Yesterday marked the final major step in the Government's Consumer Credit review with the release of an updated Responsible Lending Code (Code). The updated Code is intended to complement a suite of changes the Government has made to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and the associated Credit Contracts and Consumer Finance Regulations 2004 (Regulations).
Most of the updated Code comes into effect on 1 October 2021, the same time that the remaining amendments to the CCCFA and the Regulations come into effect, including the new due diligence duty on senior managers and directors to ensure that the lender complies with its duties and obligations.
Chapter 12 of the updated Code, which contains guidance on missed payments and repayment difficulties, will come into effect in February 2022.
What is in the updated Code?
The updated Code continues to provide lenders with non-binding guidance on how the lender responsibility principles may be implemented. It also contains guidance regarding implementing the Regulations.
Key changes in the updated Code include:
Changes to reflect amendments to the lender responsibility principles and the lender responsibilities: This includes enhanced guidance regarding credit-related insurance and guidance regarding the need to make reasonable inquiries in respect of material changes to consumer credit contracts.
Changes to reflect amendments to the Regulations: After 1 October 2021, the Regulations will regulate many aspects of lender behaviour that were previously discussed in the Code. The updated Code will shift its focus to providing additional guidance relevant to complying with the amended Regulations. For example, regarding advertising, how to assess the adequacy of surpluses, buffers and adjustments when considering the affordability of a product and what records of those assessments should be retained by the lender.
Repayment difficulties: Chapter 12 of the Code provides guidance where borrowers and guarantors face repayment difficulties and other problems. This Chapter has been significantly revised in the updated Code, including to address matters identified during the economic uncertainty of the COVID-19 pandemic. For instance, the updated Code sets out that a lender should have policies and procedures in place to identify borrowers in difficulty and proactively manage known repayment difficulties with the borrower. The updated Code makes is clear that the statutory unforeseen hardship relief processes are just one option for addressing a borrower's difficulties and encourages flexible approaches to enable borrowers to access relief and financial mentoring services.
CCCFA Compliance Programmes
The updated Code continues to recognise the importance of putting policies, procedures and training in place (and under regular review) to ensure a lender's ongoing compliance with the lender responsibility principles and includes practical guidance on particular areas where policies, procedures, training and monitoring should be put in place. The updated Code includes both general guidance on policies, procedures and training and specific guidance on a number of matters, for example in the revised 3 (Advertising) and in Chapter 12 (Repayment Difficulties and Other Problems). This content will be particularly relevant to those re-visiting their CCCFA compliance programmes, including to ensure those programmes support the discharge of the director and senior manager due diligence duty.
Please contact us if you wish to discuss the Code changes or the steps your organisation is taking in the lead up to 1 October 2021. Our team are true market leaders in this area with unparalleled CCCFA experience and expertise.