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

On 14 November 2019, the Ministry of Business, Innovation and Employment (MBIE) released the draft Credit Contracts and Consumer Finance Amendment Regulations (No 2).  The Regulations supplement the provisions of the Credit Contracts and Consumer Finance Bill in the key areas of:

  • suitability assessment
  • affordability assessment
  • responsibility advertising
  • variation disclosure, and
  • disclosure before debt collection.

The Regulations also contain some specific provisions regarding securitisation.

Links to the exposure draft of the Credit Contracts and Consumer Finance Amendment Regulations (No 2) and Commentary on the draft are both available.

Who needs to read it? Why?

These changes will affect banks and financial institutions who enter into any consumer credit contract. It will require these financial institutions to perform specific due diligence before entering into a contract with a consumer, as well as additional obligations around disclosure and advertising.

Our view

There is a lot of detail in the Regulations requiring careful consideration from a practical perspective. We remain concerned that the complexity and detail in the CCCFA regime, and the potential for serious consequences from errors having no or little consumer impact, imposes disproportionate risk on lenders beyond what is necessary (and appropriate) to ensure consumer protection. We also are aware that this detailed and prescriptive regime poses a significant challenge to lenders seeking to innovate in response to consumer experience demands.

Increased penalties immediately

The Regulations need some careful analysis to understand their impact. One key matter for lenders to note now is the proposed Commencement Order that sets various times for parts of the Bill to take effect. Of particular note is the commencement of the new enforcement and penalty regime immediately upon Royal Assent (which is likely to be this calendar year). This means that all creditors should ensure, more than ever, that they are in compliance under the current regime as the increases in penalties are significant.

Lenders should review documentation and processes in light of this change as the enforcement approach has evolved considerably since 2015. We recommend annual reviews given that even small errors can result in systemic problems with a book of loans.

The following table sets out the proposed dates for key provisions of the Bill to come into force.

Commencement dates

The day after Royal Assent· new  enforcement provisions including pecuniary penalties, statutory damages and enforceable undertakings

· expanded options for creditors to make electronic disclosure

1 June 2020· new requirements on high-cost lenders including the total cost of credit cap and rate cap

· mobile traders to be treated as creditors under consumer credit contracts

· duties on directors and senior managers

1 September 2020· applications open for certifications of directors and senior managers as fit and proper persons
1 April 2021· requirements to keep records of affordability and suitability assessments, and how fees are calculated

· providing disclosure to borrowers in languages used in advertising language

· providing information about disputes resolution schemes and financial mentoring services

· creditors and mobile traders required to hold certifications (currently registered creditors have until their next annual confirmation to obtain a certification)

· regulations setting minimum requirements for affordability, suitability, responsible advertising

 What next?

Submissions on the Amendment Bill are due on 5 February 2020.

Further information can be found online.

If you need assistance with submissions or want to know more about these changes and their implications please contact one of our experts.

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