On 31 March 2025, the Government announced a major reform package for the regulation of financial services (see our previous article).

This article looks at the key changes proposed to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) under the Credit Contracts and Consumer Finance Amendment Bill (Bill). These changes seek to rebalance the need to protect consumers, without placing an undue regulatory burden on lenders. 

Change of regulator

One of the key changes would be to transfer regulatory responsibility for the CCCFA from the Commerce Commission to the Financial Markets Authority (FMA). We understand that this is already underway with staff transfers in train, following a Ministerial directive some time ago. So, the Bill’s regulator change is more of a formality, but an important one nonetheless.

Financial service providers, including banks and other lenders, are currently accountable to three regulators: the FMA, the Commerce Commission, and the Reserve Bank. In practice, this has led to overlapping and sometimes inconsistent regulatory regimes and a significant compliance burden on lenders, without any clear benefit to consumers.

The proposed changes will simplify this landscape to avoid such overlap, as follows:

• The prudential regulation of banks, non-bank deposit takers (NBDTs), and certain other financial institutions will be the responsibility of the Reserve Bank. This goes to matters such as the institutions’ capital adequacy requirements, outsourcing restrictions, etc.
• The regulation of financial institutions’ conduct in relation to their customers and others will be the FMA’s responsibility. This goes to matters such as their responsible lending and other CCCFA duties, Financial Markets Conduct Act 2013 (FMCA) duties, etc. 
• The Commerce Commission will no longer be involved in regulating financial institutions as such (although it will remain the regulator under general legislation that can affect financial institutions, such as the Commerce Act 1986 and Fair Trading Act 1986).

Replacing the Commerce Commission with the FMA as CCCFA regulator makes sense in our view, as the FMA already regulates the conduct of financial institutions in a number of areas that overlap with the provision of credit. This change avoids unnecessary duplication of investigations, information requests, and enforcement processes and allows the Commerce Commission to focus on other regulatory priorities.

Licensing

Following on from the change of regulator, the Bill also proposes a change in the approach to licensing of financial service providers. Currently, the following regimes apply:

• Under the CCCFA, consumer lenders (or their directors and senior managers) must be certified as fit and proper persons by the Commerce Commission, unless they are already licensed by the FMA or are registered banks or licensed NBDTs.
• By contrast, the FMCA provides for a licensing model for specified market services (eg for providing financial advice services), with different market service licenses issued depending on the specific services provided by an entity.

The new Bill will allow the FMA to run one market services licensing regime for all FMCA-regulated entities, removing the CCCFA’s “fit and proper” certification requirement for consumer lenders. The FMA will be given powers to monitor license holders. This includes the power to impose conditions on licenses, and suspend or cancel the licences in cases of misconduct. 

The CCCFA reforms discussed in this article are part of a broader reform to financial services regulation. You can read more about the proposed overall changes to the licensing regime here.

Practically, this change is unlikely to have a significant impact, as lenders that are currently certified by the Commerce Commission (or exempt from such certification, such as registered banks) will be deemed to hold the appropriate FMCA license. However, the FMA will be able to impose conditions on deemed licenses in the same way as if it had actively issued the license.

The new consolidated FMCA licensing regime will not affect the requirement for registration or licensing under other legislation as applicable, such as registration on the Financial Service Providers Register for all financial service providers, registration as a bank or licensing as an NBDT under the banking or NBDT legislation, etc.

Removal of personal liability for directors

Under s59B of the CCCFA, directors and senior managers of a consumer lender must currently exercise due diligence to ensure the lender complies with its duties and obligations to consumers (including disclosure). Penalties of up to $200,000 are payable by individuals found liable for breaches of this duty.

The goal of s59B was to incentivise consumer lenders to improve processes and improve accountability. However, according to the Ministry of Business, Innovation & Employment, a 2022 investigation found that the pendulum had swung too far and the personal due diligence liability was, at least in part, driving overly conservative lending practices and poor outcomes for consumers (including excessive compliance costs and substantially longer processing times).

We are not aware of any directors or senior managers being held liable under s59B since its introduction in December 2021. However, these changes were clearly intended to rebalance risk decisions around compliance. That said, while the purpose of the CCCFA is to protect consumers, that purpose is stifled if consumers cannot freely access credit because compliance concerns are causing lenders to be overly risk averse.

Accordingly, the Bill will repeal s59B, and so the directors’ and senior managers’ due diligence duty will fall away. The consumer lender will itself remain subject to penalties for compliance failures (subject to the amendments discussed below), as will individuals who engage in deliberate contraventions.

Changes to consequences for various disclosure failures

Under the current s99(1A) of the CCCFA, if initial or variation disclosure has not been made under a consumer credit contract, the borrower will not be liable for the costs of borrowing (including interest) for the period in which the required disclosure was not made. This applies even if the required disclosure might be made at a later date: a subsequent disclosure does not cause the previous costs of borrowing to become recoverable, but only enables the lender to enforce the subsequent costs of borrowing.

This potentially disproportionate consequence was softened in 2019 by the addition of s95A, which gave the Courts the power, upon application by the lender, to reduce the effect of a failure to make disclosure if that was considered ‘just and equitable’. This left open the possibility of a lender being permitted to enforce some or all borrowing costs, even if proper disclosure had not been provided.

However, the Bill goes further and reverses the current default position. It will repeal s99(1A). Instead, under the proposed new s94AA, a Court will need to make an order that the costs of borrowing are not payable as a result of non-disclosure, rather than the onus being on the lender to obtain a Court order that they are payable. In determining the application, it will be mandatory for the Court to have regard to certain specified matters. These will include the new s94AA’s role in incentivising compliance, the lender’s compliance programme, and the extent to which any person has been prejudiced by the non-compliance.

Accordingly, the Bill’s Explanatory Note states that a Court will be able to order the costs of borrowing to not be payable if the disclosure failure caused loss or damage and the Court considers other orders insufficient.

Impact on current proceedings

The discretion given to the Court under s95A came into force on 20 December 2019. It was not given retrospective effect. This was consistent with the general policy against retroactively removing vested rights (in this case a borrowers’ vested rights). This means that disclosure failures that occurred before 20 December 2019 are currently governed solely by the strict s99(1A) rule, without the possibility of relief under s95A.

Unusually, however, the Bill proposes to give the Courts retrospective powers to apply (as a transitional measure) the existing s95A regime to extinguish or vary the effect of s99(1A) for disclosure breaches that predate 20 December 2019 (in relation to contracts entered into on or after 6 June 2015, which was when s99(1A) came into force).

In practice, this means that the Courts will also have a broad discretion to determine the consequences of historic non disclosure under the existing s95A.

Even more unusually, the Bill specifies that this change will apply to matters currently before the courts, including referencing by name the class action currently proceeding against ANZ and ASB Banks in relation to historic non-disclosure.

This would be a significant blow to the plaintiffs in that case, as it would empower the Court to look at whether the disclosure failures had caused loss and to determine consequences on the basis of what is just and equitable under the existing s95A, rather the strict obligation imposed by the current s99(1A).

Get in touch

If you have questions about the impact of these changes on your business or if you require assistance to make a submission to the Select Committee on the Bill, please reach out to one of our experts.