CCCFA reforms, retirement age reviewed
As the election campaign heats up, industry representatives say they support the National Party’s promise to wind back changes to the Credit Contracts and Consumer Finance Act.
Meanwhile, the party’s commitment to raising the retirement age is not expected to change how lenders assess affordability but could support earning capacity later in life.
Learn how would raising the retirement age impact RRSPs in this article.
Changes to the CCCFA, which were aimed at protecting consumers from unaffordable debt, placed increased onus on lenders to ensure that loans were suitable and affordable, drawing criticism that the CCCFA was overly prescriptive.
The Act has undergone three rounds of amendments, the last of which was in May 2023, which included removal of discretionary expenses from affordability testing.
Financial Services Federation executive director Lyn McMorran (pictured above left) noted that tweaks were made to the regulations weeks after they came into effect on December 1, 2021.
The National Party has promised to wind back the regulations, and McMorran told NZ Adviser that the association wanted to see the CCCFA “reformed properly”.
“The FSF has always said that any legislation that required such a review so soon after being implemented was clearly very bad legislation in the first place, and so an appetite for change is obviously welcomed by our members,” McMorran said.
Financial Advice New Zealand CEO Katrina Shanks (pictured above right) also said that the CCCFA changes were significant for mortgage advisers.
“We are in favour of rolling back both the legislation and the regulations to pre-2021,” Shanks said.
Call for return of “principles-based approach” to CCCFA
McMorran said that the Financial Services Federation agreed with changes introduced to the CCCFA which defined a high-cost loan, and supported the application of a cap on interest and fees that providers of such loans could charge.
It also supported leaving the “very prescriptive” affordability assessment regulations in place for this form of lending, she said.
For all other lending, McMorran said that the FSF believed that the law could go back to the “principles-based approach” previously in place for other lenders.
She said that the FSF would not support any distinction in the law between banks and non-banks, as this would be “anti-competitive”.
“The principles make it clear that lenders cannot put borrowers into significant hardship as a result of the loan, so there is still a requirement in law for lenders to ensure the loan is affordable without having to go into the granular and intrusive questioning into every aspect of a borrower’s expenditure that is currently required,” McMorran said.
“Then there is a need for the law to be enforced by the regulator (Commerce Commission) to call out bad lending practices where loans are being made where they are clearly unaffordable.”
Proposed retirement age considered insignificant for borrowers
The National Party has committed to gradually increasing the retirement age from 65 to 67.
A National Party spokesperson confirmed to NZ Adviser that adjustments would start from 2044 and that people born before 1979 would not be affected.
“This sensible change reflects the reality that New Zealanders are healthier and living longer than ever. It is a financially responsible step,” the spokesperson said.
McMorran acknowledged that affordability was central to borrowing, both at outset and what realistically might happen over the life of the loan. Circumstances rather than demographics such as age are therefore a key consideration for lenders, she said.
“There will be people who will want to retire before 65 or 67 and others who will work beyond that so I don’t see the change making a lot of difference to the way lenders assess affordability,” McMorran said.
Shanks also acknowledged that banks assess borrowers on earning capacity.
“If the earner capacity is extended then you would expect the market to follow this movement and allow acknowledge the ability of a person to generate income for longer,” Shanks said.
The National Party has promised to reinstate tax deductibility on rental properties, and has announced that it will allow people struggling to afford a rental bond to withdraw funds from their KiwiSaver to do so.
A National Party spokesperson said the option to withdraw KiwiSaver funds would be available to people aged under 30 and may be used up to five times.
“The money will go directly from their KiwiSaver account to the Tenancy Tribunal and it will be returned directly to their KiwiSaver account when the tenancy ends,” the spokesperson said.
The National Party has also announced that it will allow KiwiSaver members to allocate their savings across multiple providers, which it said would “encourage innovation”, and “higher potential returns” over their lifetime.
What do you think of National’s policies around the CCCFA, interest deductibility on rental properties and an increase to the retirement age? Share your thoughts in the comments section below.