A reminder: imminent changes to the CCCFA

New duty for directors and senior managers to exercise due diligence to ensure compliance with CCCFA, new requirement for Commerce Commission to be satisfied that directors and senior managers are fit and proper and new prescriptive regulations for affordability and suitability assessment.

From 1 October 2021:

  • 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
  • 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.

New duty

The new duty requires directors and senior managers of consumer lenders to exercise due diligence to ensure compliance with the CCCFA. ‘Due diligence’ includes taking reasonable steps to ensure that the creditor:

  • requires its employees and agents to follow procedures (including automated procedures) that are designed to ensure compliance; and
  • has in place methods for systematically identifying deficiencies in the effectiveness of those procedures, and promptly remedies any deficiencies discovered.

The duty takes into account the nature of the creditor’s business (including size and nature of credit provided).

Directors and senior managers of consumer lenders should turn their minds to their existing CCCFA compliance policies and processes and consider whether these are sufficient to ensure and evidence compliance with the new duty. Non-compliance may result in penalties of up to $200,000 for an individual or $600,000 in any other case.

Requirement for certification

Consumer lenders will also not be permitted to lend to consumers unless certified by the Commerce Commission from 1 October. Consumer lenders will be certified if their directors and senior managers are deemed to be ‘fit and proper’ by the Commerce Commission. The criteria the Commerce Commission will use to assess this can be found here. Various entities are exempt from this certification requirement, including registered banks, licensed insurers, and qualifying financial entities under the Financial Advisers Act 2008.

Suitability and affordability

New prescriptive regulations relating to affordability and suitability will come into force on 1 October. The new regulations include:

  • an express list of enquiries to establish that a loan is suitable for a borrower;
  • requirements for lenders to estimate borrowers’ income and expenses and verify expenses (including benchmarking in some cases) to establish that a loan is affordable for a borrower.

Consumer lenders should ensure their businesses are prepared for the new regulations by reviewing and updating existing systems and controls relating to affordability and suitability assessment to ensure these are robust.

Some other key changes to the CCCFA made by the Credit Contracts Legislation Amendment Act 2019 (many of which are already in force), together with changes to the CCCF Regulations 2004 by the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020 are set out in the table below. This table is not exhaustive – a full list of amendments to the CCCFA made by the Credit Contracts Legislation Amendment Act 2019 can be found here. A full list of amendments to the Regulations made by the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020 can be found here.

Amended legislationChanges already in forceChanges commencing on 1 October 2021
CCCFA 2003

Amended by the Credit Contracts Legislation Amendment Act 2019

  • New rules relating to “High-cost Consumer Credit Contracts”, including various restrictions and thresholds.
  • Various new penalties and offences.
  • Power for Governor-General to declare any class of arrangements or facilities to be a consumer credit contract.
  • Duty for directors and senior managers of creditors to exercise due diligence to ensure creditors comply with CCCFA obligations.
  • Requirement for directors and senior managers to be deemed by the Commerce Commission to be ‘fit and proper’ (applications for certification to be accepted from June 2021).
CCCF Regulations 2004

Amended by (among others) the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020

  • New regulations relating to “High-cost Consumer Credit Contracts”.
  • New prescriptive regulations relating to affordability and suitability assessment.
  • New regulations relating to advertising.

Some of our other publications on the ongoing amendments to consumer credit law

Certification of directors and senior managers of consumer credit lenders

Consumer finance and COVID-19 – new regulations and guidance

Consultation open on exposure draft of CCCFA Regulations (No 2) and Commencement Order

Credit Contracts Legislation Amendment Bill – Select Committee report

Get in touch

Our experts have been helping many clients navigate the new regime, including due diligence standards. Do reach out if you have any questions in relation to the above or if you require assistance.

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