Lender Webinar – Record Keeping and Affordability

Re disclosure about financial mentoring services requirement - do you have a view as to the definition of a ‘payment reminder’? For example, if the lender is having multiple conversations with a borrower about their repayments and disclosure has already been provided, do you need to keep providing disclosure in every conversation after that?

The term “payment reminder” is defined at section 132A (6) of the CCCFA. It is defined as a communication that is made within 6 months of a default in payment and only requests a payment that is overdue. The CCCFA goes on to list a number of exceptions to this definition, including (amongst other things) in-person visits to the debtor, their residence or place of work. Please refer to the CCCFA for the full definition and list of exceptions. In terms of disclosure around debt collection, the Commission has issued guidance for lenders about the obligation to make certain disclosures to borrowers before debt collection starts.

The borrower often asks for a "Top - up" loan to help. Does the lender still have to complete a full credit assessment? If the borrower has clearly been managing the payments under the loan & the top up is managed by simply increasing the term by say one or two months, what level of assessment must the lender undertake in these circumstances?

Under the CCCFA, lenders must make reasonable inquiries before entering into a loan agreement, and before making a material change to an existing agreement, to be satisfied that it is likely that the borrower can make payments on the agreement without substantial hardship. A loan “Top up” will be a material change for the purposes of the CCCFA (see Section 9C(8) CCCFAopen_in_new) and an affordability assessment will be required. The revocation of the affordability assessment regulations with effect from 31 July 2024 means that lenders now have more flexibility in how they conduct affordability assessments. The precise scope, method and extent of inquiries will depend on the particular circumstances. In the case of a loan top up reasonable inquiries may include asking the borrower whether their circumstances have changed since the original affordability assessment was conducted, and how they will make repayments if the top up results in a higher repayment amount and/or a longer loan term. Lenders should be aware that, the more time that has elapsed since the original affordability assessment was conducted, the more likely it is that there will have been material changes in the borrower’s circumstance, which may warrant more in-depth inquiries. The Responsible lending code also notes that greater or lesser inquiries may be required depending on factors such as the borrower’s payment history, whether the borrower is vulnerable, and whether default would lead to the loss of a significant asset. In short, and as in all cases, what inquiries are “reasonable” for a top up loan will depend on all the relevant circumstances; there is no ‘hard and fast’ rule specifically for top-up loans.

Has the Commission given thought to the broader definition of hardship applied in Australia which also includes which in layman's terms is less about a one-off event and more about difficulty paying your bills when they are due?

At the Commission’s Lender Webinar on financial hardship, we said that we expected lenders to do more than the minimum required by the ‘one-off event’ situations set out in the unforeseen hardship provision in sections 55-57 CCCFA, and to consider borrowers’ circumstances under the Lender Responsibility Principles (LRPs) and the Responsible lending code as well. The LRPs in the CCCFA require lenders to treat borrowers reasonably and in an ethical manner including when breaches of the agreement have occurred or when other problems arise. and Chapter 12 of the Responsible lending code sets out guidance about how to work with borrowers when repayment difficulties arise. If a borrower contacted a lender advising that they were having difficulty meeting their bills and making the loan payments, we would expect lenders to work with the borrower to alleviate the financial difficulty to the extent that it is reasonable to do so.

Do advertising requirements apply on Facebook marketplace? I see hundreds of vehicles listed for $x per week with no full cost details?

Yes, advertising is defined broadly in section 9B CCCFAopen_in_new and the definition would extend to advertisements on platforms such as Facebook Marketplace. The advertisement must have been “authorised or instigated by, or on behalf of, the lender or an associated person of the lender, or prepared with the co-operation of any of those persons.” When advertising payment amounts, Regulation 4AAAQopen_in_new requires lenders to state, if ascertainable, the total amount of the payments (if payable within 7 years); or in any other case the annual interest rate/rates; as well as the amount of any lump sum payments (or the method of calculating the amount of any such payments). This information must be provided in a prominent manner. If lenders see advertisements that don’t appear to comply with the rules, please notify us through this link to report a concern and include a screenshot or photo of the advertisement.

What’s the role of financial mentors?

Financial mentors are funded by the Ministry of Social Development (MSD). MSD sets out the role of the financial mentor on their websiteopen_in_new. You can read more about what financial mentors are contracted to do in the BFC Service Guidelines hereopen_in_new.

It would be helpful to have the slide pack updated to reflect the correct test in s9C(3)(a) - i.e. that a lender needs to make reasonable inquiries ...so as to be satisfied 'that it is likely' that the borrower will make the payments under the agreement without suffering substantial hardship.

We have updated the slide to include the full wording of the section. It should be noted that presentation slides are relatively high-level and do not contain every technical element of the legislation. The presented information was intended to convey the Commission’s view on the expected standard of record keeping. Lenders should bear in mind that the records must demonstrate how the lender has satisfied itself as to the matters in section open_in_new9C(3)(a), (4)(a), and (5)(a)open_in_new

Are companies who provide payment plans to clients captured by the Act? I.e. a Dentist providing a payment plan?

Whether an agreement is captured by the CCCFA will depend on the specific terms of the agreement. Without seeing the specific terms of an agreement, we are unable to give clear guidance on whether it is captured by the CCCFA or not. For detailed guidance on what defines a consumer credit contract under the CCCFA please see our fact sheet on consumer credit contacts ( 399 KB, PDF ).

View on loans for debt consolidation - i.e. is it appropriate to exclude the financial commitments that will be repaid via the debt consolidation loan?

The Responsible lending code at 5.13 provides that a lender is entitled to take into account a likely reduction in a borrower’s relevant expenditure once the agreement is entered if the reduction is clear in the circumstances. The example given is where a borrower is buying a house to live in and therefore entering a home loan, it would likely be reasonable for the lender to omit existing rent payments as part of the expense assessment as those rent payments are expected to cease.

Can we rely on third party intermediary notes on loan applications/systems without having confirmed evidence from customers?

The Responsible lending code provides that lenders can rely on information provided to it by a financial adviser or intermediary as though it is provided by the borrower (see Responsible lending code 5.23). However, it is vital to note that the lender, not the financial advisor or intermediary, remains responsible for ensuring that they comply with the response lending obligations (see Responsible lending code 5.24). The Responsible lending code recommends that lenders should make sure financial advisers and intermediaries implement and maintain appropriate policies and procedures to collect and verify information from a borrower and train their staff on the Responsible lending code and lender responsibility principles (see 5.24).

Could you please provide us with specific guidelines on how BNPL (Buy Now, Pay Later) payments should be accounted for? Should these be treated as a revolving credit, where we consider only 3.8% of the limit, or should we factor in average monthly spending instead?

We note that the revocation of the prescriptive regulations relating to affordability assessments means that lenders now have more flexibility in how they conduct these assessments. Lenders will need to decide on the approach for accounting particular expenses.

I would like the Commission to clarify points made in the updated Responsible lending code which came into effect on 31st July 2024. The question is in relation to clauses 5.15 – 5.16 where the lending is proposed to one borrower, generally at the request of that borrower. The borrower may share ownership of a property or rent one in conjunction with their spouse or partner. When can a lender apportion shared expenses?

The Responsible lending code guides that:

• where the lending is to one borrower, the lender should consider that borrower’s individual relevant expenses, and any relevant expenses that borrower shares with any other person (Responsible lending code 5.15).
• when estimating the borrower’s likely relevant expenses, the lender should consider what portion of shared expenses it would be appropriate to attribute to the borrower (Responsible lending code 5.16).

As every borrower and their circumstances are different, reasonable inquiries in each case will vary. We expect that before apportioning expenses a lender will ask the borrower about any shared expenses, consider the advised percentage share assigned to the borrower and consider whether that is reasonable. Ultimately, the lender will need to satisfy themselves that the borrower with whom they are entering the contract, will be able to make payments under the agreement without suffering substantial hardship.