The Government has issued new guidance in the Responsible Lending Code and tweaked the Credit Contracts and Consumer Finance Regulations 2004. In force as of today, the latest changes relax the responsible lending rules. While the changes will be a relief to borrowers and lenders, bringing necessary clarity, they are modest in scale.
These changes address concern over the effect the 1 December 2021 changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) had on borrowers and lenders. The December 2021 changes, intended to protect vulnerable borrowers, instead had a negative impact, preventing many borrowers — who would have previously qualified for loans — from getting approval.
Across the country, REINZ members reported negative impacts on capable borrowers. Members saw more contracts failing on finance, fewer first home buyers due to difficulties securing lending and uncertainty about their financial resources. It also resulted in quieter open homes and auction rooms across the country.
What is the CCCFA?
The CCCFA is a law that helps protect people borrowing money. It sets rules lenders must follow to ensure people can make informed choices, understand what they are agreeing to, and keep track of their debts. It requires lenders to always act responsibly.
The controversial changes to the CCCFA in December 2021 tightened lenders’ responsibilities. The level of investigation increased when assessing loan affordability — lenders had to show how they reached a decision when calculating each borrower’s affordability and suitability. This was to ensure borrowers could afford the loan repayments and were making a properly informed decision.
Are the changes enough to make a difference for borrowers?
Changes to the Responsible Lending Code and the Regulations mean that banks must no longer sift through a borrower’s spending habits and expenses with such a fine-tooth comb. Whilst light relief to buyers, REINZ is concerned the changes do not go far enough.
The Minister of Commerce and Consumer Affairs, Hon David Clark is currently considering what, if any, further actions are required. A final report on the wider review of the consumer credit regime is due this month. Our members keenly anticipate the outcome of that review.
To learn more about the CCCFA and the finalised changes and what they mean, head here.