On 9 June, the Government released the finalised amendments to the Credit Contracts and Consumer Finance Regulations 2004 (the Regulations) and the Responsible Lending Code (Code).
The amended Regulations and Code will come into force on 7 July 2022.
The finalised amendments follow consideration of submissions on the April 2022 exposure drafts of the Regulations and Code. The amendments to the responsible lending rules are designed to reduce some of the unintended consequences caused by amendments to the Regulations relating to suitability and affordability assessments introduced in December 2021. The amendments are part of the wider Council of Financial Regulators investigation (the Investigation) into the initial implementation of the recent changes to the Credit Contract and Consumer Finance Act 2003 (CCCFA) announced by the Minister of Commerce and Consumer Affairs, David Clark in January 2022.
The proposals amend the Regulations and Code to action the below:
Will the changes make a difference?
Some of the amendments are a welcome step in the right direction – in particular, more meaningful examples of how to apply the affordability exception and no longer requiring savings to be caught as an expense will be useful to lenders. But our reservations still remain that the changes proposed to date (which are primarily to the Code) do not go far enough and, in some cases, may end up being more confusing to apply in practice. It is disappointing the amendments have not allowed for any nuance by still adopting a blanket approach to all lenders. No provision is made to recognise or provide adequate flexibility for larger responsible lenders such as banks, given the intention of the December 2021 amendments was to protect consumers from irresponsible or predatory lending.
In the meantime, between now and 7 July, lenders will need to understand this round of changes and work out what is needed to operationalise them with the last major changes only having been in effect for just over 7 months. Whether or not there will be any immediate impact post 7 July will be difficult to measure. The consumer lending landscape has been significantly affected in 2022 by other factors other than the CCCFA reforms, such as the cooling residential property market, rising inflation, the cost of living crisis and increases to interest rates.
There is still more to come…
It has also been confirmed the Investigation has been completed with the final report, advice from officials and next steps (if any) currently being considered by Minister Clark. MBIE expects the final report to be released in July.
As we have said before, this potential two stage approach all comes at a cost. The prospect of lenders in particular having to understand two rounds of changes to the rule book in short order which, together, may not actually resolve the underlying issues and concerns they have raised is sub-optimal. Navigating changes to affordability and suitability assessment processes with the uncertainty of the Investigation’s final report knocking on the door will only result in further costs for both for lenders and borrowers.