Summary: Changes to the Credit Contracts and Consumer Finance Regulations 2004 and Responsible Lending Code following the 2022 review
Changes have been made to the affordability assessment requirements under the Credit Contracts and Consumer Finance Regulations 2004 (the Regulations) and Responsible Lending Code (the Code). This is in response to the review of the December 2021 changes to the Credit Contracts and Consumer Finance Act 2003.
The changes were made in two rounds, taking effect in July 2022 and May 2023. Together, the changes:
- clarify how expenses are estimated
- include exceptions to the requirement to conduct a full income and expense assessment
- clarify how lenders should apply a ‘reasonable surplus’.
Changes to clarify how expenses are estimated
Changes in force 7 July 2022
- Regular ‘savings’ and ‘investments’ removed as examples of listed outgoings that lenders may need to inquire into.
- Lenders do not need to use bank transaction records to verify a borrower’s declared expenses in various circumstances. These include when a borrower’s declared expenses have been benchmarked against statistical data about household expenditure, or when using other reliable information.
Changes in force 4 May 2023
- The range of expenses lenders must consider narrowed to exclude discretionary expenses more explicitly by clarifying that lenders must only estimate essential and non-discretionary expenses. Chapter 5 of the Code provides additional guidance on how to determine whether expenses are essential or non-discretionary.
- Lenders have more flexibility about how they estimate expenses associated with revolving buy now pay later (BNPL) contracts.
- In place of the more prescriptive methodology for calculating expenses associated with revolving credit contracts in the Regulations, chapter 5 of the Code provides guidance on what factors lenders should consider when estimating BNPL expenses as part of the affordability assessment.
Changes to exceptions to the requirement to conduct a full income and expense assessment
Changes in force 7 July 2022
- Chapter 5 of the code provides expanded guidance on when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.
Changes in force 4 May 2023
- Lenders do not need to conduct a full income and expense assessment when refinancing some existing credit contracts that a borrower has with another lender. The amendments allow for debt refinancing or consolidation where the annual interest rate or regular repayments are equal to or lower than the borrower’s current credit contracts.
Changes to the requirement for a ‘reasonable surplus’
Changes in force 7 July 2022
- The Code clarifies at chapter 5 that a ‘reasonable surplus’ after deducting expenses from income is not required if the lender has applied adequate buffers and adjustments to income and expenses.
Further information
To read the amendments to the Regulations that came into force on 7 July 2022 see:
Credit Contracts and Consumer Finance Amendment Regulations 2022 (SL 2022/177)(external link) — New Zealand Legislation
To read the amendments to the Regulations that came into force on 4 May 2023 see:
Credit Contracts and Consumer Finance Amendment Regulations 2023(external link) — New Zealand Legislation
For the most recent version of the Responsible Lending Code see:
Responsible Lending Code – April 2023 [PDF 1.1MB]