‘Bettering’ Of The Responsible Lending Code; A Red Herring

The government announced yesterday that it would be reforming financial services, promising to improve access to lending, while strengthening consumer protections. The revocation of the requirements for affordability assessments within the responsible lending code is significant.

Submissions from the building financial capability sector requested a full review of the CCCFA rather than tweaks here and there during the consultation process. Debt Relief Foundation (Debtfix) CEO Christine Liggins understands the intent but is concerned the loosening of regulations may, in some cases, have the opposite effect, and the changes distract from the real problems New Zealanders are facing.

Liggins points out, “At a time when the cost of living is soaring, and personal debt levels are at their highest in years, we need to question the wisdom of these changes.” Debtfix, which assists New Zealanders in financial distress with debt solutions, has witnessed a 25% increase in demand for its services in the past year.

Liggins explains that many people in financial trouble attempt to borrow their way out of debt, which compounds and amounts to a personal debt crisis. With softer affordability assessment rules, there is a risk that more people will find themselves in this situation.

"We are grappling with a genuine debt crisis. While we appreciate the intent to broaden access to home lending, we fear that the proposed changes could have far-reaching implications across all lending sectors. The most unscrupulous, high-cost lenders could exploit these changes, leading to dire consequences for borrowers.”

Liggins is not alone in her concerns for borrowers. Community advocate Natalie Vincent explained that changes to the CCCFA in recent years had a positive effect on protecting financially vulnerable New Zealanders; an interest rate cap drove down obscene interest rates and drove out some high-cost lenders, and the responsible lending code provided some consumer protection from unaffordable lending with robust suitability requirements. Government investment in financial mentoring services, community finance, and debt solutions services contributed to access to financial services for those faced with economic vulnerability.

However, Vincent says, "Recent funding cuts to community finance and debt solution services will limit access to help, which is a deeply concerning prospect. The retraction of funding support for community agencies working in this sector combined with loosening lending rules could be disastrous."

Debtfix and community advocates urge the government to proceed cautiously with updates to the responsible lending code as it seeks to improve New Zealanders' financial outcomes and look forward to continued collaboration.

Debt Relief Foundation trading as Debtfix is a hardship and debt solution charity – helping people out of hardship and managing their debts in a safe and sustainable manner.

As a leading debt solution provider in Aotearoa, Debtfix®is committed to assisting New Zealanders who are struggling with personal debt.

Our mission is clear: to actively guide individuals in resolving their debt issues and offer unwavering, ongoing support as they work to becoming debt-free.

Through our three pillars of expertise, empowerment, and advocacy, we enable our customers to regain control of their finances … and their lives.

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