Responsible Lending Code gets industry tick of approval

'No surprises': lenders react to code change

Responsible Lending Code gets industry tick of approval

Lenders and industry associations have reacted positively to the government’s latest iteration of the Responsible Lending Code.

The Financial Services Federation (FSF), responsible for New Zealand non-bank and fleet leasing providers that collectively reach 1.7 million Kiwi consumers and businesses, said the new code landed without any “nasty surprises”.

The latest changes to the code have been approved by Cabinet on the recommendation of Minister of Commerce and Consumer Affairs Andrew Bayly and will come into effect on July 31.

“We are pleased to see no nasty surprises in the new version of the Responsible Lending Code, and that the commitment has been kept to balance consumer protection with the ability for New Zealanders to access responsibly provided credit when life calls for it,” said FSF executive director Lyn McMorran (pictured above left).

“I think we can congratulate the minister and the officials on getting this out within the tight timeframe set by the minister to implement the revocation of the affordability regulations which he announced a couple of months ago.”

What is the Responsible Lending Code?

Outlined in January, the latest change is part of the government’s new vision for the regulation of New Zealand’s financial services sector– “one that recognises not all Kiwis are vulnerable consumers”, according to the FSF.

Since 2015, the Credit Contracts and Consumer Finance Act 2003 (CCCFA) has set out a range of lender responsibility principles.

These principles require lenders who enter into credit contracts with consumers to lend responsibly, including checking that lending is suitable and affordable. 

Initially cited by mortgage advisers and borrowers as being overly prescriptive, the CCCFA legislation has undergone several rounds of amendments, including the removal of discretionary expenses from affordability testing.

National/ACT Coalition Agreement documents released in November stated that the CCCFA would be rewritten to “protect vulnerable consumers without unnecessarily limiting access to credit”.

In February, Bayly said the reforms were a “particular priority” and by April had initiated part of its Phase 1 plans by revoking these “prescriptive affordability requirements”.

The purpose of the Responsible Lending Code is to elaborate on and offer guidance on how the lender responsibility principles (including the more detailed lender responsibilities) the Regulations may be implemented by lenders under the CCCFA.

Basically, the code provides non-binding guidance on how lenders can meet the prescribed obligations in the regulations of the CCCFA.

Also part of the government’s Phase 1 plans, the Responsible Lending Code was to be amended to support lenders to responsibly ensure lending is affordable once the affordability regulations have been revoked.  

Positive industry response to Responsible Lending Code

Overall, the general industry response has been positive to the latest amendments.

McMorran said the requirement of a 28-day period for the code to be gazetted will provide lenders with the certainty they’re looking for with respect to what level of discretion they will be allowed in their affordability assessments from July 31 onwards.

“The revocation of the regulations and the revised code are certainly an improvement on what lenders and consumers were faced with from December 1 2021, so that is further reason for congratulations to the minister and his officials,” McMorran said.

“We are supportive of targeted measures to protect vulnerable consumers, such as introducing a definition for what constitutes a high-cost lender. But a regime where lenders aren’t required to treat every customer as vulnerable by default, is a return to commonsense.”

James Leydon (pictured above right), general manager of home lending product at Bank of New Zealand, said the changes would help unlock opportunities for many, “without compromising our responsible lending obligations”.

"At BNZ, we're committed to supporting our customers' financial aspirations. Whether you’re buying your first home, upsizing for a growing family, or undertaking your dream reno, we’ll be able to assess your loan application with more flexibility, in line with the updated Responsible Lending Code,” Leydon said.

“By giving lenders more flexibility in assessing loan affordability, we can better serve New Zealanders. This approach ensures that creditworthy customers aren’t unnecessarily held back by prescriptive affordability requirements.

"We look forward to implementing these changes promptly when they take effect on July 31, ensuring our customers can benefit from a more streamlined lending process as soon as possible."