He believes the “one-size-fits-all” approach is harming those the CCCFA is meant to protect.
Bayly believes it’s seeing vulnerable borrowers turn to “unregulated high-cost sources” for cash, while legitimate borrowers are denied access to credit for failing to tick the boxes.
Labour’s Commerce and Consumer Affairs spokesperson Arena Williams said Kiwis would be at greater risk from loan sharks as a result of today’s announcement.
“It’s important that New Zealanders can access safe, responsible and affordable credit,” she said.
“Kiwis can expect less protection from loan sharks and unaffordable debt as a result of today’s announcement.
“Labour responded to feedback, especially from first home buyers, that banks had gone too far. We made the initial set of changes to strike the right balance and ensure everyone can access credit effectively,” Williams said.
While the CCCFA has been praised by some for protecting people from predatory lenders, the financial services sector in particular has criticised it for being too cumbersome.
The previous government relaxed the rules in May 2023 and July 2022, acknowledging changes it made in December 2021 resulted in “unintended impacts”.
In coming months, Bayly will remove requirements around loan affordability assessments from the regulations.
Accordingly, lenders will be able to decide whether they need to see an applicant’s recent transaction history and verify all their sources of income.
They will no longer have to check how the amount a loan applicant says they spend on food, utilities, etc stacks up against a benchmark.
And lenders will be able to use their discretion to decide how thoroughly they investigate how a prospective borrower’s assets, or an inheritance they receive, would affect their loan repayments.
Cabinet has also agreed a more fulsome review of the CCCFA is necessary “to address areas of under-performance, including liability settings and disclosure obligations”.
The review will also consider whether there’s enough regulation around products or lenders that offer expensive high-interest loans.
FMA to oversee CCCFA
Cabinet has agreed to push ahead with what Bayly suggested in January, and transfer responsibility for overseeing the CCCFA from the Commerce Commission to the Financial Markets Authority (FMA).
Bayly believes this would be a better fit, as the FMA already oversees conduct in the financial services sectors.
Ultimately, he’s keen to streamline the various conduct-related requirements imposed on financial service providers.
Indeed, he has received Cabinet approval to clarify the requirements of the Financial Markets (Conduct of Institutions) Amendment Act (CoFI) regime, and review the conduct licencing framework in the Financial Markets Conduct Act to “ensure there is balance and flexibility”.
Dispute resolution system to be improved
Separately, Cabinet has agreed to align the rules various financial services dispute resolution schemes need to adhere to.
Financial service providers are required to sign up to a dispute resolution scheme their customers can turn to if they have a problem.
The Government is going to increase the maximum amount such schemes can award consumers to $500,000, to prevent people with larger disputes from having to go to court.
Bayly says it’ll also support the merging of two schemes - the Insurance and Financial Services Ombudsman Scheme and Financial Services Complaints Limited - from July 2025.
The other dispute resolution schemes are the Banking Ombudsman and the Financial Dispute Resolution Service.
The competing schemes have in the past been accused of being too “business-friendly” to attract members.
Having one fewer scheme should remove this perception at least and make it easier for consumers to know where to seek help if they’re unhappy with their financial service provider.
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.
