It's CCCFA reform time again – but this time, the proposals Cabinet has agreed to advance look set to provide real relief for lenders from some of the major issues with the current regime.
Prescriptive affordability requirements gone
The change that has led the headlines is the complete revocation of the prescriptive affordability requirements in the Credit Contracts and Consumer Finance Regulations 2004.
Lenders under consumer credit contracts will still be bound to make reasonable inquiries so as to be satisfied that it is likely that the borrower will make the payments under the agreement without suffering substantial hardship, which is the high-level legislative obligation imposed by s 9(3)(a)(ii). But the prescriptive affordability obligations introduced into the Regulations in 2021 (and subsequently amended) will be gone, with only guidance in the form of the Responsible Lending Code in their place (which will be updated).
Other options considered and discarded were to disapply the relevant Regulations to banks and non-bank deposit-takers, home loans, or loans with an interest rate below 15% or 30% per annum.
This is a welcome change for lenders and also great for consumers' access to credit – although many lenders will be left wondering what to do with some of the additional systems and processes they put in place since 2021 to meet the prescriptive requirements.
Cabinet has agreed to make this happen "as fast as possible" and as part of Phase 1 of the reforms, with an invitation to the Ministry to report back in May 2024 seeking approval to the amendment regulations.
Directors and senior managers changes
Directors and senior managers of lenders under consumer credit contracts are obliged to exercise due diligence to ensure that the lender complies with the CCCFA.
While that obligation looks set to stay, Cabinet has agreed to exploring, as part of Phase 2 of the reforms, the liability settings for directors and senior managers. In particular, the Cabinet paper raises concern that the restrictions on indemnities and insurance as disproportionate and contribute to overly conservative lending practices.
In a week in which the former Ports of Auckland CEO Tony Gibson's District Court trial for breach of the equivalent directors' duties provisions of the Health and Safety at Work Act commenced, the proposal to re-evaluate any aspect of this regime will be welcomed by directors and senior managers of lenders.
Disclosure changes
Phase 2 will also explore "technical concerns lenders have with certain disclosure requirements". The example provided in the Cabinet paper is narrow (relating to disclosure to email addresses). However, the Minister has also identified, as a further issue with the CCCFA regime to be explored during Phase 2:
the consequences prescribed by the ‘prohibited enforcement’ provisions in the CCCFA for incorrect disclosure by lenders, and whether these are disproportionate, for example, where the error was unlikely to cause any harm but technically affected a large number of borrowers.
The prohibited enforcement provisions include s 99(1) and s 99(1A).
The Minister intends to seek Cabinet approval to release discussion documents on Phase 2 in May 2024.
Other changes and proposals
While we have summarised the three most important changes above, other changes are also either approved or proposed, including:
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revocation of "redundant" regulations created in the context of COVID-19;
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exempting local authorities from the CCCFA (already in force from 25 April);
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removing duplicative reporting requirements for certain non-financial services (already in force from 25 April);
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dispute resolution scheme changes;
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review of the CCCFA's high-cost creditor provisions; and
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reforms to CoFI and the conduct licensing framework.
We will be tracking these reforms closely – please get in touch with one of our experts if you'd like to discuss.