AVOCADO ON TOAST MAY BE BACK ON THE MENU… (CCCFA LENDING CHANGES MAY 2023)

You may be familiar with the news headlines that emerged following government changes to New Zealand’s Credit Contracts and Consumer Finance Act (CCCFA) at the end of 2021. Consumers were quickly warned to put a halt to daily iced lattes and weekly avocado on toast if they wanted a better chance of loan approval. You may be wondering, why was this, and what is the CCCFA?

What is the CCCFA?

The CCCFA was originally brought into New Zealand law in 2003. The purpose of this legislation is to protect borrowers from predatory lending companies – sometimes referred to as “loan sharks”. The legislation contained a set of rules that lenders must follow, in order to protect vulnerable borrowers, and capture bad lending practices.

Under the CCCFA, businesses that lend money (from banks and finance companies to after-pay and personal loan companies) were required to take additional steps to ensure they are only providing credit to people who can afford it.

Previous Changes

Leading up to 2021, unscrupulous lenders and loan sharks continued to profit off desperate Kiwis faced with soaring house prices and costs of living.

Even with this legislation in place, there were very few consequences in place for these companies who were taking advantage of the most vulnerable in an extremely stressful economy.

As a result of a government-led investigation into this industry, the 2021 Amendment Act was brought into force, containing the strictest rules that we had seen yet.

2021 Changes

The December 2021 amendments to the CCCFA required the banks to dive deeper into borrowers’ finances before granting them loans. The original changes had been aimed at the more unscrupulous end of the lending market to increase the penalties for irresponsible lending but were applied to the main banks too.

Amendments to the policy enabled banks to look at all client expenditure under a microscope and determine whether spending was essential or discretionary. Lenders could ask for documents showing a customer’s recent transaction history over at least 90 days. Many borrowers complained that banks would not approve their finance due to “excessive spending”, such as buying Christmas presents, lotto tickets or treating themselves to an Uber Eats order.

The Government Review

The public, however, were quick to scrutinise these changes, claiming that the restrictions imposed were having unintended impacts. As a result, the Minister of Commerce and Consumer Affairs conducted a further investigation into the 2021 changes.

Although the intention was to protect borrowers from predatory and irresponsible lending, it was determined that, in reality, the changes resulted in lenders interpreting regulations too conservatively. This made it more difficult for people to be able to get loans. Critics alleged that these restrictions helped to drive up lending costs, increasing the administrative burden for lenders, borrowers, and mortgage brokers, making it harder for ordinary people to get loans.

As a result of the investigation, the Government announced a final set of changes to the CCCFA which came into effect from 4 May 2023.

Updated Changes

Changes that have been set to take effect in May 2023 aim to improve ease of access to credit for Kiwis, while maintaining a strong level of consumer protection.

The final set of changes include:

• Explicitly excluding discretionary expenses from affordability testing.
• Providing more flexibility for lenders about how certain repayments are calculated.
• Extending exceptions from full income and expense assessments for refinancing of existing credit contracts.

Coupled together with the initial changes that came into effect in July 2022, these amendments will address the remaining unintended impacts of the December 2021 changes. It is hoped that these changes will help to assist those struggling to access finance, and we should see more banks approving a higher number of lending applications as a result.

At Wakefields Lawyers, we understand the hurdles that can arise when purchasing property. Our expert team has supported many first home buyers and experienced purchasers access the keys to their next home, and you could be next. If you are looking to purchase, or would like further advice on the CCCFA, please contact the friendly team at Wakefields Lawyers today on (04) 970 3600 or email info@wakefieldslaw.com.

– Kailey Northcott (Solicitor)