We’ve seen some absolutely scathing accounts of the new Credit Contracts and Consumer Finance Act (CCCFA). Complaints about lending have increased with banks leery of the risk and opting to take a harsh line instead – leading to reports of people being turned down for mortgages because they were buying drinks at the dairy, spending money at Kmart, or because of pregnancy.
The main argument seems to be that while the CCCFA is protecting vulnerable people from predatory lending practices, it has cast too wide a net and caught many people out. This has a disproportionate impact on first home buyers in particular – so we may see less of those feel-good pieces about young couples making it onto the property ladder for now.
For banks, the language of the CCCFA means they can no longer afford to make assumptions applicants will ‘pull their socks up’ when they have a newfound monkey on their shoulder. Where averaged or estimated expenses once were acceptable, banks are now requiring a detailed breakdown of costs – which they examine with a fine-tooth comb. When coupled with some clever AI, a granular analysis of a borrower's expenses isn't difficult.
The CCCFA applies to people or businesses who provide credit (including insurance companies, finance or mortgage brokers and paid advisers), lease out goods, or operate or promote buy-back schemes.
Interestingly, it doesn’t apply to AfterPay, PartPay or any of the other ‘buy now, pay later’ crowd – which are infamously accessible to almost anyone. They get around current financial law because they don’t charge interest, but instead charge late fees for missed payments.
This raises questions around whether these “excessively prescriptive” rules are hitting their mark, or if they’ve completely overshot it despite industry warnings about the one-size-fits-all approach coming from as far back as 2019.
ANZ even published a submission on the CCCFA in 2020 with recommendations like providing scalability and flexibility where possible, differentiating lenders or lending products, and taking a more balanced approach by not focusing solely on income and expenses to assess affordability.
These regulations are flagged investigation but sadly not the law itself, instead more the interpretation by participants. Minister of Commerce and Consumer Affairs David Clark has perhaps jumped the shark in asking the Council of Financial Regulators to look into the law, expressing a concern that banks may not be implementing the law in the way it was intended.
Banks and other financial institutions, however, are firing back and saying there is no room for interpretation (correct or otherwise) within the law. There’s also fear that the inquiry won’t go far enough, with lenders and brokers calling for the terms of the inquiry to be published to give the public confidence it would happen soon.
What does this mean for the average punter?
I’m reminded of the old saying, “For want of a nail, the kingdom was lost”, where something of great importance hinges on something trivial. In this case though, the nail could apparently be anything from regular Uber Eats to potential maternity leave.
Things will get tight for a while here if you’re looking to finance any big-ticket items like housing. This is coming on the back of the ever-increasing cost of living, record high house prices throughout 2021, and just recently price surges of necessities like petrol.
As things are, you will likely need evidence of a modest three months – which is not good news for anyone needing finance quickly, like the Dunedin woman whose $187 Christmas shop disqualified her getting a mortgage for urgent repairs on her home.
While we unfortunately can’t offer a solution to this particular issue, we can offer some tips on how to optimise your savings for the future:
Make a plan. This is key to understanding both your situation and your way forward. Look at incomings, outgoings, and what you want to achieve in a specific timeframe.
Start talking money. If you have a partner, start planning regular chats around achieving money goals Though it may feel awkward at first, being on the same page financially will benefit both your bank account and relationship.
Use ‘money jars’. Try separate bank accounts for essential spending, non-essential spending, and saving. This can remind you where your money should be allocated, which can help develop better habits.
Review your KiwiSaver fund. Retiring in thirty years and buying a house within the next five are vastly different goals, and there will be funds better suited to each.
Review your small spending. Make sure you’re getting the best bang for your buck on your phone bill, internet and other regular bills – as well as reviewing how much you spend on takeaways and treats so it’s not a nasty surprise later. Some bank apps have this capability already, or there are purpose-built apps… or if you’re good at manually keeping track, there’s always a trusty Excel or Google spreadsheet.
If buying a house or other traditional savings goals remain out of your reach, remember to celebrate the small wins. Any step towards feeling in control of your finances is going to be incredibly empowering.
And if you’re wanting to re-evaluate your KiwiSaver options, or future-proof your savings and wealth – the best place to start is by sitting down for a chat with trusted professionals.
Nick Stewart is a Financial Adviser and CEO at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
