Initial implementation review of the 2021 CCCFA changes

Background to the investigation

In January 2022, the Minister of Commerce and Consumer Affairs asked Ministry of Business, Innovation and Employment (MBIE) officials to take a closer look at the initial implementation of the changes to the Credit Contracts and Consumer Finance Act (CCCFA) and Regulations, in collaboration with other members of the Council of Financial Regulators. This was in light of concerns raised about changes to lending rules that came into effect on 1 December 2021.

The Terms of Reference for the Investigation can be found here:

Initial changes in force 7 July 2022

In March 2022, the Minister announced initial changes to the Regulations and the Responsible Lending Code. The initial changes seek to address some issues that have been heard since changes to the CCCFA came into effect, such as unnecessary inquiries by lenders into living expenses on bank statements.

Key changes to the Regulations

The Credit Contracts and Consumer Finance Amendment Regulations 2022 (Amendment Regulations) changes include:

Changes to the definition of ‘listed outgoings’ under regulation 4AE

The Amendment Regulations removed  ‘savings’ and ‘investments’ as examples of listed outgoings that lenders need to inquire into when assessing the borrowers likely material expenses.

Changes to requirements for initial estimates of borrowers likely relevant expenses

The Amendment Regulations changed the extent to which lenders doing an initial estimate of borrower expenses must inquire into a borrower’s relevant expenses. The amendments clarify that when asking the borrower about their relevant expenses, lenders must ensure, to the extent the initial estimate is based on this information, that the information is obtained in sufficient detail to minimise the risk of relevant expenses being missed or underestimated to an extent material to the estimate.

The Amendment Regulations are in force 7 July 2022

The Amendment Regulations are available on the Legislation website.

Credit Contracts and Consumer Finance Amendment Regulations 2022 (SL 2022/177)(external link) — New Zealand Legislation

Key changes to the Responsible Lending Code

The updated Code introduces the following guidance:

Inquiries into living expenses

The Code clarifies that when lenders ask borrowers about their likely living expenses, and these are benchmarked against statistical data about household expenses, there is no need to inquire into their current living expenses from recent bank transactions.

Estimating expenses

The Code clarifies that when lenders estimate expenses from recent bank transaction records, lenders can ask the borrower about how expenses are likely to change once the contract is entered into.

Requirements to obtain information in sufficient detail

The Code clarifies the requirement to obtain information in sufficient detail only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records.

Treatment of surplus, adjustment and buffers

The Code clarifies that a ‘reasonable surplus’ is not required if the lender has applied adequate buffers and adjustments to income and expenses.

The ‘obvious’ exception

The new Code removes the previous example for when affordability is ‘obvious’ and introduces alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.

The Responsible Lending Code is in force 7 July 2022

The Code can be viewed at the link below:

The Minister’s press release and policy papers on the initial changes can be viewed below:

Govt updates responsible lending rules(external link) — Beehive.govt.nz

Public consultation

In April 2022, MBIE released an exposure draft of the Regulations and Code changes for consultation. This consultation closed on Wednesday 20 April 2022. You can view the exposure draft and submissions at the links below:

Exposure draft of updated Credit Contracts and Consumer Finance Regulations 2004 and Responsible Lending Code

Submissions on the exposure draft(external link)

Following consideration of submissions on the exposure draft, the Regulations and Code were updated to reflect the feedback received. The changes came into force on 7 July 2022. 

Investigation final report

While the initial changes were progressed, the remainder of the investigation continued in parallel. The Minister of Commerce and Consumer Affairs has now received a final report and advice from officials. The Report and the Government’s response have now been published.

The findings from the investigation include:

• The CCCFA changes have contributed to a drop in lending activity across a range of consumer credit products. The impact on home lending was found to be medium, with other factors such as LVR restrictions, increased interest rates, inflation and a general property market slowdown contributing to the declines in home lending that have been seen.
• While the CCCFA changes from 1 December 2021 are having some of the impacts intended, some unintended impacts are also emerging. This includes more borrowers across all lending types, who should pass the affordability test, being subject to declines or reductions in credit amount. Further, borrowers are being subject to unnecessary or disproportionate inquiries that they see as intrusive.
• The investigation found that these impacts are the result of more restrictive and onerous lending practices than had been expected following the CCCFA changes in December 2021. This has come about for several reasons, including the drafting of specific parts of the CCCFA Regulations, combined with interpretational difficulties, and lenders taking a conservative approach given the CCCFA’s strong liability regime. The prescriptive nature of the CCCFA changes and their application to almost all consumer lending also means that lending has been impacted outside of high-risk lending.

View the final investigation report:

Further changes announced August 2022

In August 2022, in response to the Report, the Government announced it is making further amendments to the Regulations to address remaining unintended impacts of the December 2021 CCCFA changes and improve safe access to credit for Kiwis.

The changes include:

Narrowing the expenses considered by lenders

The changes will narrow the expenses considered by lenders to exclude discretionary expenses more explicitly. This aims to alleviate the disproportionate inquiries made by lenders and reduce their overestimation of borrower expenses.

Providing more flexibility for lenders about how certain repayments may be calculated

The changes will ease conservative assumptions lenders are required to make about expenses associated with revolving credit contracts, particularly credit cards and buy-now pay-later schemes.

Expanding exceptions from a full income and expense assessment for refinancing of existing credit contracts

The changes will allow for debt refinancing or consolidation where it would make debt more manageable, ensuring lenders and borrowers can go through a faster process while improving access to safe credit for consumers.

The details of these changes will be subject to further consultation with lenders, financial mentors, consumer advocates and other interested parties through the release of an exposure draft of the amendment regulations. MBIE officials will open public consultation on the changes on 22 September. Following consultation, the changes could take effect in March 2023.

View the Cabinet paper and Minute confirming the Government’s decision to progress further changes:

The Regulatory Impact Statement is also available to view:

Related information

The affordability and suitability requirements introduced in December 2021 were part of a wider suite of changes to the CCCFA, Regulations and Code following a review by MBIE in 2018. The wider suite of changes introduced

• increased enforcement and tougher penalties
• an interest rate and cost of credit cap on high cost loans,
• new responsible lending laws for mobile traders
• additional registration and compliance requirements and responsible advertising standards
• improved transparency and access to redress before debt collection starts.

Further information about the 2018 review and these changes is available here:

Changes to consumer credit law 2020(external link)