The Government has announced that it is taking out 11 pages’ worth of affordability rules for lower-risk consumer lending. While detail of the exact changes have not been published, the stated aim is to unwind the prescriptive criteria added to the Credit Contracts and Consumer Finance Regulations 2004 in December 2021.

The dispute resolution limits and processes are also being aligned for all approved dispute resolution services (DRS), with effect from 18 July 2024.

The Government further confirmed a change in policy direction on broader licensing reforms and right-sizing of the fair conduct licensing regime in the Financial Markets (Conduct of Institutions) Amendment Act 2022 (CoFI), with consultation to follow.

CCCFA

The Government has confirmed a phased approach to amending the Credit Contracts and Consumer Finance Act 2003 (CCCFA).

Phase one will unwind the affordability testing regulations introduced by the previous Government. Details and timing for those changes have not yet been released. The Government’s intention is to reduce compliance costs and barriers to obtaining credit, and to allow lenders more flexibility in their decision making. Lenders will still be required to act responsibly to avoid causing borrowers hardship, but the rules on how the lenders must assess credit affordability will be less prescribed. An update to the Responsible Lending Code is being developed to ensure lending remains affordable once the existing regulations have been revoked.

Other phase one changes introduced by amendments to the CCCFA’s regulations (to come into force on 25 April 2024) include the following:

• The existing partial exemption from the CCCFA is being expanded for businesses that principally provide non-financial goods and services, and who provide credit on an interim basis as part of doing so (such as where car dealerships write credit contracts on cars they sell, but assign the contracts within one working day to a finance company). It now also exempts such businesses from the CCCFA's annual return requirements if certain conditions are met.
• The existing partial exemption from the CCCFA for local authorities’ voluntary targeted rate schemes (where they provide credit in connection with rating units, for example, where they finance heat pump installations in homes and recover the cost by targeted rates) is being replaced with a full exemption from the consumer credit rules of the CCCFA. Local authorities may still need to consider their obligations under the anti-money laundering regime.

Phase two will see a more comprehensive review of the CCCFA, at which point the Government will engage in public consultation.

Approved dispute resolution services 

A DRS resolves complaints and disputes between retail clients and their financial services provider (FSP). If a FSP provides financial services to retail clients, it must belong to one of four approved DRS. Currently, the four DRS have different financial caps, interest award provisions, and time limits for submitting complaints, but for complaints made on or after 18 July 2024, these will be standardised across all four DRS.

Compensation is changing as follows:

• The lump sum cap for direct compensation will be $500,000 (or a higher amount agreed between the FSP and complainant).
• The weekly amount cap for direction compensation will be $2,600 per week (or as specified in the rules or agreed between the FSP and complainant, if higher).
• The special compensation cap for non-financial loss, stress, humiliation, and inconvenience will be $10,000.
• Interest will be payable from the date on which any delay in paying becomes unreasonable and the rate will be calculated in accordance with Schedule 2 of the Interest on Money Claims Act 2016.

Customers with a complaint against their FSP must first complain to the FSP. After that:

• Customers can use the DRS process after the period specified in the DRS rules or two months after they complained to their FSP, whichever is shorter, if the FSP has not decided the customer’s complaint in that time or the customer is unhappy with the FSP’s decision.
• If a customer is unhappy with their FSP’s decision, they must complain to the DRS within 3 months of receiving the final decision and deadlock notice. The DRS may extend this to 9 months in exceptional circumstances.
• Customers must complain to the DRS within 6 years of becoming aware (or when they should reasonably have become aware) of the facts or events giving rise to the complaint.

FSPs and DRS should review their published complaints processes to ensure they align with the new standard provisions for complaints received from 18 July 2024.

Review of licensing and supervision

The Government is planning further financial services reforms and will be consulting on the following later this year:

• Streamlining multiple market services licences
• Targeted review of CoFI requirement to ensure good conduct obligations are proportionate and fit-for-purpose
• Progressing legislative reform to transfer regulatory responsibility for the CCCFA from the Commerce Commission to the Financial Markets Authority.
• Reviewing the accessibility and effectiveness of the financial dispute resolution system.

Next steps

If you would like to discuss how these reforms affect you, please get in touch with any of the specialists below, or your Simpson Grierson contact who can assist you to liaise with the right person.

Special thanks to Hamish MacDonald for his assistance in writing this article.