NZBA backs fix for law
The Reserve Bank has warned that an anomaly in consumer lending law could threaten the financial stability of the country, with modelling revealing a potential impact of up to $12.9 billion under worst-case scenarios.
The issue arises under the Credit Contracts and Consumer Finance Act (CCCFA), which requires lenders to disclose key information to borrowers.
Between 2015 and 2019, any error in that disclosure – even as minor as an incorrect phone number – could potentially lead to full repayment of interest and fees, even in cases where consumers suffered no financial harm, depending on how the law is interpreted by the courts.
The banking industry has strongly welcomed the proposed legislative fix, introduced via the Credit Contracts and Consumer Finance Amendment Bill. The bill aims to ensure more balanced treatment of minor disclosure breaches during the 2015 to 2019 period – addressing what lenders call a disproportionate penalty regime.
Modelling reveals “much more severe” potential outcomes
A ministerial briefing summarising Reserve Bank modelling outlines three risk scenarios for banks’ ability to meet capital requirements.
The most severe of these estimates a financial system impact of $12.9 billion – with the central bank noting the possibility of “much more severe” outcomes depending on interpretation of the law.
Bankers call for urgent fix to flawed law
New Zealand Banking Association (NZBA) chief executive Roger Beaumont (pictured) has backed proposed legislative changes to address the issue.
“We support proposed changes to fix this anomaly in the consumer lending law,” Beaumont said in a media release.
“The Reserve Bank’s analysis helps to quantify the potential risk to New Zealand’s financial system if the law is not corrected. It reveals a risk of almost $13 billion in cases of incorrect disclosure where consumers may have suffered no harm. That’s money that cannot be used to lend to consumers, businesses, and farmers.
“At a time of economic recovery and global uncertainty, the last thing New Zealand needs is the risk of this scenario playing out. It shows why the law is bad and needs to be fixed.”
Remedies would remain available under law change
Beaumont emphasised that the proposed changes would not limit consumers' ability to seek justice in cases of genuine harm.
“It’s important to remember that the proposed law change does not stop consumers or regulators taking action against lenders for information disclosure breaches,” he said. “Nor does it stop any cases currently before the courts.
“Rather, it would simply ensure that any remedy would be just and equitable. It would be up to the courts, as it should be.”
The Reserve Bank’s modelling illustrates the potential scale of the risk if the current legal interpretation prevails. The proposed changes would still allow consumers and regulators to bring cases, but any remedies would be subject to a court’s judgment on what is just and equitable.
