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A triumph for borrowers; Cabinet agrees to CCCFA reform
The Government has announced a reform on the Credit Contracts and Consumer Finance Act (CCCFA).
The Act was created in December, last year. Since it began, it has been highly criticised as being too restricted and unreasonable. The original intention was to ensure vulnerable borrowers would be able to get a loan that they can service confidently. Unfortunately, it has also meant that almost everyone else was being penalised too.
David Clark, Minister of Commerce and Consumer Affairs, says, there was “little enthusiasm for wholesale changes to the Act, but instead a preference for some practical amendments.”
There are many reasons why there has been a reduction in lending, and the CCCFA isn’t the main driver. But it does mean that Lenders will be able to process applications more quickly.
Steve Davies, Mortgage Adviser at Cole Murray, says “I am glad to see the government is relooking at the CCCFA rules. I am sure these changes will allow a more practical approach to mortgage lending.
“I understand it is necessary to have regulations to protect vulnerable borrowers and I feel that is where a mortgage broker is a real asset. They can help guide applicants, including vulnerable borrowers, through the application process. They get an understanding of the borrowers situation and can hopefully find some solutions that will suit them best.”
Proposed initial changes to regulations and Responsible Lending Code agreed by Cabinet:
- Removing regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into when assessing the borrower's future expenses.
- Clarification when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also enquire into their current living expenses from recent bank transactions.
- Clarifying that where lenders choose to estimate future expenses from recent bank transaction records, they are permitted to obtain information about how their current expenses are likely to change once the contract is entered into.
- Clarifying the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly, rather than relating to information from bank transaction records.
- Providing further guidance on when a lender needs to allow for a ‘reasonable surplus’ and how lenders should set surplus requirement.
- Providing 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.
Important to note: the changes are not the final word.