Fixes finalized for controversial credit rule changes

Changes to last year’s distressed credit rules will take effect July 7

Changes have been finalized to fix controversial new credit rules which were put in place at the end of last year. The changes come into effect on July 7.

The new rules, which essentially targeted the less scrupulous part of the lending market, also applied to major banks. And essentially, the rules required banks to collect far more details from those applying for loans than before. The banks and their managers risked being punished if they did not collect this detail.

Anecdotally, the changes led to a freeze on lending over the New Year period as banks tried to adjust to the new prescriptive rules.

Minister for Trade and Consumer Affairs, David Clark announced in March that fixes would be put in place for amendments to the Credit Agreements and Consumer Credit Act (CCCFA) which came into force on December 1.

The changes would affect the CCCFA Rules and the Responsible Lending Code.

A statement from the Department for Business, Innovation and Employment (MBIE) said that these initial changes “have been made to quickly resolve some issues that have been heard since the changes to the CCCFA came into effect, such as useless investigations”.

In April, MBIE published an Exposure Draft of amendments to the Regulations and Responsible Lending Code for comment and now, after reviewing submissions on the Exposure Draft, the Regulations and Responsible Lending Code have been updated to reflect comments received.

The amendments are now finalized and will come into force on July 7, 2022.

These are the changes:

  • Remove regular “savings” and “investments” as examples of expenses lenders should ask about when assessing the borrower’s likely expenses.
  • Clarify that when borrowers provide a detailed breakdown of their future living expenses, and these are compared to sound statistical data, there is no need to also inquire about their current living expenses from transactions recent banking.
  • Clarify that when lenders estimate expenses based on recent bank statements, they can ask the borrower how the expenses are likely to change once the contract is finalized.
  • Clarify that the requirement to obtain “sufficiently detailed” information only relates to information provided directly by borrowers (for example, ensuring that expenditure categories on application forms are sufficiently detailed) rather than information from borrowers. bank transaction records.
  • Provide additional guidance that a “reasonable excess” is not required if the lender has applied adequate buffers and adjustments to income and expenses.
  • Provide alternative advice and examples where it is “obvious” that a loan is affordable, so a full assessment of income and expenses is not required.

Prior to the March announcement, Clark had asked the MBIE to take a closer look at changes to the CCCFA and regulations late last year, working with other members of the Council of Financial Regulators (CoFR ).

MBIE said that while the initial changes were progressing, “the rest of the investigation was continuing in parallel.”

“The Minister for Trade and Consumer Affairs has received a final report and advice from officials and is considering possible further action. We expect the final report to be released in July.”

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