Government Announces Further Changes To CCCFA Regulations
Written by Kelly Henderson
The Government has revealed plans to loosen regulations under the Credit Contracts and Consumer Finance Act (CCCFA). These changes are in response to widespread criticism from brokers, borrowers, and budget advisors of the changes made by the Government in December 2021 which required stricter scrutiny of borrower’s financial health, erroneously resulting in borrowers having loan approvals withdrawn and having new loans declined based on the requirements of those regulations.
The following amendments are proposed to come into force in March 2023:
Narrowing the expenses lenders are required to consider to specifically exclude discretionary expenses
There were a barrage of complaints that borrowers are being declined lending because they had spent money on takeaways and Netflix.
The proposed amendment means that lenders will only need to consider expenses that are necessary to borrowers, or those that borrowers would be unwilling to give up – even if they were faced with financial hardship. In addition to this, it will be up to the lenders to determine whether expenses are likely to be discretionary or not.
Under the new Regulations, lenders would be free to assume that, for example, a Netflix subscription is a discretionary expense that does not need to be accounted for in its assessment. This is a relief for those of us who enjoy a takeaway coffee in the morning!
Relaxing the assumptions that lenders were required to make about credit cards and buy-now-pay-later schemes like Afterpay
The use of credit cards and buy-now-pay-later schemes has grown rapidly in New Zealand and the current Regulations make it difficult for users of these schemes to obtain finance. Currently, lenders must assume that credit card holders will use the full credit limit and will only make the minimum payment required each month. These assumptions are problematic for borrowers who use these facilities for day-to-day transactions and pay them off on a monthly basis without incurring additional debt.
The proposed changes will work towards removing or softening these assumptions. One way of doing this could be to exclude existing credit facilities from the assessment of expenses when the borrower routinely repays such facilities without incurring interest.
Help make debt refinancing or debt consolidation more accessible if appropriate for borrowers
When a borrower wishes to vary or increase a current loan, lenders can choose to exempt the application from a full affordability assessment if the application fits within the lender’s internal guidance. However, if a borrower seeks to refinance with a new lender, the new lender cannot rely on the same exemption. This has the potential to further add to financial hardship or cause a delay in providing access to credit required.
The new Regulations will broaden the existing exemption to include the refinancing of existing loans to new lenders if the total repayments are equal to or lower than the original lender, and where the new lender is satisfied that the refinance is in the best interests of the borrower.
The implementation of these new Regulations should ensure that borrow-ready Kiwis are less likely to be declined at the bank and improve safe access to credit.
If you’re unsure how these changes might affect you, do not hesitate to get in touch – a member of the team will be happy to help.