Lending rules tweaked again

The Government has made more changes to responsible lending rules which lenders say created an artificial credit crunch.

Responsible lending laws and regulations were toughened at the start of December in a bid to reduce the harm done by irresponsible lending, but banks said it resulted in them having to turn down more home loan applications.

Commerce and

Consumer

Affairs Minister David Clark ordered a review, and in June some changes were made to get lending flowing again, but lenders said they didn’t go far enough.

Clark yesterday announced further changes which he said were designed to ensure ‘‘borrowready’’ Kiwis were not being unfairly penalised when applying for a loan.

These included making changes to loan affordability testing rules, and changes intended to make it easier for people who already had debts to refinance, or to consolidate them with another lender.

Lenders wanted exemptions for safer kinds of loans like home loans, and for new, higher financial penalties for company directors who breached responsible lending rules to be reduced.

The Government ruled both out. The changes would take effect in March, Clark said.

‘‘Earlier this year we heard stories about bank loans being declined because people had spent money on takeaways and streaming services,’’ Clark said.

‘‘The banks, budget advisers, the opposition and the Government are all on the same page when it comes to supporting the intention of the regulations; stopping vulnerable people finding themselves unaffordable debt,’’ he said.

But it was vital people retained access to safe, responsible and affordable credit, he said.

‘‘Whilst Government made some initial changes to address the most clearly articulated concerns in the shortest timeframe, these clarifications announced today will assist banks and lenders with some of the more technical aspects of the legislation,’’ he said.

Clark remained defensive of the intent of his responsible lending law changes.

He said the downturn in lending from with after December 1 coincided with other factors that could have suppressed demand for loans, including the Reserve Bank’s lending restrictions on banks, rising interest rates, inflation and the property market slowdown.

An investigation report from the Ministry of Business, Innovation and employment completed in June said there had been unintended consequences to toughening responsible lending rules.

It found lenders had been conservative in the way they reacted to the responsible lending law changes.