The government announced changes to the Credit Contracts and Consumer Finance Act less than four months after the responsible lending rules were tightened to protect those most at risk from loans with conditions and interest rates they could not afford.
After feedback from banks, other lenders and consumers, and a petition signed by more than 10,000 people was presented to government, Commerce and Consumer Affairs Minister David Clark said government was making practical amendments to curb any unintended consequences of the Act.
Frustrated borrowers and lenders have been railing against the new rules, finding them too strict, the information required too intrusive and unreasonable, and the time needed to process applications excessive.
CCCFA reforms
The changes to the act mean lenders will no longer have to spend time trawling through bank accounts looking at daily spending. Lenders will not have to use current spending as an indicator of future spending, so no more inquiring into current living expenses from recent bank transactions. Lenders will just need to take an average cost of living and look at what is spent on fixed expenses.
Nor will lenders need to inquire into regular ‘savings’ and ‘investments’ as examples of outgoings.
Guidance and examples for when it is ‘obvious’ that a loan is affordable are also provided, in which case a full income and expense assessment will not be required.
These changes mean loans will be able to be processed more quickly. Because of the time needed to go through three months’ worth of bank statements, itemise every item, decide whether it’s a regular payment, and then go back to check with clients, some lenders have said it had been taking about six times longer, on average, to process applications than before the new CCCFA rules had come into effect on December 1, 2021.
Changes in lending patterns
Since late 20021, there has been a distinct drop in mortgage applications and approvals, but the CCCFA may not have been the main driver in reduced lending.
Banks’ lending criteria has been affected by global economic conditions, such as inflation, increases to the OCR, LVR changes and an increase in house prices and local government rates.
Maintaining the intent of the Act
There are many in the industry who support the CCCFA as it stood and believe it had brought about a fairer playing field. It had meant mobile or payday lenders – like truck shops – had virtually disappeared from the landscape, so fewer people were being sold a loan they couldn’t afford: the key intent of the Act.
Borrowers are not all the same
The key, we believe, is that the CCCFA had a one-size fits all approach that just wasn’t working. The ideal would be for the CCCFA to work in a way that doesn’t restrict access to responsible lending for consumers who can afford it, while still ensuring vulnerable consumers are protected from finding themselves with unaffordable debt.
It is hoped these latest amendments, which should take effect by early-June, provide those changes. But as Minister David Clark stressed, this is not the final word on the CCCFA and any further changes will be considered announced in April.
Good news is our mortgage advisers have been successfully able to navigate the CCCFA while it has been implemented and get loan approvals for a lot of its customers. So if you don’t want to wait sitting on the fence, then contact our mortgage advisers today for a successful lending outcome.
**These are general guidelines and are by no means a reflection of bank or lending policies