Crunch time for credit rules

The Financial Services Federation (FSF) is urging a parliamentary select committee to endorse proposals that it says will restore balance to consumer credit laws after previous changes “missed the mark”.

The call comes after the federation has made submissions on the Credit Contracts and Consumer Finance Amendment Bill and the Financial Markets Conduct Amendment Bill.

Submissions on the changes outlined in both bills are being considered by Parliament’s Finance and Expenditure Committee, which is due to report on its findings in October.

The FSF, which represents non-bank lenders, including vehicle finance companies, says this is a crunch time for consumer credit rules. 

It notes proposals for the Credit Contracts and Consumer Finance Amendment Bill seek to “unwind some of the more oppressive conditions placed on lenders in December 2021 through the last review”. 

The bill also provides the legislative framework for the transfer of consumer credit regulation from the Commerce Commission to the Financial Markets Authority (FMA). 

Meanwhile, the Financial Markets Conduct Amendment Bill proposes, among other things, a single market services licensing regime for financial services providers. 

Lyn McMorran, FSF executive director, says: “Past reviews and reforms have missed the mark, adding costs and complexity without delivering better outcomes for borrowers. 

“Despite clear warnings from the sector that the last round of reforms would create unnecessary barriers to accessing credit, changes ploughed ahead anyway. 

“The result? Lending all but grounded to a halt at the end of 2021 and many everyday New Zealanders found it harder than ever to access the credit they needed for a home, a car, or simply managing through life’s transitions.”

The FSF, whose members represent 49 per cent of personal consumer loans in New Zealand, considers the amendments as vital to restore balance, making responsibly provided credit more accessible while ensuring protections for consumers. 

“This is about putting credit back within reach of everyday Kiwis while keeping consumer protection safeguards in place,” adds McMorran, pictured.

“Responsible lenders want to help customers, not lock them out to search for the lender of last resort, and enforcement of responsible lending laws to deal to players who may act outside of these is key. 

“The transfer of regulatory responsibilities from the Commerce Commission to the FMA is not simply a change in signage, the FMA is resourced and structured to take a more assertive approach to bring irresponsible lenders to account.” 

After major changes in 2021, the Credit Contracts and Consumer Finance Act (CCCFA) has been tweaked by governments in 2022 and 2024 but the FSF hopes the current bills will be the last amendments for some time.

It says getting these reforms right will boost consumer choice and help fuel broader economic growth through investment in innovation and competition. 

“We’re calling for a period of stability once these reforms are through, so lenders can focus on serving customers and investing in better products – not constantly retooling to keep up with shifting regulatory goalposts,” continues McMorran.

 “Credit laws might not be the most glamorous headline, but these decisions impact how New Zealanders live, work and get ahead. This time, it’s essential we get the balance between access and protection right.” 

FSF’s top five requests in submissions 

Common-sense protections 

The FSF says it supports several consumer protections that will remain in the CCCFA and, provided these are properly enforced, does not believe proposed changes will see an increase in irresponsible lending. 

These include retention of the definition of high-cost lending, restrictions on interest that lenders can charge and the legislative protections from oppressive contracts and oppressive behaviours. 

Directors and senior managers 

The FSF supports removing the provision that makes senior managers and directors of consumer credit providers personally liable, to the tune of $200,000, for any breach of the act, which also cannot be insured or indemnified against. 

It says removal will give confidence to good people to remain in the sector and attract others to it.

The FSF adds the rule is a significant inhibitor to credit access because it has led to credit providers taking an overly conservative approach to avoid the possibility of personal liability.

Two sides to a contract 

The FSF has again asked officials to consider reintroducing section 9C(7) as one of the lender responsibility principles, which was removed in the 2019 amendments. 

This clause stated that the lender may rely on information provided by the borrower or guarantor unless the lender has reasonable grounds to believe the information is not reliable.

The FSF explains lenders have an obligation to lend responsibly, ensure a product is suitable to meet a borrower’s objectives, and that the borrower has provided sufficient information to make an informed decision about taking out the loan. 

At the same time, it believes there should also be an obligation for the borrower to provide accurate information about their income and expenditure at the time of applying for the loan, and that they are satisfied they understand the terms of the loan they are entering into.

“The removal of Principle 9C(7) from the act largely took away any obligation on the part of a borrower to act responsibly with respect to their side of the contractual relationship with the lender,” adds the FSF. 

Reinstating this principle will mean lenders who are unsatisfied with the information provided should make further inquiries or seek more verification, particularly where they assess the borrower could be in more vulnerable circumstances. 

Disproportionate disclosure consequences

The FSF supports proposals to remove section 99(1A) of the CCCFA, which in effect could make a lender liable to refund all costs associated with a loan for even a small error in disclosure, such as a wrong digit in a phone number. 

“This consequence would be disproportionate with such a technical legal breach, especially if there was no harm to the consumer.” 

The Reserve Bank estimates this has the potential to impact the financial system by about $13 billion, money the FSF explains could instead be spent on investing in better products for consumers and businesses.

Streamlining licences 

Currently, there are multiple, separate licences that financial services providers must have in order to operate. 

The proliferation of overlapping licensing regimes by previous governments has long been something the FSF has argued against. 

“The fact that a financial institution could be required to hold six different licences for what is essentially the same activity is messy, regulatory overreach,”. 

The Financial Markets Conduct Amendment Bill aims to introduce a single market services licensing regime, “a welcome alternative to current requirements that will remove undue compliance costs and improve outcomes for consumers”.