About the CCCFA regulations
The Responsible Lending laws (Credit Contracts and Consumer Finance Act 2003 (CCCFA)) around lending money have been evolving.
From 1st December 2021, as a consumer, you will need to provide more information to lenders so they can determine your suitability and loan affordability.
Yes, that will mean lots more questions, more invasive questions, and lots more paperwork to provide evidence of your income and how you spend your money! This may include any variations on your current loans. As a result, there is a much higher chance that you will be declined a loan if your finances are already tight and you are not already saving.
Why have the credit laws changed?
The Government and Non-Profits identified back in 2011 that harm was being done by loans which were not affordable. This meant families and children were living in poverty due to loan repayments being beyond their means. Families were caught between providing for their children, or paying their loans and protecting their credit rating. Families were then resorting to and needing extra help from charities, government departments, extended family, and non-profits to survive.
Those people whose credit ratings were effected and had bad credit, were then forced to go to even less scrupulous lenders and charged huge interest rates and short payback terms. This even further exasperated the issue.
In 2015 laws were introduced and a Responsible Lending Code came in force. Unfortunately, the rules were not followed very vigorously and there were few consequences if laws were broken. So, the rules were re- written and the Responsible Lending Code updated to be more prescriptive, as to what information was required to be gathered and assessed for affordability. Strong penalties were added to incentivise compliance.
The suitability and affordability rules of the CCCFA laws came into place 1st December 2021.
What information is required for a loan?
Unless you have obvious affordability, a full assessment will need to be done to collect sufficient information to minimise the risk of relevant expenses being missed to a material expense.
1. Expenses
The lender can collect information on your expenses by:
a) asking you about your relevant expenses and/or
b) obtaining at least 90 days of bank transactions
This information will then need to be verified if there is a significant risk of expenses being underestimated (for example, due to a lack of transparent bank account data). In the process of verifying the information, more evidence may be required (e.g. copy of invoice); or a higher benchmarkable/statistical figure(s) or an estimate of a reasonable cost may be used instead of initial information provided.
Relevant expenses to be included are:
a) Fixed Financial Commitments eg rent, insurance, rates, school fees, child support.
b) Debt Payments (these will be verified against credit reports)
c) Living Expenses including utilities, food, dependent’s costs, medical costs, transport.
d) Any Regular or Frequently recurring outgoings (that fall in relevant period of the date agreement starts and earlier of 1yr or when agreement finishes) e.g. savings, investments, gyms, donations, entertainment – that are material to the estimate and the borrower in unwilling or unable to cease.
2. Income
In terms of income, the Lender must verify each source and may disregard income that the borrower does not rely on. The Lender must then ask you about any likely changes in income.
The Lender must then be satisfied on reasonable grounds that it is likely that the borrower will be able to make the payments without suffering substantial hardship. This means the likely income exceeds the likely expenses and there is a reasonable surplus or buffers to address any risk that income was overestimated or expenses underestimated.
So, if you are currently regularly spending all your money and not saving anything, you will not be able to meet the affordability, unless you are able and willing to cease spending on items outside of the normal living expenses; fixed financial and debt payments.
If you don’t have a surplus after your fixed financial commitments, debt payments and living expenses, then it is unlikely that you will have loan affordability. For more support on your options in this situation click here
If the Lender is not gathering or following the above process, then the Lender may be breaking the law.
Penalties and Non-Compliance
Directors and Senior Managers now have due diligence duties to ensure that the staff and the systems and processes are in place, to ensure compliance with the CCCFA Act. Records must be taken and provided on request, to demonstrate compliance.
Penalties of up to $600k for companies and $200k individuals are now in force. Directors and Senior Managers may also be liable for statutory damages and compensation, and can not be indemnified or insured in relation to penalties under the Act.
Do you believe you have been wrongly approved for a loan?
If you believe you have wrongly been approved for a loan you can’t afford, you can seek Independent Advice and/or first take this up with the Lender. If the Lender doesn’t cooperate you can then lay a complaint with the Lender’s Dispute Resolution Scheme (these are independent of the lender and free), and they will start an investigation if necessary. There are four, and your Lender or a google search will be able to tell you which they are in:
Banking Ombudsman Scheme
0800 805 950
help@bankomb.org.nz
www.bankomb.org.nz
Insurance & Financial Services Ombudsman (IFSO)
0800 888 202
info@ifso.org.nz
www.ifso.nz
Financial Services Complaints Ltd (FSCL)
0800 347 257
info@fscl.org.nz
www.fscl.org.nz
Financial Dispute Resolution Service (FDR)
0508 337 337
enquiries@fdrs.org.nz
www.fdrs.org.nz
Have Any Other Questions?