But the government does not go far enough to address real issues
Venkat Raman
Auckland, March 11, 2022
Borrowers, mortgage brokers and others involved in the lending business will heave a sigh of relief as the government makes amendments to the Credit Contracts and Consumer Finance Act that have seriously eroded the propensity to borrow of ordinary New Zealanders.
Commerce and Consumer Affairs Minister David Clark announced the changes this morning (March 11, 2022) saying that borrowers will be able to access credit with greater ease while the government continues to protect against loan sharks.
Some highlights
The amendments include the following (a) Lenders (mostly commercial banks) need not inquire into the current living expenses mentioned in recent bank transactions by borrowers (b) Savings and Investments as examples of outgoings removed (c) The requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrows directly rather than information from bank transaction records.
The Credit Contracts and Consumer Finance Act came into force on December 1, 2022, creating confusion and frustration among people seeking loans, especially for purchase of homes. There were complaints from mortgage brokers and potential borrowers that commercial banks were rejecting loans on the basis of ‘silly, day-to-day expenses’ (such as purchase of groceries and beverages) because these eroded their propensity to service their loans.
Dr Clark said that the amendments being effected were based on the response received from banks, other lenders and customers.
“There is no question that the banks, budget advisers and government are all on the same page when it comes to supporting the intention of the law – we want to stop vulnerable people from finding themselves with unaffordable debt. Following my meetings with the banks at the end of last month to hear their concerns, I detected little enthusiasm for wholesale changes to the Act, but instead a preference for some practical amendments to be made to ensure the purposes of the legislation are best met,” he said.
Not a holistic approach
However, Dr Clark indicated that the government will not take a holistic look at the Act and consider changes to ease credit.
“Based on a broader investigation, led by the Ministry of Business, Innovation and Employment and the Council of Financial Regulators, the early implementation of the CCCFA amendments is ongoing. Thus far, investigations have thrown up no reasons to believe that the CCCFA is the main driver in reduced lending,” he said.
According to the Reserve Bank of New Zealand, December 2021 figures indicate marginal variation as a prominent contributor, with the figures above trends compared to 2017, 2018 and 2019.
Dr Clark said that banks may be managing their lending more conservatively due to global economic conditions. He attributed the reduced lending to factors such as increased cash rate, LVR changes, rise in housing prices and local government rates.
Dr Clark said the changes announced are not final.
Proposed Amendments
Following are the highlights of the proposed amendments: (a ) Removing regular ‘savings’ and ‘investments’ as examples of outgoings that lenders need to inquire into when assessing the borrower’s future expenses (b) Clarifying that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions (c) Clarifying that where lenders choose to estimate future expenses from recent bank transaction records, they are permitted to obtaining information about how their current expenses are likely to change once the contract is entered (d) Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records (e) Providing further guidance on when a lender needs to allow for a ‘reasonable surplus’ (the amount left over when the borrower’s estimated expenses are subtracted from their income) and how lenders should set surplus requirements and (f) Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.
