Reforming the controversial Credit Contracts & Consumer Finance Act could turn out to be more complex than hoped by its critics

Fixing the much-criticised CCCFA could prove more difficult than was first thought.    

Those five letters stand for Credit Contracts and Consumer Finance Act, and are loathed by many within the financial services sector.  

The National Party has vowed to address complaints from the industry by sweeping away regulations which it condemned as draconian, with the CCCFA at the front of the queue.

But the finance sector points out there is more to effective reform than just cancelling regulations. Finance leaders say parts of the enabling statute will need to go as well, and that will require legislation to go through parliament, making the process of fixing the CCCFA more complicated. 

The CCCFA gained notoriety when regulations implemented in late 2021 created such an uproar that the Government agreed to take another look at them within six weeks of their inauguration, and again a few months later.     

This controversial new regime included the infamous cups of latte added to would-be borrowers lists of outgoings perused by lenders to assess their creditworthiness.

Intending borrowers might have been enjoying coffee or glasses of wine in a last-minute splurge before tightening their belts to prepare for a coming era of heavy mortgage payments. But no allowance was made for this, nor were bankers and mortgage brokers given credit for their professional expertise in assessing how their clients - often long-term contacts - would handle their finances. 

They had to obey the rules or potentially suffer financial penalties. 

And they say this prescriptive regime led to perfectly solvent people being denied credit when they really needed it.  

Amid the outcry, the National Party climbed into the ring eager for a scrap, and the then Minister of Commerce and Consumer Affairs David Clark scrambled to dilute the impact of the new rules twice over. 

According to one financial services veteran, those changes "unwound the worst elements of CCCFA."  

But David Cunningham says the problems still aren't fixed. 

He heads the mortgage brokerage Squirrel after being CEO of the Co-operative Bank, and says high interest and debt servicing rates are worse problems than restrictive CCCFA rules. But that does not mean the CCCFA is now OK.    

"One of the big issues with CCCFA is the penalties regime, which is totally out of whack with consumer harm," he says. 

"The penalties should be consistent with the scale of customer loss."

Cunningham's worry is Section 89 of the CCCFA law, which was passed in 2003 and amended in 2019.  He says that section can punish a bank or other lender for a small or technical mistake by denying them the chance of making money on their loans.

Cunningham says penalties imposed under S89 could be an amount equal to the interest charges, credit fees, and default fees payable during the period to which the breach relates.

"The outcome is generally that the customer has an interest-free loan!"

The New Zealand Banking Association (NZBA) is equally concerned about the impact of the law. 

It refers to another part of the law, S99, which it says could effectively stop banks or other lenders from earning any money from borrowers in some cases.  

"One interpretation is that consumers are not liable for interest and fees if there are disclosure issues, even if the issues were minor, technical, or caused little or no consumer harm," the association said in a submission to the amended law.

The submission went on to say large penalties could put some smaller companies out of business.  Moreover, the risk would have a very long "tail", because errors or omissions of disclosure might only become obvious after many years, leaving lenders vulnerable to claims emerging out of the distant past.  

"Without retrospective change, there is a real risk that a minor error in disclosure, which has no borrower impact and does not reflect irresponsible or poor lending practices, will have serious consequences," the NZBA submission said. 

"Smaller creditors who have an unintended breach could end up going out of business."

It is not clear what will happen about this matter. National promised an end to the new CCCFA regulations, and might repeal the statutory clauses as well.  But a new government has not yet been formed, and coalition talks to produce one are being kept under wraps. 

Even after a new government takes power, it will certainly face more delays in fixing the CCCFA, possibly lasting months or even years. 

"(Reforming CCCFA) is not in their 100-day plan," says Katrina Shanks of the lobby group, Financial Advice NZ.  

"They have got a myriad of legislation they have put in place in their 100-day plan, so I can't see the CCCFA having any priority.

"It certainly won't be the first cab off the rank just because their legislative programme based on their 100-day plan is massive."   

Cunningham can't wait for a change.  

"You get bad legislation. and bad regulations, and people should just deal with it."

Meanwhile, state agencies that regulate the economy have largely moved on from prescriptive rules to principles-based reforms, meaning the CCCFA is unlikely to be mourned when it, or a big part of it, finally meets its end.  

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