The Credit Contracts and Consumer Finance Act (CCCFA) changes are coming into effect on 7 July 2022, but what does that mean for borrowers?
The announcement for the reform was released in March by David Clark, the Minister of Commerce and Consumer Affairs.
Although the intention behind the change is a great idea, we at Cole Murray feel that it might not actually have the significant impact many are looking for. This is because some of the changes include guidelines and processes that most of the major banks have already implemented. Unfortunately, many of the time-consuming changes still remain.
What has been updated?
- Remove regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into when assessing the borrower’s likely expenses.
- Clarify that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions.
- Clarify that when lenders estimate expenses from recent bank transaction records, they can ask the borrower about how expenses are likely to change once the contract is entered into.
- Clarify that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records.
- Provide further guidance that a ‘reasonable surplus’ is not required if the lender has applied adequate buffers and adjustments to income and expenses.
- Provide alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.
What hasn’t changed?
The major banks are urging the Government to make changes to the affordability test and to provide flexibility to lenders, like banks, to apply judgement in lending decisions. In doing this the major banks hope it will help improve customer outcomes, while protecting vulnerable borrowers (which is why the regulations were introduced) and still ensuring lending is affordable.
Currently the Council of Financial Regulators’ are undertaking a review into this. We look forward to hearing the outcome, and hope further changes will be considered as a result of that work.
How can we help?
If you have been holding off on getting a mortgage, in hope the changes would make things a bit easier, come and chat with one of our Mortgage Advisers. They will talk through your situation and work with you to create a solution that best suits you.