Preparing for changes to lending legislation
Amendments to the Credit Contracts and Consumer Finance Act 2014 (CCCFA) came into force in December 2019, but many of the changes won’t be implemented until 2021. Nick Foster, Equifax New Zealand’s Head of Solutions and Analytics explains.
If you are not already aware of or familiar with the amendments to the CCCFA, then it is important to get up to speed. Implemented and proposed changes may require lenders to undertake operational reviews, implement new policy, and seek accreditation of senior leaders within their businesses.
Caps on credit interest rates and loan fees take effect from 1 June 2020. That means that the maximum interest charged on a loan can be no more than 100% of the loan total. Additionally, high cost loans will be capped at an interest rate of no more than 0.8% per day.
Disclosures regarding languages that financial offers are advertised in, provision of disputes resolution schemes, mobile traders' dertification, and regulations that set minimum requirements for suitability, affordability and responsible advertising will take effect from April 2021.
Reinforcing responsible lending
It will become mandatory for all lenders to document and record affordability assessments that can be audited. A lender may be required to prove that they have met responsible lending criteria, with the Commerce Commission able to impose financial penalties of up to $600,000 for irresponsible lending decisions.
Several services exist to assist lenders in making responsible lending decisions. Comprehensive Credit Reporting (CCR) allows lenders to view customers’ credit files which show existing lines of credit and amounts owed, repayment history, defaults and more. CCR can also help identify debts not disclosed (deliberately or accidentally) in the credit application process.
Access to bank account data (with the permission of the consumer) is also key to responsible lending.
Assessing lending decisions
Lenders already need to estimate likely income by obtaining a statement of the borrower’s income and verifying this against a payslip or bank statement. Then, the lender must form an estimate of the borrower’s expenses by obtaining a statement of the borrower’s expenses. This can then be verified with bank statements and credit files as mentioned above.
Each lender has their own credit policies calibrated to their appetite for risk exposure and credit reporting is only one component of an affordability assessment. Credit reports (on their own) speak more to behavioural aspects of how an individual manages their debt obligations rather than their ability to afford additional credit facilities.
Other changes on the way include:
- Directors and Senior Managers of lending companies will be required to meet a threshold as a “fit and proper person” in order to be certified under the CCCFA. They will also be responsible for ensuring the business adheres to a compliance regime.
- When advertising products, lenders must exercise care, diligence and skill to ensure that advertising is not deceptive, confusing or misleading. The Bill sets out a number of advertising standards to this end.
- Debt collection: At the commencement of the collection of debt, debt collectors will be required to disclose certain information to the debtor.
More detailed information can be found on the government website.
Disclaimer: This summary, the service described, and related product collateral do not constitute legal or compliance advice. Organisations are encouraged to obtain independent legal advice.