The incoming National-led government plans to do away with parts of the Consumer Finance Act it believes are stifling access to credit
Financial mentors are urging the incoming government to not act rashly in winding back aspects of the “life-changing” Credit Contracts and Consumer Finance Act it is labelling as “draconian” and red tape.
Among other things, the act put a cap on loan interest and introduced financial health assessments required for lending – but it also needed multiple amendments shortly after implementation in late 2021.
It successfully limited the ability of predatory lenders to operate in New Zealand, but has been criticised for putting undue pressure on lenders to the extent they exit the market, and making access to credit difficult.
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Interpretation of the regulations also led to serious prying into potential loan taker’s accounts and lifestyles.
National made a heap of first 100-day promises but winding back “draconian” predatory lending requirements it accuses of stifling the average joe’s access to credit wasn’t on it.
Nevertheless, the incoming government is strongly opposed to many of the changes made to the Credit Contracts and Consumer Finance Act under the Labour government and has committed to rolling them back.
It hasn’t committed to any firm plans on how to achieve that but will presumably do so once a government is formed and its first priorities are dealt with.
In August, National’s Commerce and Consumer Affairs spokesperson Andrew Bayly said the act was supposed to go after predatory pay day lenders, but instead stifled access to credit and resulted in borrowers being subjected to highly intrusive questioning from their bank, with every purchase, membership, or subscription up for scrutiny.
“Someone looking to start a business by extending their mortgage shouldn’t have to tell their bank which brand of cat food they buy or justify their Netflix subscription.
“National will maintain tight restrictions on predatory lenders, but significantly reduce the scope of Labour’s other changes to the CCCFA,” Bayly said.
That stance is music to the ears of lenders.
It seemed like just about all anyone really wanted to talk about at the Financial Services Federation’s annual conference last month.
The federation put together a pretty serious panel of lawmakers and regulators to talk about sustainable finance; the Commerce Commission’s chief legal council, the Financial Markets Authority’s head of deposit taking, and MBIE’s general manager of small business.
As soon as the floor opened to questions, they didn’t get to speak much about sustainable finance – crowd questions about the Credit Contracts and Consumer Finance Act were dominant – mainly, why didn’t you consult us? And can you delay its enforcement?
The federation’s chief executive, Lyn McMorran, believes the regime is overly prescriptive, creating mortgage prisoners, with the granular assessment of an individual's finances making it difficult to switch from their existing provider.
Jake Lilley, a policy advisor at FinCap, which works right across New Zealand’s non-profit financial mentoring space, said the current law was clear to communicate and had been a really good tool for unwinding harmful and unfair lending.
“It’s really been life changing having a law that backs consumers and puts the onus on lenders to do the right thing.”
Addressing the sentiment that the current legislation had overstepped and negatively impacted many consumers, Lilley said the good far outweighed the inconvenience caused by the act.
“I think it's important to note that anyone can get into trouble with debt.
“Although it does make a few more hoops at times, something that takes a day to get into takes a day or a month to get out of, instead of 20 minutes to get into and years to recover from the financial harm caused.
“When you really look at what's required, it is just a sensible process, so it might take slightly longer, but it has much better outcomes long term.”
The legislation has been pointed to as pushing non-predatory personal lenders out of the space, as well as having a non-fit for purpose penalty regime, labelled as being not consistent with the size of any consumer loss, particularly for technical mistakes.
But Lilley sees that harsh penalties meant lenders paid attention when financial mentors were discussing a problem with them, with obligations having to be taken extremely seriously.
So is there a solution where overly prescriptive elements of the act could be wound back, while still protecting the vulnerable?
Lilley doesn’t think so. “If anything, we think there's this need for a bit of adjustment to make things slightly more robust so there's less friction for us to unwind a loan.”
Areas of additional attention it would like to see include comprehensive inclusion of buy-now-pay-later and mobile phone lending.
It isn’t alone in wanting tougher regulations, with Christians Against Poverty senior policy advisor Michael Ward calling for the new government to talk to it.
"At Christians Against Poverty, we’re seeing positive changes in lender behaviour towards vulnerable people since responsible lending laws were improved. Though we’re continuing to see some lenders acting irresponsibly by granting unaffordable loans to vulnerable borrowers,” Ward said.
“We therefore welcome any opportunities to consult with government to ensure protections for vulnerable borrowers are maintained or even strengthened.”
Fincap expects upcoming enforcement action will define how to interpret the Credit Contracts and Consumer Finance Act as it stands.
He said the incoming government had to go to financial mentors and see the harm caused by unsuitable lending. “It contributes to so many social problems and long-term issues, and financial mentors see it regularly and can clearly say what is happening.”
