Commerce Commission to lose policing powers over consumer lending

Wednesday, 31 January 2024

Big changes for the way banks, insurers and non-bank lenders are policed have been announced by Commerce and Consumer Affairs Minister Andrew Bayly.

Commerce and Consumer Affairs Minister Andrew Bayly has outlined a “twin peaks” plan to reduce red tape for banks, insurers and other financial services companies, which would strip the Commerce Commission Te Komihana Tauhokohoko of its policing powers over lending laws.

Lending laws would instead be enforced by the Financial Markets Authority, said Bayly, speaking at an event organised Financial Services Council Te Mana Taitai Hokohoko (FMA) lobby group of insurers and fund managers in Auckland on Wednesday.

The other of the twin peaks would be provided by the Reserve Bank, which ensure banks and insurers meet solvency requirements, but Bayly chastised the central bank for “steadily involving itself in conduct issues”.

Bayly also signalled a partial U-turn away from National’s pre-election pledge to spike the Conduct of Financial Institutions Act (CoFI), which from next year would require banks, insurers and other financial institutions to treat customers fairly.

Before the election Prime Minister, Christopher Luxon said they would scrap CoFI, despite lenders and insurers claiming not to have lobbied for its repeal.

The turnaround was welcomed by financial mentors, although they remain concerned that ongoing investigations and court action against alleged irresponsible lenders could be derailed by the switch from of powers from the Commerce Commission to the FMA.

Jake Lilley, senior policy adviser at Fincap, said financial mentors were also concerned that the Government’s plans to rewrite lending laws could result in a resurgence in irresponsible lending.

Christopher Luxon has an audience with the Financial Services Council.

Bayly confirmed the Government would move ahead with its election pledge, and ACT coalition agreement, to rewrite responsible lending laws to protect vulnerable borrowers “without unnecessarily limiting access to credit”.

When new responsible lending regulations were brought in in December 2021, financial mentors said they witnessed a reduction in exploitative lending.

However, banks claimed the regulations meant they were turning people down for home loans they would have granted before they were brought into place, forcing a partial about-turn by the Labour government after it initially denied there was a problem.

It was Labour’s Kris Faafoi who kicked off the development of the Conduct of Financial Institutions laws. He is soon to become chief executive of the Insurance Council of New Zealand Te Kāhui Inihua o Aotearoa.

Outlining why the Government had decided to give a stay of execution to CoFI, Bayly said: “I do not want to discard CoFI, but rather perform a targeted review to ensure that good conduct obligations are proportionate and fit-for-purpose.”

“I believe it is essential financial institutions have in place fair conduct programmes,” he said.

These fair conduct programmes would cover how they engages with customers, developed new policies and products that were fit for purpose, establish transparent fee structures, and develop adequate complaints processes.

Bayly said financial services companies had told him that they had worked hard to get read for CoFI, and did not want to lose the benefit of the work they had done.

Bayly said putting the FMA in charge of enforcing lending laws was not a criticism of the Commerce Commission.

Commerce and Consumer Affairs Minister Andrew Bayly with Samantha Barrass, chief executive of the Financial Markets Authority.

FMA chief executive Samantha Barrass signalled that an increase in funding may be needed.

“If we take on a significant increase in our remit, we will have to have discussions to make sure we have got the resources to do it,” she said.

Bayly said he intended to move quickly on the changes signalled, but also indicated that he had some longer-term priorities he would move on in the second half of the year.

He also promised reform of the Companies Act, which was now 30 years old, though he did not say what changes the Government intended to make.

He also signalled that he was interested in changing KiwiSaver settings “to help New Zealanders save more for retirement”, but again did not reveal his thinking.

He also signalled the Government’s intent to look at insurance contract law reform “so that insurers and policyholders have better certainty about the deals they’re striking”.

Bayly said banks, insurers and other financial services institutions had faced growing regulation, including a “layering” of regulation that meant some needed up to five different licences to stay in business.

“The Government is committed to improving outcomes for all New Zealanders,” Bayly said. “We need a thriving financial services sector to do that. That’s because for consumers to get the help they need, businesses need to be able to work effectively.

“I’m confident that the reforms I’ve announced today will move us closer to that vision. And I believe that New Zealanders will be better off because of them.”