Government announces lending changes

Andrew Bayly and Chris Bishop in Auckland today announcing lending changes by the government....
Andrew Bayly and Chris Bishop in Auckland today announcing lending changes by the government. Photo: RNZ
The government has announced it will reform financial services in a bid to make it easier to get home loans and other lending, and strengthen customer protections.

Commerce and Consumer Affairs Minister Andrew Bayly and Housing Minister Chris Bishop made the announcement on Sunday afternoon. It comes as part of the National-ACT Coalition agreement to update the Credit Contracts and Consumer Finance Act (CCCFA).

Bayly said regulations introduced by the last government created unnecessary compliance costs and an excessive barrier for lending.

"We are revoking 11 pages of overly prescriptive affordability regulations, introduced by the last government, to enable Kiwis to access finance with confidence," Bayly said.

"When the affordability regulations were introduced into the Credit Contracts and Consumer Finance Act 2003 (CCCFA) in December 2021 it threw a bucket of cold ice over banks and financial providers by prescribing minimum steps to assess the affordability of a loan.

"The overly arduous checks meant the time it took to process loans dramatically increased. Lenders told me that a small loan that used to take two hours to process suddenly took up to eight hours."

He said it became very difficult for people to borrow $500 to fix their car, forcing them to go to high-interest loan sharks.

The changes would still require lenders to act responsibly, but they would not have to follow a prescriptive, one-size-fits-all process, he said.

Housing Minister Chris Bishop said the time it took to process a home loan had increased substantially, making it harder for people trying to get into the market.

"Home buyers have had it hard enough over the past six years under Labour, what with extraordinary house price inflation, interest rates that went through the roof causing untold pain, and these ridiculous CCCFA changes making it much harder to get a mortgage," he said.

Those requirements for assessing the affordability of loans were expected be revoked in coming months. "Redundant" Covid-19 exemptions from the CCCFA would also be removed.

Once that was complete, the Responsible Lending Code would also be updated for lenders.

The government said it would break down changes into two phases.

What are the changes to the dispute resolution scheme?

The rules of the four approved financial dispute resolution schemes - Banking Ombudsman, the Insurance and Financial Services Ombudsman, Financial Services Complaints Limited, and the Financial Dispute Resolution Service - will be aligned and the maximum amount the schemes can award will increase to $500,000.

The government aims to have the regulations providing for the changes in place by 18 July.

The government is also supporting the proposed merger of the Insurance & Financial Services Ombudsman Scheme (IFSO) and the Financial Services Complaints Limited (FSCL) from 1 July 2025, which was announced on 19 April.

It is hoped this will help streamline services, create operational efficiencies, and remove duplication.

Exemptions under CCFA

By 25 April, local authorities will be exempted from the CCCFA to allow them to administer voluntary targeted rates schemes - such as loans to install insulation or heat pumps - without incurring unnecessary compliance costs.

By the same date, entities whose primary business is non-financial goods and services, such as certain car dealers, will be fully exempted from duplicative reporting requirements under the CCCFA.

New role for Financial Markets Authority

Earlier this year, Bayly announced the responsibilities for overseeing CCCFA would be transferred from the Commerce Commission to the Financial Markets Authority.

The minister said the change better aligned with the existing roles and responsibilities of the various financial service regulators.

Phase two of the reform will include:

• streamlining three pieces of legislation - CCCFA, Financial Markets (Conduct of institutions) Amendment Act 2022 and Financial Service Providers (Registration and Dispute Resolution) Act 2008. Public consultation on these reforms will commence in the next few weeks

• review the CCCFA, including the liability settings, disclosure obligations, and high-cost credit provisions

• improving the effectiveness of the financial dispute resolution system

• making amendments to support transferring responsibility for the CCCFA from the Commerce Commission to the FMA

• clarifying the requirements of the Conduct of Financial Institutions regime and reviewing the conduct licensing framework in the Financial Markets Conduct Act to ensure there is balance and flexibility.