Bayly rings in the changes to CCCFA
Minister of Commerce and Consumer Affairs Andrew Bayly has announced that the Government will be revoking the affordability regulations contained within the Credit Contracts and Consumer Finance Act. On November 30, 2021, Christopher Luxon became National Party leader. The next day, Labour’s revamped Credit Contracts and Consumer Finance Act came into force.
In a reminder that timing is everything in politics, higher interest rates, inflation and engorged post-Covid house prices were already challenging households. The new CCCFA made getting a mortgage far more onerous, and made people looking for mortgages feel like they were in front of some sort of star chamber.
Asset prices had blown up, and all of a sudden credit was far more difficult to get. The real estate market was suddenly gripped by fear of overpaying.
In one of the really stunning – but largely unacknowledged – own goals of the Ardern government, the CCCFA introduced some 11 pages of prescriptive instructions to banks and financial institutions. Taken together, they were called affordability regulations.
The purpose of redoing the CCCFA was, ostensibly, to ward off predatory lenders, and to ensure that people didn’t borrow more than they could reasonably pay back. “There is this underlying theme and
I totally support it, that lenders should be required to make sure that borrowers can make repayments without undue hardship,” Bayly told The Post . “And that’s the way bankers used to work, right? If they didn’t trust you, they would check you. If they did trust you, they don’t need to.”
Prior to the changes being brought in, the Government was warned by the banking sector that the new requirements would add to the cost, time and complexity of new lending as well.
It was a rare instance where the politically inept meets the practically stupid. Credit became far more difficult to get, while the legal small money lenders suddenly found compliance costs – time primarily – driving them out of small loans.
The thing meant to spare vulnerable people from predatory lending opened up a new market for loan sharks, while middle-class people out for a mortgage – first home buyers especially – were made to feel under cross-examination.
Bayly seethes at the idea that the previous regime helped to protect the most vulnerable. “At the moment, there is no discretion if you front up and say, ‘I want 500 bucks’ or if you fronted up and said, ‘I want a million dollars to buy that that’. Lenders should be able to use their judgment on a case-by-case basis, and we’re going to reinstate that,” Bayly said.
After being warned and then bringing in the CCCFA, what happened next was truly revealing about the previous government. Then minister David Clark decided it wasn’t actually that much of a problem, until colleagues prevailed upon him and some changes were made in mid-2021.
But privately, a number of ministers would express the view that the banks didn’t want the regulation, and the lack of mortgages being written was just the banks getting back at Labour.
As if. Writing mortgages makes money. What Labour didn’t understand was that banks are fundamentally conservative institutions. They like to follow the law. In fact, for bank execs or those on a fast track to being execs, having compliance failures on your watch results in a big, black, career-halting mark next to names.
All of this resulted in the rule being applied zealously. But Labour saw it all through the lens of enemies, not mundane reality. Aside from the lending rules, Bayly is ringing in other significant changes, such as reducing personal liability for directors and senior managers.