But amendment to the CCCFA's disclosure settings could interfere with legal action being taken against ASB and ANZ. Photo: RNZ
Banks warn consumer lending disclosure regulations could threaten the stability of the financial system and are calling for changes.
A report by the Reserve Bank - shared with government cabinet ministers last October - estimates disclosure breaches under the consumer lending law could have a $12.9 billion impact on the financial system.
The costs could potentially be greater depending on the outcome of Commerce Commission investigation into possible disclosure breaches that happened between 2015 and 2019.
The Bankers Association chief executive Roger Beaumont said banks would like to see changes made to the Credit Contracts and Consumer Finance Act (CCCFA) to limit liability when mistakes were made in disclosures.
"Between 2015 and 2019 any lender who even made a small mistake in the information provided to customers, like getting their phone number wrong, could, on one interpretation, be required to repay all the interest and fees paid until the error was corrected," Beaumont said.
"That consequence would be totally out of proportion with the technical legal breach, especially if there was no harm to the consumer."
However, an amendment to the CCCFA's disclosure settings could interfere with legal action being taken against ASB and ANZ by around 170,000 customers, over past disclosure failures.
The RBNZ's report indicates it could take a couple of years before those cases were heard, which made it difficult to estimate the potential risk to financial stability.
"The potential lead time before any adverse findings means that there is time for impacted entities to plan how they would respond," the RBNZ said.
Beaumont said the ongoing risk should be dealt with now.
"At a time of economic recovery and global uncertainty, the last thing New Zealand needs is the risk of this scenario playing out.
"It shows why the law is bad and needs to be fixed," he said.
"It's important to remember that the proposed law change does not stop consumers or regulators taking action against lenders for information disclosure breaches. Nor does it stop any cases currently before the courts."
Background
The CCCFA is a controversial piece of legislation which had been reviewed and amended several times since it was first introduced in the mid-70s.
A tightening up of disclosure rules in 2021 led to unintended consequences, with mainstream lenders becoming far more cautious and denying loans to people and businesses with previously good credit records.
Those concerns resulted in further amendments to the CCCFA in 2024, which gave banks more flexibility and discretion in making loans.
Further amendments to the CCCFA were in the works, with a bill introduced to Parliament last month, setting out additional changes to disclosure rules.
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