Major changes are coming for the Credit Contracts and Consumer Finance Act (CCCFA) legislation.

Legislative changes will be ready by the middle of the year protecting vulnerable consumers without unnecessarily limiting access to credit.

Changes in 2021 to the CCCFA were the biggest wrecking ball the property market has seen. Mortgage loan approvals slumped 40 per cent within six months. In December 2021, 81,900 mortgages were completed but by May 2022 this had sunk to 45,440.

Processing times for lending applications increased 50 per cent across all loan types and banks estimated 6-7 per cent of applicants who would otherwise have qualified for a mortgage had to be turned down because of intrusive questioning about spending habits.

Borrowers were denied loans if banks decided they had bought too many coffees and fast food or been to the movies too often.

Penalty, Disclosure

The first step by Commerce and Consumer Affairs Minister Andrew Bayly will be transferring responsibility for the CCCFA from the Commerce Commission to the FMA. The FMA becomes the financial services conduct regulator while the Reserve Bank will be the prudential regulator.

In a specific two-pronged reform, the prescriptive affordability requirements for lower risk lending will be removed and a more substantive review of the CCCFA will be done. This will include reviewing its penalty and disclosure regime.

Bayly says regulation changes will be identified by March/April.

“Change is needed,” he says. “It is the detailed regulations and the strong liability regime that need to be reformed. Together, these two things have led to overly risk-averse lending decisions, created unnecessary compliance costs and reduced access to credit for consumers.”

He says the original intent of CCCFA was not to undermine good conduct requirements.

The 2021 changes unfortunately led to a significant decline in traditional and short-term lending. “The result has been that vulnerable borrowers have had to turn to alternative unregulated high-cost sources, the very people the changes were seeking to protect them from. We aim to subject high cost lenders to adequate regulation surrounding lending practices.”