Rewriting the act to protect vulnerable consumers without unnecessarily limiting access to credit, was included in National’s coalition agreement with ACT and Bayly intends having legislative changes ready by the middle of the year.

Speaking to the Financial Services Council, he says firstly responsibility for the CCCFA will be transferred from the Commerce Commission to the Financial Markets Authority, which will become the financial services conduct regulator while the Reserve Bank will be the prudential regulator.

In a specific two-pronged reform, the prescriptive affordability requirements for lower risk lending will be removed and a more substantive review of the CCCFA will be done. This will include reviewing its penalty and disclosure regime.

Bayly says regulation changes will be identified by March/April.

After the 2021 changes, which were the biggest wrecking ball the property market has seen, mortgage loan approvals slumped 40 per cent within six months. In December 2021, 81,900 mortgages were completed, but by May 2022 this had sunk to 45,440.

Spending habits

Bayly says processing times for lending applications increased 50 per cent across all loan types and banks estimated 6-7 per cent of applicants who would otherwise have qualified for a mortgage had to be turned down because of intrusive questioning about spending habits.

Borrowers were denied loans if banks decided they had bought too many coffees and fast food or been to the movies too often.

“Change is needed,” Bayly says. “It is the detailed regulations and the strong liability regime that need to be reformed. Together, these two things have led to overly risk-averse lending decisions, created unnecessary compliance costs and reduced access to credit for consumers.”

He says the original intent of CCCFA was not to undermine good conduct requirements.

The 2021 changes unfortunately led to a significant decline in traditional and short-term lending. “The result has been that vulnerable borrowers have had to turn to alternative unregulated high-cost sources, the very people the changes were seeking to protect them from. We aim to subject high-cost lenders to adequate regulation surrounding lending practices.”

Reforms ‘positive’

Mortgage adviser and founder of Advice HQ, David Green, says the changes the coalition government has signalled definitely need to happen.

“The CCCFA reforms are positive. They will allow banks to get back to commonsense lending and ask the right questions for the right risk. They won’t ask pointless questions, such as how many coffees a customer with $200,000 of income is buying. On the other hand, those questions are appropriate if a customer who has a handful of credit cards is applying for a car loan.

“Hopefully, these reforms will remove a lot of red tape for banks and consumers and help mortgage advisers focus on the right outcomes rather than ticking boxes. A lot of red tape was introduced over the past few years trying to solve a problem that wasn’t there. All anyone asks for is a practical system for lending.”