What do the consumer lending changes mean for you?
From 1st December 2021 – the New Zealand Government made significant changes to the Credit Contracts and Consumer Finance Act (CCCFA) to help protect New Zealanders against harmful debt. The law changes mean that lenders are obligated to do their due diligence on the loans they write to ensure that the customers can afford to repay the loans without entering into financial hardship.
The CCCFA governs how lenders can approve loans. As a borrower, this may mean that getting credit could be more difficult from now on, or at least require additional information that was not required previously. These changes were made in an attempt to help prevent New Zealanders taking on unaffordable debt in the hope of minimising the risk of the borrower facing financial hardship.
What may have happened in the past when you borrowed?
Traditionally, lenders have used a variety of criteria and information to help determine loan affordability based on appetite for risk, meaning minimal financial information was required to obtain your loan. While some lenders are more conservative and act responsibly towards their customers’ financial position, others have been motivated primarily by the prospect of writing more loans with less information, this may have created unnecessary debt and as a consequence some customers may have faced undue financial hardship.
What lenders need to do in the future under the changes?
Gaining an accurate understanding of a borrower’s financial situation isn’t always straight forward. While it may seem like a simple income vs expenses question, the real insight for lenders is to understand their customers’ spending habits, and how they use their money over time. Moving forward, lenders may require more information from their customers, as well as additional time to assess it. If you’re applying for a loan, you should expect to be asked for more information, and that the process will likely take more time as lenders may need to validate your income and expenses against items stated in your application more than before.
Here are some important points to note:
- These changes affect all consumer lending: small and big loans + new and existing loans
- Lenders can't just rely on information provided by the borrower. They now need to collect additional information and check the information is correct.
- Borrowers will need to provide detailed information about their financial situation, including income, debts, and expenses.
- Borrowers might also need to provide recent transaction history, or other information that allows the lender to check their debts and expenses.
These changes are intended to create better customer outcomes - helping to protect borrowers’ long-term finances and best interests. If you’d like to know more about the CCCFA changes, or to apply for a loan, you can contact our friendly team on 0800 500 555.