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CCCFA law changes: Plan ahead and be patient

The law around lending money to consumers in New Zealand will change on December 1, and customers may find the process takes longer and is more involved.

 

Changes to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) will impose stricter duties on all lenders, including banks, to make inquiries and ensure lending to consumers is likely to be suitable and affordable.

 

The changes aim to protect New Zealanders from predatory lending by high-cost lenders, but the rules have been applied to all lenders across the industry, including banks.

 

The rules around checking affordability, in particular, are very strict, and require all lenders to capture and check specific information about a customer’s income and expenses before granting them credit. That includes personal loans, home loans, home loan top-ups, credit cards, overdrafts, and increased credit limits.

 

Lenders must also keep more extensive records of their suitability and affordability inquiries and lending decisions, and will risk harsh penalties if they haven’t assessed those things appropriately.

 

The changes mean customers should plan ahead and be patient, as the process will take longer.

 

Customers will be asked more in-depth questions about their finances and some customers may find it more difficult to get credit than they have in the past.

 

Financial wellbeing

 

Carefully assessing suitability and affordability when making decisions around lending is a fundamentally important part of our role as bankers.

 

At the heart of that is the need to balance convenience with protection.

 

We know customers need accurate and timely decisions from us around what they can borrow, but it is in everyone’s interests that those decisions take a customer’s financial wellbeing into account as well.

 

Previously, lenders had some ability to use careful discretion when assessing a customer’s situation and whether the loan was likely to be repaid without issue, including considering the customer’s previous history, assets, and other factors.

 

But from December 1, before saying “yes”, lenders will need to collect more information, and the money an applicant has left over each week may need to be higher than previously to secure lending.

 

Customers may find this process more in-depth, and even customers who have a relationship with ANZ going back many years will be assessed using the same criteria as someone who is new to the bank.

 

Assessing affordability

 

Lenders will need to collect a lot more information from customers about their financial situation, including their income and expenses, than they previously would have, and will need to check the information is correct.

 

When assessing affordability under the new rules, lenders need to work out if customers have a ‘reasonable surplus’ left after they’ve paid their expenses from the income used to pay their loan. Requiring a reasonable surplus helps cut down on the risk of overstating income or understating expenses in affordability assessments.

 

While the surplus considered ‘reasonable’ isn’t spelt out in the new laws, lenders have to act responsibly and make sure there is enough of a buffer to protect the borrower.

 

Lenders may ask for documents showing a customer’s recent transaction history over the previous 90 days, at least, and other information that allows them to identify and verify a customer’s debts and expenses.

 

Customers can do some things to help speed up the process:

 

  • Check you have 90 days’ worth of bank statements for the account or accounts used to pay expenses from (this could include a credit card too).

 

  • Get evidence of your income. If that’s in your bank statements – that’s perfect, otherwise, we may need pay slips, employment contracts, or other documents that show that income.

 

  • Electronic copies of your statements and other evidence are preferable and will considerably speed up the assessment process – check with your lender on format.

 

  • Try to get a good idea of your current expenses – how much you spend each month on food, utilities, travel and other things.

 

Customers should also have a think about what their current expenses are, and how they could (or should) change after they receive the lending.

 

We may not get down to individual expenses, like how much customers spend on coffee each day or their take-out habits. But we will need to check how much customers spend in a range of categories, like paying off debts, and living expenses like food, utilities, travel, etc.

 

It’s a good idea to regularly assess your financial wellbeing – having less debt and more spare money will put you in a stronger position.

 

ANZ’s Financial Wellbeing Programme could be a good place to start.

 

For media enquiries contact Briar McCormack +64 21 2801173

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