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CCCFA changes could remove personal liability on directors and senior managers

The changes the government is considering making to the Credit Contracts and Consumer Finance Act (CCCFA) aren't the things that have made headlines, such as coffee and Netflix habits disqualifying borrowers from getting mortgages, since changes to the law came into effect in December 2021.

Wednesday, May 29th 2024, 7:36AM 3 Comments

by Jenny Ruth

Instead, the focus is on whether directors and senior managers of financial institutions should be able to be indemnified or to insure against penalties for breaching their due diligence duty and whether disclosure obligations and penalties for their breaches are fit for purpose.

The government is also looking at effectively reducing penalties on financial institutions that don't provide required disclosure or provide inaccurate disclosure to borrowers.

The government is also looking at lowering the threshhold for the high-cost credit provisions – currently, the law captures lending with interest rates of 50% and above and the government is looking at lowering that to 30%.

While interest rates generally are currently regarded as high, the Reserve Bank's official cash rate is 5.5% and mainstream floating mortgage rates are below 9%.

A discussion paper on the proposed changes that the Ministry of Business, Innovation and Employment (MBIE) has released notes that currently directors and senior managers currently can't be either indemnified by their companies or covered by insurance for breaches of their due dilligence liability.

In other words, directors and senior officers are currently personally liable if they breach their due diligence duty.

“Highly conservative interpretations”

“While these settings were intended to increase accountability for for directors and senior managers, we have also seen signs of them causing lenders to take highly conservative interpretations to requirements relating to affordability and a reluctance to exercise discretion as intended,” MBIE's paper says.

It notes that “some larger lenders” have argued that they are disproportionately affected because their directors and senior managers have less control over the activities of employees.

The proposed changes to disclosure requirements cover removing duplication, removing information “unhelpful or unlikely to ever assist borrowers to reach informed decisions,” and to remove the potential for confusing consumers or overwhelming them with information.

One possiblity is to remove the requirement on a lender to make disclosure before they embark on debt collection because this is “perceived by some lenders as causing borrowers further distress or confusion.”

The CCCFA currently provides that lenders forfeit the right to any interest or charges for any period in which disclosure is not properly made.

There is currently a class action against ANZ Bank NZ relating to a faulty mortgage calculator and against ASB Bank for failing to provide required information.

The MBIE paper says the law was amended in 2019 to recognise that such a penalty could be “out of proportion to the degree of harm caused to consumers.”

The amendment allows lenders to apply to a court for relief in such circumstances.

The government has decided to hand enforcement of the CCCFA to the Financial Markets Authority, removing the Commerce Commission from that role, and the paper also covers transition measures that will require.

Submissions on MBIE's proposals are due by June 19.


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Comments from our readers

On 29 May 2024 at 1:50 pm Amused said:
Former Minister of Commerce Duncan Webb was quoted last year blaming the industry for not engaging with the Government and MBIE regarding the disastrous CCCFA changes introduced in late 2021 by the last Government. More recently we learnt that MBIE was in fact at fault overzealously rewriting the regulation and ignoring numerous warnings from the industry about the impact of the changes on credit worthy borrowers. Mr Webb’s predecessor was foolish enough to listen to MBIE’s advice, but he also chose to ignore the industry himself.

The Ministry should not have any say now over what new regulations are appropriate in 2024. Many credit worthy borrowers were financially disadvantaged by the CCCFA changes when they were first introduced in late 2021 and the blame for that lies squarely with MBIE officials. For this reason MBIE should not be allowed to be involved now in the creation of any new set of regulations to replace the CCCFA changes.

Folks this process is now frankly starting to feel like the movie Groundhog Day. I cannot believe that the new Minister for Regulation Hon David Seymour is happy that MBIE have once again been tasked by the Government to look at the Credit Contracts and Consumer Finance Act (CCCFA) when he was so vocal in opposition that they shouldn't be involved in any review process for those reasons stated above.

On 29 May 2024 at 7:50 pm Andy the adviser said:
Amused; Well said.

Surely it can't be too hard to focus on the most important Code Standard: "Do what is right for the client (Put the client's needs first)". And then document it so that it is easily understood.

If that is the primary focus, why do we need all the other piffle?

On 30 May 2024 at 9:36 am Amused said:
100 percent agree Andy.

At the end of the day the primary purpose of the Credit Contracts and Consumer Finance Act (CCCFA) is to protect consumers i.e. do what is right for the client. Why does the Government need to involve MBIE again in this review process which will only see the Ministry now over complicate things like they always do in an attempt to justify the 6000+ staff been employed at 15 Stout Street. Just look at some of the language been used by MBIE above. Cut out MBIE from the process completely and simply let common sense prevail. The Ministry has become completely self-serving and is a detriment to the economic prosperity of the country. MBIE officials think that they know best and look down with distain on any industry they are charged with reviewing. The original changes made to the CCCFA in late 2021 illustrate this fact loud and clear. The Ministry completely ignored the industry's numerous warnings about the impact of the changes on credit worthy borrowers. It's embarrassing for New Zealand as a country that a piece of legislation that was introduced by Parliament to protect consumers had to be changed so soon after its introduction because it was actually disadvantaging them financially.

What pray tell is the taxpayer paying MBIE officials a salary for?

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 19 June 2024 3:59pm

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