CCCFA: Changes, reversals, what it means for you
CCCFA - a term you've probably heard thrown around a fair bit over the past six months or so. Ahead of further changes, I wanted to explain what the CCCFA actually is, and what the latest changes could mean for you.
What is it?
According to the Government's Consumer Protection website, "When you borrow money, the Credit Contracts and Consumer Finance Act (CCCFA) Act ensures you are able to make informed choices, know what you're agreeing to, and can keep track of your debts. The CCCFA requires lenders to act responsibly at all times."
It's essentially the law which dictates the principles of how lenders must act. All lenders are bound by this.
What changed?
On 1 December last year, a load of changes were introduced to the CCCFA which were intended to crack down on dodgy lenders like pay-day loans etc - but the changes had unintended consequences on more responsible lenders like banks, for example. Amongst other things, the changes introduced new prescriptive requirements for lenders to follow when assessing the affordability and suitability of loans, essentially requiring lenders to look a lot closer at applicants' spending habits, and stop making assumptions around expenses - basically, the "I'll stop spending that when I buy a house" excuse went out the door. We've all seen the articles about people's home loan applications being declined for buying too many coffees - whilst there's a bit more to it than that, that's the level of detail banks are now required to go to, and unfortunately, even the best excuses are unlikely to cut the mustard.
More changes coming
So, amid the public backlash from these changes, the Government pushed through further changes intended to wind back some of the harsher consequences of the December changes. The changes are intended to allow a degree of flexibility when lenders assess lending applications. For example, regular savings to a savings account won't be treated as an expense any more (good!). These come into force on 1 July... but will they make a difference?
My take is... kind of.
Whilst the changes will certainly make things easier, the bulk of the intensive requirements brought in on 1 December will still remain, and banks are already warning financial advisers not to expect things to go back to "as they were". Banks will still need an intense level of detail when applying for a loan, and living expenses will continue to be heavily scrutinised.
What can I do?
If you're thinking of applying for a loan in the near future, there are a few key things you can do to improve how things will read for your application.
Cut unnecessary spending
The lower your living expenses read, the more you have to put towards affording a mortgage - so cutting down on those takeaways and coffees in the few months leading up to your application will certainly help with how things read.Close off unnecessary short-term lending facilities
If you have buy-now-pay-later or credit card facilities that you either don't use or have much higher limits than you need, reduce them down or close them in full. This presents a clean picture to a lender and means funds won't need to be set aside should you choose to use those facilities in the future.Keep things simple
The simpler your bank accounts read, the better. Transferring money to someone? Include a reference so the bank can understand what it's for, and won't treat it as a living expense, for example. The cleaner your bank accounts read, the easier your application will be.
Have questions?
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Remember, this is intended to be a guide only. Do not act on anything in this article without obtaining personalised financial advice first.
