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: