Govt reveals new rules for lending
The Government has confirmed plans to overhaul lending laws, laying out plans to effectively undo three-year-old rules that aimed to safeguard against unscrupulous loan sharks.
Housing Minister Chris Bishop and Commerce Minister Andrew Bayly announced the first steps of their reforms yesterday. While the major reforms were still in the pipeline, the ministers confirmed a few initial steps which they said would make it easier for lenders and borrowers.
The Credit Contracts and Consumer Finance Act, known as the CCCFA, was updated in 2021 in response to concern about loan sharks and “debt trucks” loading up households with unaffordable levels of high interest debt. It made lenders responsible for taking a look at borrowers’ spending habits, to understand if they would credibly be able to afford debt repayments. Following its introduction, some home loan borrowers said they were turned down due to trips to Kmart or spending too much on their pets or takeaways.
The Labour government did tweak the rules again, in response to concerns about falling lending levels and over-the-top requirements to check on borrowers’ spending habits.
The coalition parties had campaigned on removing some requirements on lenders, and on yesterday Bayly confirmed five initial changes – but final details about the most significant change, regarding how banks should assess affordability, remained unclear.
Bayly did confirm that the Financial Markets Authority would take over monitoring and dispute resolution services for the CCCFA. He also said local councils would be freed from CCCFA requirements, as they had been required to follow these rules when administering loans through voluntary targeted rates. Car dealers and other companies whose “primary business is non-financial goods and services” would also be exempt from the CCCFA.
And within the “coming months” Bayly said major changes would come into force, revoking “detailed requirements for assessing the affordability of loans”.
“These regulations created unnecessary compliance costs and are an excessive barrier for lending. And worse, the regulations failed to protect the most vulnerable Kiwis – the very people they were intended to safeguard,” Bayly said, in a statement.
“The overly arduous checks meant the time it took to process loans dramatically increased. Lenders told me that a small loan that used to take two hours to process suddenly took up to eight hours.”
He said there would still be compliance obligations on lenders to ensure they were not acting irresponsibly. “Today’s changes will still require lenders to act responsibly and ensure lending will not cause hardship, but lenders will not have to follow a prescriptive, one-size-fits-all process,” he said.
Bishop said he expected an immediate impact on home loan lending, although those working in the field said yesterday’ announcement did not bring much new information since previous comments from Bayly – such as those made at January’s Financial Services Council conference.