LEGAL: Apart from the difference we are exactly the same

BY JONATHAN FLAWS

On September 25 the Australian Government announced it would implement a suite of changes to credit laws to enable the more efficient flow of credit to consumers and small businesses while maintaining strong consumer protections. The Australian press and brokers described this as the axing of responsible lending laws that fuelled a bitter court fight between the corporate regulator and Westpac.

They expect the changes will encourage the flow of loans and boost the economic recovery from the Covid-19 recession.

Assuming that New Zealand and Australia share the same responsible lending regime, some brokers here have suggested that our government should do the same.

If it wasn’t for the differences, they might be right.

I’m not suggesting our lender responsibility principles are perfect and, in the environment of mortgage lending, couldn’t do with tweaking in some areas.

New Zealand consumer lending legislation focuses on the lender whereas Australian laws focus on lending conduct. Section 9C of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) requires that “every lender must comply with the lender responsibility principles”.

Whereas the Australian National Consumer Credit Protection Act 2009 (NCCPA) regulates licensees and requires them to follow rules regulating responsible lending conduct. Licensees include “credit providers” (our “lenders”) as well as persons who provide “credit assistance”, “credit representatives” and “debt collectors”.

This may seem like semantics but if you overlay lender responsibility principles with our responsible lending code you will see that our approach is on the lender doing the right thing. This is scalable depending on the product and circumstances. Our code is not designed as a safe harbour – follow the guidance and you should be right. But if you follow the guidance and the outcome isn’t right you might still breach the principles. Equally you might not follow the guidelines but still be within the principles.

The opposite approach is to specify what must be done and so long as the boxes are ticked and the conduct rules met, you are safe even if the principles haven’t been met. Miss a box and you will be ticked off.

The different approach is also reflected in the approach of the regulators on different sides of the ditch.

At a banking law conference last year, Sean Hughes, an ASIC Commissioner, explained that when approaching an issue, ASIC now asks, why not litigate? They are given these powers so why not use them. It doesn’t mean they will; but they now address the issue.

Which may explain why they had a crack at Westpac and its process for determining whether a borrower could afford to meet their commitments based on either past financial history or a promise to stop eating wagyu beef and drinking expensive Shiraz. Westpac conditionally approved loans using its own automated decision system which included applying, amongst other things, an external Household Expenditure Measure to assist in determining loan serviceability. ASIC decided to litigate. The High Court decided in favour of Westpac.

Our Commerce Commission is not afraid to litigate but appears more inclined to work with the lender and find other ways to mitigate and bring the lender in line with the principles.

The CCCFA covers all credit contracts although a large part of it is specific to consumer credit contracts. It excludes from consumer credit contracts lending for investment purposes and lending to corporates and family trusts. However, its section on oppressive contracts applies across the board.

As a result, when the NZ Court was asked to review the Blue Chip case of GE and Bartle, although it could not apply any of the consumer credit contracts sections to a case of borrowing for an investment purpose the Court of Appeal was able to find the contract oppressive. Even though the Supreme Court overturned this finding, the case still shows that all lending can be reviewed under the CCCFA.

The Australian NCCPA, however, only covers consumer lending. It has been extended to cover some SME lending

and some residential investment lending. As indicated in the opening paragraph when announcing the current changes to the responsible lending rules the Australian Government specifically referred to small businesses.

Because our consumer credit laws don’t apply to investment and small business lending, it is not necessary to change them to assist the flow of credit to small businesses.

If calling for changes to the consumer credit laws in New Zealand is a result of slower loan application processing, will making changes to the CCCFA achieve this?

Maybe, but maybe not.

The impact of Covid-19 has put our economy under great stress. The Government, banks and lenders have responded with a suite of solutions such as payment holidays, interestonly periods and increased periods for default notices. Lenders have seen an unprecedented number of requests for hardship. Staff have been diverted to dealing with all of this.

Changing the consumer credit laws to make credit easier is unlikely to change this. Perhaps the very conditions that have driven this response mean that more time and attention is required for processing new loan applications.

Last year the CCCFA was changed to repeal, amongst other things, section 9C(7). This is the section of the lender responsibility principles that allows a lender to rely on information provided by the borrower or guarantor unless the lender has reasonable grounds to believe the information is not reliable. As a result of the Covid-19 Response (Taxation and Other Regulatory Urgent Measures) Act 2020, this provision has been delayed.

In the area of responsible lending we may appear to be the same as Australia, but we are different. Responsible lending is still in its infancy in both countries. In pulling the plug on it we may be at risk of throwing out the baby with the bathwater. ✚