Lender Webinar – Supporting Vulnerable Consumers

We heard updates from Sarah Bartlett, Director Credit, which covered a range of topics including recent criminal proceedings issued by the Commission against an unregistered and certified lender that reaffirm the Commission’s enduring priority to protect vulnerable consumers, and sampling by Notice in Credit investigations, which also highlighted common insights around financial hardship, debt enforcement, and benchmarking. The session also featured presentations from FinCap on working with financial mentors, and from IFSO using case studies to explore vulnerability. We also shared themes from our credit complaints and investigations data.

You can read all the presentations, speeches, and questions and answers from our webinar below.

Questions and Answers

Please note that we’re unable to provide legal advice. The shift away from prescriptive regulation around affordability gives lenders greater flexibility, but it also means you’ll need to tailor your own approach to compliance. Your practices should align with the principles and expectations outlined in the CCCFA, the Responsible Lending Code, and our guidance.

Sampling

What size sample do you collect?

The size of the sample can change depending on the size of the organisation and the anticipated breach rate. There is no one size fits all approach.

Previously the Commission has asked us for the first customer file at different dates. Will this still occur?

The Commission may still ask for random samples by another method early on in an investigation. These requests may also target certain occurrences depending on the nature of the suspected contravention, such as asking for customer files where there was a repossession.

At what point in an investigation will the Commission use a notice for sampling?

The Commission may use a notice for sampling at any stage of an investigation, to obtain information about an issue, to understand whether it is systemic, or to identify the breadth of an issue. Sampling may be used at different times in an investigation to determine whether the actions of a lender are compliant with the requirements of the CCCFA and may not necessarily result in any enforcement action being taken.

How does the Commission obtain the random sample?

As mentioned, the Commission first collects the population of borrower files using a unique identifier. A tool is then used to select at random each customer file from the population to ensure the sample is appropriately random.

Hardship

If a lender assesses a credit application under section 9C, are they legally required to provide a reason for declining it?

No. Section 9C outlines lender responsibilities but does not impose an obligation to provide a reason for declining an application for credit.

There is a legal requirement to provide a reason for declining an application in section 57A of the Credit Contracts and Consumer Finance Act and applies specifically to applications for unforeseen hardship made under section 55.

How should a lender approach a hardship application that has been initiated, within the legislated time frame, if the borrower does not respond to repeated contact?

Lenders must act with the care, diligence, and skill of a responsible lender throughout the statutory hardship process. This includes making reasonable efforts to contact the borrower and obtain any necessary information to assess the application.

If the borrower does not respond:

• The lender should document all attempts to contact the borrower.
• If the lender intends to decline the application, they must provide written reasons for the decision and inform the borrower that they can make a complaint if they are not satisfied with the lender’s decision and that they have access to a free external dispute resolution scheme if the lender does not resolve the complaint to their satisfaction.

For IFSO – If the borrower challenges the lender's decision to decline the hardship application, would it be appropriate to guide the borrower to the disputes resolution scheme as the legislation directs the borrower to the Tribunal/Court instead?

The responsible lending code guides a lender when declining relief (whether under the statutory hardship process or otherwise) to inform a borrower that

• they can make a complaint if they are not satisfied with the lender’s decision; and
• that they have access to a free external dispute resolution scheme if the lender does not resolve the complaint to their satisfaction (Chapter 12, paragraph 12.40).

Benchmarking

Does the Commerce Commission have any further guidelines/guidance or example figures for benchmarking?

The Commerce Commission’s Record Keeping Guidanceopen_in_new for Affordability Assessments acknowledge that lenders may use statistical information related to an appropriate class of borrowers (e.g. benchmarking data), as part of their inquiries. If lenders choose to use such data, they should keep records that demonstrate:

• The information is reliable and current, and
• Its use is reasonable in the circumstances (for example, there is low risk that the benchmark estimate will materially understate the borrower’s actual expenses).

The Commission does not issue its own or approve any particular benchmark expense data.

Financial Mentors

For FinCAP – If Financial Mentors take on a case, and they review a customer's affordability, what are their processes? Do they obtain bank statements to understand the customer's situation?

Yes, Financial Mentors supported by FinCap typically begin with a thorough evaluation of the client’s financial situation, which includes:

• Reviewing bank statements
• Assessing income, expenses, and debts
• Setting financial goals
• Developing tailored strategies to manage finances and reduce debt

They may also negotiate with creditors, assist with insolvency procedures, and connect clients to ethical lending options. Their services are free and confidential, and they often work collaboratively with clients over time.

For FinCAP – Do financial mentors engage with or advise the customer to engage with the provider’s dispute resolution scheme (DRS)?

Yes, financial mentors do engage with dispute resolution schemes and often help customers access them. Whether the mentor or the customer approaches the DRS typically depends on their relationship and the customer's confidence or capability. In many cases, they decide together who will make the approach. Financial mentors are trained to support clients through the process and can either guide them or act on their behalf, depending on what’s most appropriate.

Key links shared during the webinar

Read more about the transfer of responsibility for regulation of consumer creditopen_in_new, and making variation to consumer credit contractsopen_in_new. You can also sign up to our mailing listopen_in_new to stay informed.

The below were also mentioned throughout the webinar:

• FinCap Voices Reportopen_in_new