difficulty as a result of the catastrophic flooding to get temporary credit.

A temporary exemption is being made to the Credit Contracts and Consumer Finance Act (CCCFA) to allow banks and other lenders to quickly lend money to affected consumers to address damage, replace property, provide for loss of income, and meet their everyday living costs. The exemption removes the requirement for extensive assessments for temporary credit of up to $10,000.

Now he has telling us about changes to the Credit Contracts and Consumer Finance Act that will kick in next month.

The changes are being made to

• explicitly excluding discretionary expenses from affordability testing
• providing more flexibility for lenders about how certain repayments are calculated
• extending exceptions from full income and expense assessments for refinancing of existing credit contracts.
• extending exceptions from full income and expense assessments for refinancing of

MBIE released an exposure draft of the changes to the Regulations and Responsible Lending Code for consultation in September 2022. The amendments made to the final regulations were informed by feedback from lenders, financial mentors and consumer advocates during the consultation period.

“It’s important that New Zealanders can access safe, responsible and affordable credit. That’s why we made the initial set of changes that came into effect on July 7, 2022. Coupled together with the changes I have announced today, I am confident we’re striking the right balance between ensuring Kiwis can access credit effectively, while also maintaining a strong level of consumer protection,” said Duncan Webb.

The changes will come into force on 4 May.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton