Government unveils plans to simplify lending rules

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Photo: RNZ / Angus Dreaver

The government plans to simplify consumer credit rules and regulation of the financial sector.

Consumer Affairs Minister Andrew Bayly said the current rules on consumer lending in the Credit Contracts and Consumer Finance Act (CCCFA) have become too complicated and resulted in creditworthy people being denied loans, and added compliance costs.

He also said the overarching regulation of financial services companies under the Financial Markets Act (Conduct of Institutions), known as CoFI, has added layers of regulators, duplication, licensing, extra costs, and the system has lost its shape.

“Regrettably, this layering of regulation and legislation has led to the architecture governing the financial services sector losing some of its coherence and it has certainly led to a lack of clarity for many market participants,” Bayly told a finance industry gathering on Wednesday morning.

He said regulation would be simplified by making the Financial Markets Authority (FMA) responsible for supervising the conduct of finance firms, with the Reserve Bank responsible for the financial integrity of banks and finance companies.

Borrowers denied

Bayly said various changes to the CCCFA had resulted in a tightening of credit, long delays in getting loans approved, and an estimated 6-7 percent of applicants being refused mortgages, which they would previously have got.

“The changes have unfortunately led to a significant decline in both traditional and short-term lending. The outcome I have seen is that vulnerable borrowers have had to turn to alternative unregulated high-cost sources, the very people the changes were seeking to protect them from.”

Bayly said the changes would ease the prescriptive nature of the rules for low risk lending without reducing the protections for vulnerable borrowers.

“We aim to subject high-cost lenders to adequate regulation surrounding lending practices.”

He said there would be a broader review of the penalty and disclosure rules in the CCCFA.

The FMA would also take over supervision of credit finance laws from the Commerce Commission.

CoFI stays but simplified

In opposition, Bayly had talked of scrapping the CoFI rules and other red tape which he said was strangling the financial services sector.

He said it would now be retained but streamlined to cut red tape and reduce business costs..

“I do not want to discard CoFI, but rather perform a targeted review to ensure that good conduct obligations are proportionate and fit-for-purpose, acknowledging the positive general framework.”

He said the onus would be on businesses to determine what was appropriate fair conduct, with the FMA issuing clear guidelines on minimum standards of conduct.

The CoFI rules come fully into force next year, requiring finance and investment firms to treat customers fairly, have dispute procedures, and disclosure rules on charges and third party agents.

The firms must have licences for the products and services they offer, and also ensure advisory staff are licensed.

“To address the duplication issue of licensing requirements between conduct and prudential regimes, I propose to review how to consolidate and simplify existing conduct licensing requirements,” Bayly said.

“The FMA could issue a single licence covering conduct issues for financial institutions, while also clearly defining obligations within the Financial Markets Conduct Act, meaning easier reference for growing or contracting financial institutions.”

Bayly said he also planned a review of the 30-year old Companies Act and would look at Kiwisaver settings.

National’s policy has been to allow investors to be in more than one Kiwisaver scheme.