New borrowing regulations that came into effect in December 2021 are having unintended negative consequences, according to a new review.

The review, which was conducted by the Ministry of Business, Innovation & Employment, in collaboration with the Council of Financial Regulators, identified two problems with the Credit Contracts and Consumer Finance Amendment Regulations (CCCFA):

• More borrowers who should pass the affordability test are being declined or given lower borrowing amounts
• Borrowers are facing unnecessary or disproportionate inquiries that they perceive as intrusive

The review said there were two main causes of these unintended impacts.

First, lending processes "have become more restrictive and onerous than was expected when the CCCFA changes were made", partly because "many lenders [are] taking a naturally conservative approach to compliance given the CCCFA’s strong liability regime".

Second, due to the "prescriptive nature of the CCCFA changes and their application to almost all consumer lending", the new regulations have also had an impact outside high-risk consumer lending.

That said, the review found the new regulations had also produced some positive results.

"While it is too early to say whether or not the CCCFA changes are likely to be successful in achieving their intent, financial mentors have already reported that the CCCFA changes, particularly new record keeping requirements, have increased their ability to identify irresponsible lending and to make complaints to dispute resolution schemes. This is consistent with the outcomes being sought."

Minister aims to get the balance right

To address the unintended impacts of the new regulations, Commerce and Consumer Affairs Minister David Clark said he would make three key changes:

• More explicitly excluding discretionary expenses from the range of expenses captured by the regulations
• Providing lenders with more flexibility about how repayments under revolving credit contracts (e.g. credit cards and buy-now-pay-later schemes) may be calculated
• Extending the exceptions from a full income and expense assessment for refinancing of existing credit contracts to also cover refinancing of credit contracts from other lenders

"I consider that these changes would further address the intended impacts identified in the final report, but there are risks that they reduce some consumer protections," Dr Clark said.

"Financial mentors and some consumer advocates may view these further changes unfavorably. Lenders may believe these changes do not go far enough in addressing their concerns."

The changes are expected to be made in early February 2023, and to be in force by mid-March 2023.

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