Changes to the CCCFA (07/07/2022)

On the 7^th July 2022 there were some amendments to the CCCFA changes that initially took place on 1 December 2021.

For anyone who has applied for finance since December (whether it be a credit card, a hire purchase or a home loan) you’ve probably realized that lenders are asking a LOT more questions than they used to, many of which avoid common sense, and are also asking for significantly more documentation than they used to. The reason for this is that the changes that occurred in the lending environment covered pretty much all finance products, and meant that lenders had to obtain sufficient information and supporting documentation to evidence the information provided, to be able to make a decision on whether or not to lend money.

The major issue which caused problems in the financing process, is that lenders had to look historically at spending habits of potential borrowers, as opposed to taking a common-sense approach that borrowers would look to reduce their discretionary spending when taking on finance – particularly a mortgage to buy a home. The general consensus by most participants in the finance market is that different types of finance (e.g. home loans, versus consumer finance such as credit cards, hire purchases, etc.) should be treated differently and there should not be a “one size fits all” CCCFA legislation overarching lending practice.

After a review of the CCCFA amendments which came into effect in December, which occurred between March and April, it was announced that by July some further revisions of these CCCFA and Responsible lending changes would be somewhat reversed.

The key changes are as follows:

• Clarifying that when borrowers provide detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
• Removal of regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into when completing an affordability assessment.
• Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (i.e. through conversations with a borrower) rather than relating to information from bank transaction records.
• Providing alternative guidance and examples for when a loan is ‘obviously’ affordable, meaning an affordability assessment is not required.
   

The lending community generally feels that this is a step in the right direction, and should make the application process easier than it was in the first 3-4 months after the initial changes in December, however with such a tough credit environment, these recent changes may not make as large of a difference as borrowers hope for.

Note that there are pretty large differences in how lenders are approaching these changes which can result in a large difference to the result of your application or the amount you may be able to borrow. If you’d like to understand how these changes may apply to your personal position, please get in touch for a free review.