The amendment aims to reduce lenders’ risk aversion, which Commerce and Consumer Affairs Minister Andrew Bayly believes is creating economic roadblocks and inefficiencies.
“While it is totally appropriate that lenders should be accountable for poor lending practices, extending these requirements at a personal level is a step too far,” Bayly said.
“I expect this change will lead to less conservative lending practices.”
Lenders to be given leeway for poor disclosure
A second CCCFA change agreed to by Cabinet will prevent a lender from being taken to court for inadequately or inaccurately disclosing information about a product, provided this doesn’t harm a borrower.
Rather than make the lender prove its mistake didn’t cause harm, the onus will put be on the consumer to prove they were harmed.
Bayly said lenders in the wrong would still have to reimburse customers, but the idea was to ensure penalties were proportionate.
“This will reduce the administrative burden on lenders, lead to more common-sense decisions, and reduce the number of incidences where lenders are punished despite a lack of harm.”
To date, there have been a few instances where banks have had to reimburse customers for inaccurate disclosures.
For example, in 2020, ANZ agreed to pay customers $29 million after it admitted a coding error in a loan calculator led to it miscalculating interest payments.
New licence to be created
While these changes will remove consumer protections, Cabinet has also agreed to require consumer credit lenders to hold a licence with the Financial Markets Authority (FMA).
As previously signalled, the FMA will become responsible for overseeing the CCCFA. Permanent Commerce Commission employees who currently do this work will be offered jobs at the FMA.
Profile of dispute resolution schemes to possibly be improved
Bayly also has his eye on the various industry-funded dispute resolution schemes, including the Banking Ombudsman and the Insurance and Financial Services Ombudsman, that consumers can turn to if they have a problem with their financial service provider.
He wants to better measure the performance of these schemes against set targets.
He’s looking at working with the industry to create a single portal consumers can use if they don’t know which dispute resolution scheme their provider is a member of.
“Many everyday New Zealanders don’t know where to go to get help,” Bayly said.
“A single ‘front door’ for the various services will simplify this process and improve awareness.”
He made announcements of the plans at an industry event on Wednesday night, hosted by the Financial Service Council.
Conduct licensing to be streamlined
Bayly confirmed Cabinet agreed to make other, previously signalled, changes to streamline the way the conduct of financial service providers (banks, insurers, and non-bank deposit takers) is regulated.
The adjustments will be made as a new regime, born of the high-profile 2017-19 Australian Royal Commission Inquiry into financial services, is implemented in March.
The Conduct of Financial Institutions regime has been several years in the making and is designed to ensure financial service providers treat their customers fairly.
With some institutions complaining about the rules being an administrative nightmare, Bayly committed to removing some of the more prescriptive requirements.
He also confirmed that once the regime is in place, the existing conduct licences that financial service providers hold will be grandfathered into the new single conduct licence issued by the FMA.
No-notice FMA inspections to be allowed
The FMA will be given more powers, including to do onsite inspections without notice (as a last resort), as well as to review a change in control of a business before the change happens.
“These changes should be viewed as a package,” Bayly said.
“First, we need clear rules, responsibilities, and regulation. Then we need appropriate regulatory tools to enforce the rules. And finally, we need strong dispute resolution services so there is a backstop when things go wrong, and bad lending is held to account.
“Our Government is clear-eyed about the fact that access to debt is a fact of life, so these reforms are all about making it simpler to access finance, but also simpler to enforce good lending practices.”
Jenée Tibshraeny is the Herald’s Wellington business editor based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
