Non-bank deposit takers fail to elude latest Govt crackdown

The Minister of Commerce and Consumer Affairs David Clark has responded to a request for exemption from the Conduct of Financial Institutions Bill (COFI), by the Financial Services Federation (FSF) with a polite version of 'Sorry, but not a chance.'

There are 18 registered NBDTs including Finance Direct, General Finance, Gold Band Finance, Liberty Financial and Xceda Finance. The rest of the organisations are credit unions and building societies

They are scheduled for regulation along with other financial institutions under the CoFI bill, which is wending its way through parliament. 

The bill requires financial institutions to implement a “Fair Conduct” programme, to ensure that “financial institutions treat consumers fairly.” 

But its description of fairness is deliberately non-exhaustive, to allow for additions that reflect changing societal norms.   It also means a company will have flouted the rules if its failure applied to just one customer.

In objecting to the bill, the FSF acknowledged the process had gone too far to be blocked, and so it sought an exemption for NBDTs.  

It said their share of total loans was very small yet they attracted far fewer complaints than mainstream banks. 

“The FSF therefore submits that the very small size of the NBDT market in New Zealand renders their inclusion in the CoFI regime to be unnecessary at best and heavy handed at worst,” wrote its chief executive Lyn McMorran. 

“The CoFI Bill in its current form is unnecessary and indeed over the top....the financial institutions within its scope already have a requirement to hold several other licenses, registrations or certifications with regulators such as the RBNZ and the FMA in order to go about their business.”  

McMorran said it would be far more sensible to rely on these licensing regimes which already exist rather than create an entirely new and costly set of regulations.  

McMorran also listed a screed of other changes affecting the sector, such as the Financial Services Legislation Amendment Act, the CCCFA, the Reserve Bank Act review, the Deposit Takers Act, the Insurance Prudential Supervision Act review and the reform of New Zealand’s Insurance Contract Law.

But McMorran's words have not succeeded. In a response, Clark made clear NBDTs would keep their place in the bill. 

“The existing regulatory regime covers specific products and services but largely does not regulate the overall conduct or governance of financial institutions,” Clark wrote. 

“Accordingly the Government introduced this bill to fill the regulatory gap.”