From December 1, 2021:
- The rest of the changes under Credit Agreement Law Amendments Act, 2019 (CCLAA) will come into force and amend the Credit Contracting and Consumer Finance Act 2003 (CCCFA).
- The related CCLAA regulations duo, Lender Inquiries into Suitability and Affordability Regulations 2020 and Credit Agreement and Consumer Credit Regulations 2020, will also come into effect. and change regulations on credit contracts and consumer credit. 2004 (Rules).
- The updated Responsible Lending Code (other than Chapter 12 on hardship), which includes guidance on enhanced lender accountability principles as amended by CCLAA, comes into effect.
Prior to the current COVID-19 Delta outbreak, the latest set of amendments to the CCLAA and its related regulations were due to come into effect on October 1, 2021. Due to continued national restrictions, in early September, a further two-month delay has occurred. confirmed, which pushed back the final implementation date (except for the new certification regime), to December 1, 2021.
Since September, the following legal developments in consumer credit have been introduced:
|October 1, 2021 – Certification required|
|October 13, 2021 – Updated Addendum to the Responsible Lending Code|
Where we landed – key areas of reform
The provisions of the CCLAA coming into force on December 1 cover broadly the following areas:
|Increased Lender Responsibilities – Relevance and Affordability|
|Duty of care for directors and senior executives|
|Advertising and fees|
The CCLAA reforms go beyond their original primary objective of ensuring better protection of vulnerable consumers from unscrupulous or predatory lenders. In practice, these are far-reaching reforms that have already had, and will continue to have, profound implications for all lenders in the consumer credit market.
For potential lenders looking to enter this market, it is difficult to see how the new improved suitability and affordability assessment requirements, record keeping obligations, mandatory certification, and personal due diligence duties. for directors and senior executives would not be considered significant barriers to entry into a cost-benefit analysis. It is doubtful that adequate and appropriate compliance under the CCCFA can realistically be achieved without significant investments and resources to ensure that strong operational compliance systems and processes are in place.
Only time will reveal to what extent the CCLAA reforms will impact borrowers, but we will be following the questions below with interest:
- The increased administrative burden due to the increased requirements for suitability and affordability assessment, and the time and cost implications for granting loans. Delays will frustrate both lenders and borrowers and will not promote efficient transaction execution. The increased administrative costs borne by lenders may ultimately have to be passed on to consumers.
- The extent of evidence collected by lenders to demonstrate how they met the increased affordability and convenience requirements. Evidence and records retained should show that a sound assessment of affordability and adequacy has been conducted, and that the appropriate internal processes have been put in place to ensure this. If investigated, a lot will depend on a lender proving that they have put their systems in place well, with a good result without defense against a bad process.
- With the increased penalties for LCCFA violations, lenders may naturally take a more cautious approach in their adequacy and affordability assessments. Credit could become increasingly difficult to access for consumers, and particularly for consumers where more complex or non-vanilla circumstances apply.
- The Regulations provide that a suitability and affordability assessment may not be required if it is objectively considered “obvious in the circumstances” that the borrower can make repayments without experiencing financial hardship. This is meant to be a high test. The limited scope of this exception can prevent lenders from supporting good results for clients. For example, a long-time client of a lender may find it unnecessarily cumbersome to be subjected to full income and expenses when requesting an increase (however large) to an existing credit limit.
While the heart of consumer credit reforms focus on consumer protection, the real test will be whether the additional legislative protections and obligations for lenders are proportionate and properly addressed. It remains to be seen whether a viable balance can exist between these and serving consumer credit demand, allowing healthy competition among credit providers (including the entry of new providers) and ensuring that credit remains. reasonably accessible for the benefit of all consumers and the economy more broadly.