Consumer Credit Reform - from principle to prescription - Deloitte
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May 2021
Consumer Credit Reform –
from principle to prescription
The need to revisit the whole
customer lending journey in the
wake of regulatory changes
The Credit Contracts Legislation Amendment In February 2021, the Responsible Lending • Requirements to keep records of
Act, which updated the Credit Contract and Code was also updated to provide affordability and suitability assessments,
Consumer Finance Act, was passed into law guidance about how to comply with the and how fees are calculated
on 19 December 2019 to take effect in stages lender responsibilities, including the new
• Providing disclosure to borrowers in
from 20 December 2019. affordability and suitability regulations.
languages used in advertising
The Code and regulation take effect from
The reforms introduced a number of 1 October 2021 and along with other • Providing information about disputes
important changes for lending and obligations, means that the regulatory bar resolution schemes and financial
borrowing in New Zealand. This allowed is now higher. There are now obligations in mentoring services
for prescriptive requirements to be made relation to:
• Requirements for creditors (excluding
in regulation to clarify what lenders must
banks) and mobile traders to be certified
do to comply with their obligations and to • Regulations setting minimum
(creditors and mobile traders already
better protect vulnerable consumers from requirements for affordability, suitability,
registered on the FSPR have until their
getting into problem debt. responsible advertising and debt
next annual confirmation after 1 October
collection disclosure
2021 to obtain a certification)
New enforcement provisions, including
• Requirements to undertake affordability
pecuniary penalties, tougher statutory • Regulations relating to information to be
and suitability assessments where there
damages and enforceable undertakings provided for variation disclosure
have been material changes to a contract
took effect, as did expanded options for
• A need to provide positive assurance that
creditors to make electronic disclosure. • Duties on directors and senior managers
regulatory obligations are met.
Consumer Credit Reform – from principle to prescription
Not a simple fix A ‘single view of customer’ assists in components, people and processes
With the 1 October date looming, many meeting regulatory obligations by enabling which need to work cohesively together
lending organisations are still struggling an organisation to: to ensure good customer outcomes and
in the midst of costly and complex enable informed lending decisions.
programmes of work designed to meet the 1. Easily observe all the customer
To effectively meet the regulatory
requirements which have been set out. information that is required to ensure a
changes, every component of retail
Others may be of the view that actually thorough and complete understanding
lending technology systems needs to be
the answer is simple – by having better of a customer’s affordability and
examined and every process that touches
conversations with customers around their suitability position.
the customer through their whole lending
current lending and making responsible
2. Better retain all the information needed journey requires detailed examination.
decisions around credit.
to be able to demonstrate that the Front-line staff must be trained to do things
appropriate assessments occurred and differently and use additional toolsets to
That certainly can help but more detailed
customer lending costs are accurately ensure the right lending and regulatory
work needs to be completed. To effectively
provided every time. outcomes are achieved.
achieve what is required it is necessary
to examine the whole consumer lending Other challenges include tight timeframes:
The breadth and depth of activity required
lifecycle, from origination through to
• The crucial affordability and suitability to achieve those outcomes, whilst not
debt recovery. Without doing this, an
regulations were passed in December transformational in an innovation sense, is
organisation cannot be confident that
2020 while the Responsible Lending comparable in terms of the body of work
at every step of the process the right
Code, which provides guidance on how that must be completed.
conversations are had, the correct
to comply with lender responsibilities,
information is provided and accurately
was only finalised in February 2021. This Not taking a comprehensive, ‘whole of
evaluated and appropriate evidence is
means that the analysis of business and customer’ lending journey approach
retained to assure directors and senior
systems requirements in relation to the introduces the significant risk that directors
managers that all obligations are met.
changes could only really begin to be and senior managers cannot attest to their
finalised after this date. compliance obligations.
The challenges
Since most industry experts can • Typically in any complex financial services
Considerations for compliance
remember, one of the aspirations of many organisation, there is an equally complex
Meeting regulatory compliance obligations
financial services organisations has been to myriad of systems inter-operating to
is a complex and challenging activity.
achieve a ‘single view of customer’. This is provide consumer lending services. It isn’t
The bar continues to rise as a result of
now an imperative. just about the core but all the peripheral
2
consumer and regulator expectations. 3. Understand what lending-related 5. Ensure good regulatory risk
Giving careful consideration to the data exists. You should know where governance regimes are in place.
following will go some way to simplifying this data is held and what it is used Have clarity as to where system and
matters and creating efficiencies: for. Be confident over accuracy and process ownership lies because this will
completeness. This extends beyond help determine the senior managers
1. Be able to fully trace the the loans themselves and includes responsible and feed into the overall
regulations from your all aspects in relation to the lending system of attestation necessary for
organisation’s obligations, through lifecycle. Ensure you have systems boards. Consider utilising specific
to systems and processes. and tools which support good data accountability regimes for senior
This is critical. On one hand, a legal governance and that record keeping management.
interpretation is important but there is requirements are well understood and
6. Build in compliance and assurance
an imperative to implement sustainable the supporting processes are reliable.
mechanisms by design.
future-proofed operational processes
4. Utilise automation and tooling. To improve sustainability of the
which can be reliably demonstrated
Regulatory compliance can no longer control environment and confirm that
and be resilient to scrutiny.
be effectively and consistently achieved mechanisms in place are robust and
2. Inventory your captured processes. using just spreadsheets and humans. deliver to the regulatory requirements,
This is impossible if you don’t have The data pool is too vast and the ensure that risk and control thinking is
good tools which document these and systems too complex to achieve the embedded into solution design. Focus
mechanisms which keep them up to necessary outcomes without use on what must go right and create good
date. Documenting processes is not just of modern Regulatory Technologies automated preventative controls that
nice to have - it’s a critical component of (RegTech). Invest where it makes you can be confident address the risk
business process redesign and it’s not sense in a way that helps drive down and operate consistently over time.
practical or economical to have to redo compliance cost through creating
this every time regulation changes. automation and efficiencies.
Get in touch: Meeting regulatory compliance
obligations is a complex and
challenging activity. The bar continues
to rise as a result of consumer and
Catherine Law
Partner, Risk Advisory
Tel: +64 4 470 3677
regulator expectations.
Email: catlaw@deloitte.co.nz
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