Submission on the CCCFA disclosure regulations. Thank you for the opportunity to comment on the CCCFA disclosure regulations discussion document.

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1 1 December 2014 CCCFA Regulations Competition and Consumer Policy Team Ministry of Business, Innovation and Employment PO Box 3705, Wellington 6140 Submission on the CCCFA disclosure regulations Thank you for the opportunity to comment on the CCCFA disclosure regulations discussion document. (ANZ) sets out our key messages below we ve set out the rationale behind our position and more detailed comments on these points in Appendix I. Key messages ANZ supports: 1. The proposed information to be disclosed as the cost of borrowing consistent and clear information will help customers make informed choices. 2. A clear, simple, repayment warning for credit card statements 50% of our cardholders pay their entire balance in full each month. 3. Updating alternate disclosure requirements that apply when lenders change interest rates or fees we need an enduring solution for the digital era. ANZ doesn t support requiring lenders to: 4. Calculated repayment warnings for credit card statements as well as being irrelevant for most cardholders, it would be extremely costly and practically difficult to manage where dynamic account information is provided on a website the borrower can access 5. Include information about debt counselling services on credit card statements only 1.6% of our customers are more than 30 days past due

2 Page 2 About ANZ is the largest financial group in New Zealand, and includes ANZ, UDC Finance, ANZ Wealth New Zealand, ANZ Securities, and Bonus Bonds. We offer consumer credit products, including home loans, personal loans, overdrafts, and credit cards to over two million retail customers. UDC Finance also offers asset and motor vehicle finance facilities to corporate and personal customers. Contact for submission If you have any questions about our submission, our contact details are: Cushla Scholfield Senior Counsel PO Box Level 2, ANZ Centre 247 Cameron Road Tauranga Once again, we thank you for the opportunity to submit on the CCCFA disclosure regulations. Yours sincerely Craig Mulholland General Counsel and Company Secretary

3 Page 3 Appendix I: Response to discussion document ANZ doesn t propose answering all the specific questions posed in the discussion document. Instead, we ve provided comments on key issues in each of the areas covered by the discussion document. However, if feedback on a specific question would help Officials when drafting the Regulations, please do let us know. Regulations about costs of borrowing 1. ANZ supports the decision not to prescribe a form that lenders must use when disclosing the cost of borrowing. A one size fits all model is unlikely to be suitable for the wide range and often complex credit products available. 2. ANZ supports the requirement that lenders disclose either the formula or calculation used to set a fee or a clear description of how that fee is calculated. We believe requiring lenders to always disclose the formulas or calculations they use for certain fees will not help a borrower make an informed decision or a comparison between lenders. Also, disclosing the formulas may sometimes conflict with the responsibility that information is not misleading, deceptive, or confusing. Some formulas are simple but others used by lenders can be complex and involve variables or inputs that will not be readily available to most consumers. For example, we calculate our Low Equity Premium, which is a fee we charge when we lend 80% or more of a property s value, on a graduated scale using a percentage of the loan amount. We disclose the simple scale we use and the percentages we charge in our Fees and Charges brochure and online. But we calculate our Early Repayment Recovery using some complex calculations. Our Early Repayment Recovery is the amount we charge to recover the loss we suffer when a customer chooses to repay some or all of a loan early during a fixed-rate period. In calculating the Early Repayment Recovery, we calculate the relevant wholesale swap interest rates by extrapolating the relevant rate for the fixed-rate period the customer had and also the fixed-rate period remaining on the customer s loan when they repay. We also calculate the repayment and interest charges remaining over the fixed-rate period and loan term and adjust to reflect net present values using another complex calculation, etc. If we disclose the formulas we use for these calculations, we believe there are real risks that a customer won t understand the information or may wrongly calculate a prepayment fee because they don t have all of the correct values to use. Instead, ANZ recommends lenders have the choice to either disclose the formula or calculation or clearly describe how the formula or calculation works.

4 Page 4 We believe a plain language description of how the formula works will be a better way to explain this information for most of our customers. But we support a requirement that lenders should disclose the formula if specifically asked to by a borrower. 3. We agree that, where a lender will select the rate that will apply from within a range of rates, the lender should disclose the range if known, and any key factors that may be used. However, we think it is more important for lenders to clearly explain that the exact interest for a particular customer will often depend on the customer s own situation or what interest rates may be available at the time they get a loan. Lenders should encourage customers to talk to them about what interest rate will apply. Care is also needed that the requirement does not apply, or cause confusion, where lenders offer home loan customers a choice of a floating interest rate or fixed interest rates with different fixed-rate periods. In that case, the choice from a range of published rates is entirely the customers. 4. ANZ supports a requirement that lenders clearly state the date the information is current from. It is not possible for lenders to decide, in advance, how long a particular interest rate will be available or when or if it will change its fees. These matters are often subject to market changes and will be uncertain. As well as making it clear when the information is current from, we also believe lenders should clearly state that the information can change, and how the lender will notify customers of changes. 5. We do not support a prescribed form for the cost of borrowing. A one-size fits all model is unlikely to be suitable for the wide range of products available. Lenders should also be permitted to disclose the costs of borrowing in the clearest and most effective manner for their customers and the product involved. The lenders fees and interest rates must also be readily accessible for customers. Given the frequency at which information on interest rates can change, disclosing information about interest rates and fees together could cause confusion customers could mistakenly believe the fees for a product have changed, simply because the cost of borrowing has been updated because of interest rate changes. We publish a consolidated Fees and Charges brochure online and print a copy if a customer asks for one in branch. But we separately publish interest rates for specific products on our website and on digital displays in branches. We note that while lenders have the choice of displaying information online, changing information online is not always a quick or cheap exercise for lenders.

5 Page 5 Any risk that customers won t have an overall view could be addressed by requiring lenders to include a statement like: To understand your total costs of borrowing, you should also look at our [interest rates / fees]. Model disclosure forms 1. ANZ doesn t use the model disclosure forms because they are not suitable for the range of products we offer. 2. We support Officials proposal to talk to lenders further about how they disclose the information in Schedule One of the Act to see what options could be included to refresh the model forms. Minimum repayment warnings on credit card statements 1. ANZ supports a simple, clear, repayment warning for credit card statements, not a calculation of individual cardholder s balance, how it could be repaid, or any notional interest rate saving. 2. Most New Zealanders already pay their credit card balance in full or pay more than the minimum repayment amount: a. Only 3% of our customers pay the minimum repayment amount. b. Over 50% of our customers pay their credit card balance in full each month. c. While 4.6% of our customers miss their minimum repayment in a month, only 1.6% of those customers are more than 30 days past due so most customers self-correct. So, the information in the more detailed models used in the US and Australia is unlikely to be relevant for most New Zealand customers. 3. Also, lenders would need to calculate the information in the more detailed models using significant assumptions that do not reflect normal credit card behaviour: a. Credit cards provide revolving credit customers repay and redraw on their credit card all the time. Unlike a term loan, customers expect the balance owing to move up and down over time. Customers also expect their credit cards to remain in place until they or the bank choose to cancel it they accept that a credit card doesn t have a set end date. We would have to ignore this normal behaviour in calculating the length of time to repay the credit card and assume that no further transactions are made.

6 Page 6 b. We d also have to ignore customer behaviour like cash advances and balance transfers which change how and when interest is charged. We d have to assume all transactions were purchases. c. We d have to provide significant warnings about how we ve calculated the information to avoid confusing or misleading our customers. The explanatory information would likely exceed the information being disclosed reducing how meaningful the information is. For example, we d need to state: Any final repayment dates are arbitrary because a credit card is a product that a customer can continue to use and repay at any time We ve assumed the customer won t use the card again after making the minimum repayment and only makes the minimum repayment each month We ve assumed the customer has only made purchases and hasn t drawn a cash advance or have a balance transferred from another card which may have different interest charges. 4. Although Australia requires this disclosure, our Australian colleagues have advised there has been no change to the number of customers who only pay the minimum repayment each month. 5. We also do not support imposing a requirement to include contact information about debt counselling services. This information is unlikely to be relevant for the majority of our customers. We also believe the information is not necessary given it will duplicate requirements in the Act itself and the Responsible Lending Code aimed at protecting consumers who may be in financial difficulties: a. As explained above, very few of our customers only pay the minimum repayment or miss their monthly repayment. b. Under the Act, we must now include information about how to apply for financial hardship relief in our credit contracts. c. We already include information on our website about what customers should do if they are in financial difficulties. Under the Responsible Lending Code, it s likely this information will increase including information about budgeting services that can help. d. We already have policies and procedures in place to contact customers who miss repayments and may be at risk of default or debts escalating. 6. We also note that there are very useful calculators readily available and regularly advertised on the Sorted website which helps customers work out how much interest they could save if they paid off debt faster.

7 Page 7 7. If more details must be disclosed, we d also need to change our computer systems to calculate this information for each customer and disclose it on statements. Any changes to our systems will take at least 12 months or longer, and will be costly we estimate over $100,000 given the complexity of information we d need to calculate and disclose for each customer. 8. Any risk warning is unlikely to needed by most of our customers and won t change the behaviour of the small number of customers who only pay the minimum each month. We don t believe the detailed disclosures in the US or Australia are suitable here. We believe a better choice is to follow the UK model and include a statement encouraging customers to pay the full amount each month. For example: If you pay the outstanding balance in full, you ll avoid interest charges. If you only pay the minimum amount, we ll charge interest on the balance and future purchases, so it may take you longer to pay off your credit card in full. We are happy to work further with Officials on any proposed warnings. 9. If we are required to make more detailed disclosure, then we would like to discuss the timeframes for when this information must be disclosed. We also believe certain customers should be excluded. For example, it would be appropriate to exclude customers who regularly repay their balance in full each month, customers who do not have an outstanding balance in any month, or customers where the outstanding balance is below a particular threshold. 10. We also believe the discussion on electronic disclosure of a repayment warning is not entirely correct: a. Under section 18 of the Act, a lender must give the borrower a continuing disclosure statement. b. Under sections 32(4) and 35 of the Act, a lender can make disclosure by sending that continuing disclosure statement in paper form or in electronic form if the borrower consents to this. The lender can send the continuing disclosure statement by means of an electronic communication to an information system specified by the borrower an address. c. But under section 21 of the Act, continuing disclosure is not required where the lender maintains a website that allows the borrower to access the required information and the borrower consents to the information being disclosed in that way. d. So, where a continuing disclosure statement is sent in electronic form under section 32(4) and 35, a lender must include a repayment warning in the form set out in the Regulations.

8 Page 8 e. Where a lender is not required to send a continuing disclosure statement because the borrower has agreed to access information on a website under section 21 of the Act, then the lender will still need to include the repayment warning on the website as part of the information it must disclose under section 19 of the Act. We note there is no requirement in section 21 of the Act, or elsewhere, that requires a lender to ensure the borrower accesses the website. We believe it would be inappropriate and outside of the legislative authority to include a requirement to notify a borrower that the continuing disclosure information is available on the website or where the borrower has not accessed the information in some time. We also see little practical difference between electronic disclosure in any form and posting a statement to a customer where we have no control over whether the customer opens the envelope. But we do believe that where a lender provides information on a website the borrower accesses instead, it will be practically difficult for a lender to include a calculated repayment warning. A calculated repayment warning is prepared at a specific point in time. Where information is provided on a website, it changes and updates frequently depending on the activity on the credit card. It would be extremely time-consuming and costly for lenders to build complex systems to disclose dynamic information that updates whenever the website is accessed, given there is little value in the information for most cardholders. Alternate disclosure requirements 1. We encourage officials to consider amending the current alternate disclosure requirements that lenders can use when disclosing a change to interest rates or fees and charges. 2. The regulations currently provide that a lender may make disclosure of interest rates and fees by: a. Displaying the information at the lender s place of business b. Advertising at least once in daily newspapers in Whangarei, Auckland, Hamilton, Rotorua, Hawkes Bay, New Plymouth, Palmerston North, Wellington, Nelson, Christchurch, Dunedin, and Invercargill, and c. Posting information on the lender s website. 3. We believe the current requirements don t provide an enduring solution in this digital era. Customers increasingly choose to get information online not through traditional print media. Customers expect businesses to have websites with up-to-date and detailed information that they can access when they choose, where they choose.

9 Page 9 For our customers who don t want to get information online, displaying a notice in our branches will still be more effective than publishing a notice in a newspaper. 4. Publishing information in the public notice sections of newspapers is no longer an effective way to bring the information to a customer s attention: a. Newspaper circulations are dropping print newspapers no longer provide reach into most of the households in a community that they did. b. There are many customers who are unlikely to buy or read the newspaper or, specifically, the public notice sections of the newspaper. Online is more universal and allows a lender more flexibility in how information is displayed, so it is clear and simple. 5. Publishing public notices is cumbersome and time consuming: a. Newspapers, particularly regional newspapers, have set print deadlines for circulations. Public notices must be submitted in well in advance of when a change takes effect. These deadlines create issues where the change is unforeseen, particularly during times of rapid market movement to interest rates. Lenders are forced to delay when a change takes effect for existing customers to make sure they can still meet disclosure timeframes set in the Act. b. Circulation levels also vary depending on the day of the week lenders have to target specific days for their notice to reach more customers. Public notices may appear on different days in different newspapers, meaning customers get that information at different times. Disclosing in branch and online instead means a lender can make information available to all customers at the same time. c. Lenders with diverse customer bases incur significant costs in publishing information in all local newspapers, particularly for changes to interest rates which happen frequently and are expected and well understood by customers. For example, it cost us nearly $3,000 for a recent public notice to be published in all daily newspapers. We may do several public notices for each of our products in a year, so costs add up very quickly. 6. We suggest the regulations should allow lenders to choose one or more of the following ways to communicate a change to interest rates or fees: a. Displaying the information at the lender s place of business b. Posting information on the lender s website.

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