Trade and Consumer Affairs Minister David Clark. Picture / File
Government changes to responsible lending rules may not move the dial enough to make a difference for borrowers, say a group representing New Zealand banks.
This morning Trade and Consumer Affairs Minister David Clark announced changes to the Credit Agreements and Consumer Credit Act – less than four months after it was tightened.
Changes to the law came into effect on December 1, prompting complaints from consumers and mortgage brokers frustrated that borrowers were being denied loans due to spending habits like takeout, go at the pub or consult a counsellor.
More than 10,000 people signed a petition against the changes to the law, and the government announced in late January that it would review them.
Today, Clark said he was making practical changes to limit the law’s unintended consequences.
“The changes we are making are informed by feedback I have received from banks, other lenders and consumers and fit comfortably within the spirit of the law.
“These initial changes ensure Kiwis ready to borrow can still access credit as we continue to protect those most at risk from predatory and irresponsible lending.
“There is no doubt that banks, budget advisers and the government are all on the same page when it comes to supporting the intent of the law – we want to prevent vulnerable people from ending up with unaffordable debt. .”
• Clarify that when borrowers provide a detailed breakdown of future living expenses, it is not necessary to learn about current living expenses from recent banking transactions.
• Removed regular “savings” and “investments” as examples of expenses lenders should inquire about
• Clarify that the obligation to obtain “sufficiently detailed” information concerns only information provided directly by borrowers rather than information from bank transaction records.
• Provide alternative advice and examples when it is “obvious” that a loan is affordable
Roger Beaumont, chief executive of the New Zealand Bankers Association, said he was pleased to see the government move quickly in response to consumer concerns about the impact of the new lending rules.
“We believe they’ve identified some of the key pain points for consumers. But it’s not clear that the changes announced today will move the dial enough to make a difference.”
Beaumont said more could be done to reduce the impact on most consumers while maintaining protection for vulnerable consumers.
“We would like the new rules to work in a way that does not restrict access to responsible lending for consumers who can afford it, while ensuring that vulnerable consumers are protected against high cost credit which may not suit their situation.These changes maintain the one-size-fits-all approach that hasn’t worked so far.
“More details are needed to see how the changes will actually work.”
Beaumont said the range of benchmark expenses was very limited and regulations still required lenders to collect detailed expense information.
Lyn McMorran, executive director of the Financial Services Federation, which represents finance and leasing companies, said the government’s announcement lacked critical details.
“Apart from the vague outline of the changes in today’s press release, we have not been told any details such as when they might come into effect, or under what circumstances the 4AG rule exception can now be used.
“We’ve asked officials to provide more details as soon as possible so that all lenders can really think about what this means for them and their customers.”
A spokesperson for Clark confirmed after the announcement was sent that the changes would come into effect in early June after a brief period of consultation between stakeholders and the Department for Business, Innovation and Jobs to determine the practical aspects of the changes.
Clark said a broader investigation by MBIE and the Council of Financial Regulators into the CCFA changes was ongoing.
But he said investigations had so far given no reason to believe the law was the main driver of the loan cuts.
“The Reserve Bank’s December figures highlight seasonality as a significant contributor. In fact, December 2021 was still above the same month trends in 2017, 2018 and 2019.
“It’s also important to note that banks may be managing their lending more conservatively and this is likely due to global economic conditions. And a number of market-affecting factors have happened alongside the CCCFA changes. , including increases in OCR, LVR currency and an increase in real estate prices and local government rates.”
This is despite lenders claiming that the CCCFA has reduced application and approval rates.
Last month, Heartland Bank chief executive Chris Flood told the Herald that the rate of decline in its car loans had tripled since the government tightened consumer credit laws.
While Kiwibank chief executive Steve Jurkovich said mortgage applications had “fallen sharply” following the law change.
But others say the law change is working well.
FinCap – the umbrella organization for New Zealand’s financial mentors, said the CCCFA reforms had already brought about a more level playing field for the whanau.
North Harbor Budgeting Service financial mentor David Verry said CCCFA reform has so far meant mobile or payday lenders — like truck shops — have all but disappeared from the landscape.
“The number of people we had before – I had clients who had five or six payday loans – I don’t see payday loans now, or anything like a payday loan.”
Debtfix director and co-founder Christine Liggins said the reform meant fewer people were being sold a loan they could not afford.
“A real, honest affordability assessment will easily stop a spiral of debt because it takes into account all the costs – all the things people don’t think about.”
Jake Lilley, FinCap’s senior policy adviser, said he would continue to support the changes.
“Too often financial mentors see lenders collect loans that were never going to work and immediately put a whānau on a difficult journey where it was hard to buy kai.
He said safe lending laws with affordability assessment financial health checks meant lenders could not overlook the damage they might cause or have caused.
“As the Commerce Commission recently revealed, predatory flex-fee practices that are banned overseas are commonplace in the auto loan industry. It’s important that borrowers have safe lending laws that allow them to support.”
Clark said today’s changes aren’t the final word on the law.
“Any further changes to credit laws and the Responsible Lending Code will be considered part of the remainder of the investigation to be completed next month.”