Credit Loan Nightmare with latest amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
I have received many complaints from brokers and lenders, particularly to lower social-economic groups, whose clients are finding it almost impossible to borrow money.
This is not about first home buyers or the price of properties in Auckland.
This is about borrowing a small amount of money to get by for Christmas and other needs.
The new Credit Contracts and Consumer Finance Act (CCCFA) changes do not help either the borrower or the lender.
Patrick Wilson, Managing Partner, Stace Hammond Lawyers said that the recent changes to the Credit Contracts and Consumer Finance Act 2003 were intended to stop loan sharks taking advantage of disadvantaged and lower socio-economic borrowers
Patrick Wilson, Managing Partner, Stace Hammond Lawyers (Photo Supplied)
“However, they have in fact had the unintended consequence of forcing those groups to loan sharks. For example, Credit Unions, which are mutuals where the borrowers are members of the financial lender, know their borrowers well and even provide such things as budgeting advice to ensure that their borrowers can meet their commitments. Many of their members cannot get banking assistance anywhere else and are dependent upon the credit union for reasonable loans to help them financially survive. But as a result of these recent legislative changes credit unions have been hampered in their work (which as they are non-profit organisations, they see their dealings with members as more than just a profit-making opportunities) and in many instances cannot lend as a result of the new restrictions. Consequently, credit unions are reporting members being in tears and quite likely forced to go to loan sharks to get financial assistance from lenders who otherwise do not care about the legislative restrictions,” he said.
The onus placed on lenders, mortgage brokers and financial advisors are so severe, that some are contemplating quitting and moving jobs. The risk, they say, is not worth it. The affordability and suitability assessments are madness, consuming a lot of time and proving stressful to both borrower and lender.
From October 1, 2021, consumer lenders are required to be certified by the Commerce Commission. In addition, they should adhere to the following: (a) Amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) will require directors and senior managers of creditors to exercise due diligence to ensure creditors comply with CCCFA obligations, and to be certified by the Commerce Commission as ‘fit and proper’; and (b) Amendments to the Credit Contracts and Consumer Finance Regulations 2004 (Regulations) will prescribe minimum standards for lenders’ assessment of suitability and affordability of consumer loans.
‘Fit and proper, exercise due diligence, suitability, affordability’ are already difficult words for seasoned players, let alone someone new and untrained. Why would anyone make it so difficult, placing onerous processes for small-time borrowers?
Non-compliance may result in penalties of up to $200,000 for an individual or $600,000 in any other case.
What must the lender do to determine if the loan is “suitable for a borrower?” What does that mean if I need money for Christmas? How can a lender verify my expenses in detail? How much time does compliance take? What questions do the lender or broker need to ask before they are satisfied?
It is understandable that if the lender is lending money hundreds of thousands of dollars with or without security, but we are not talking about that segment.
In the haste to protect the borrowers and banks, the government punishes the non-bank lender and the small players victimising the vulnerable.
There are many “other” lenders, under the radar, which lend money to the vulnerable at exorbitant interest rates, on top of management ‘fees’ that are unconscionable.
Illegal lenders sill thrive
I believe that the illegal money lender business will thrive, making the vulnerable more susceptible to further debt, exacerbating an untenable position and putting enormous stress on families.
The new rules not only require lenders to estimate borrowers’ income and expenses, but also verify expenses, and ensure that borrowers can afford repayments.
According to a mortgage broker, the expenses requirement amounts to knowing how many fish and chips the borrower buys a week.
“That is sheer stupidity, treating borrowers like morons,” the broker said.
From borrowing money for kitchen benchtops renovations to paying bills, borrowers will be scrutinised, investigation style, at the mercy of the lender, with the borrowers’ entire spending patterns exposed, even if one buys ice cream every week.
Practical implications ignored
The CCCFA does not address the practical implications, making a mockery of the intended purposes of the amendments. It is time someone in the Ministry of Business, Innovation and Employment (MBIE) revisits the regulations making it more practical.
All the various proposal and committees, talking and submissions, have made the situation worse.
Dave Ananth is Senior Tax Counsel at Stace Hammond Lawyers in New Zealand and President of the New Zealand Malaysian Business Association (NZMBA). He lives in Auckland.