Fixes finalized for controversial credit rule changes – banks say ‘tweaks’ don’t go far enough

Banks across the country say changes have been made to correct controversial new credit rules are a hasty solution that will not make things any easier for potential borrowers.

The changes come into effect on July 7.

The banking sector’s representative body, the New Zealand Bankers Association, said changes to the Credit Agreements and Consumer Finance Act (CCCFA) introduced last December had an immediate effect on the availability of consumer credit.

“The government’s hasty attempt to fix the problem hasn’t made it any easier for consumers applying for credit. Instead, it raised hopes for a solution that was not delivered,” said NZBA chief executive Roger Beaumont.

“We do not believe that the adjustments released today [Thursday, June 9] will make a big difference for most borrowers. Indeed, most of the existing requirements remain in place, which means that customers will still have to provide detailed information on their expenses, which will lead to a more thorough process and a higher number of loan applications refused than before the change. December rule.

“While we agree with the government’s aim to protect vulnerable consumers from unscrupulous lenders, the one-size-fits-all approach for all lenders and all types of loans means banks no longer have the same discretion or the same flexibility as before.

“We eagerly await the results of the ongoing review by the Council of Financial Regulators. We believe that by working with the government and organizations like FinCap, we can find a way to both protect vulnerable consumers from lenders unscrupulous and ensure a less restricted flow of credit to those who can afford it”.

NZBA made a previous submission on the proposed adjustments to the rules and why these did not go far enough.

The new rules essentially targeted the more unscrupulous part of the lending market – but also applied to major banks. And essentially, the rules required banks to collect far more details from those applying for loans than before. The banks and their managers risked being punished if they did not collect this detail.

Anecdotally, the changes led to a freeze on lending over the New Year period as banks tried to adjust to the new prescriptive rules.

Minister for Trade and Consumer Affairs, David Clark announced in March that fixes would be put in place for amendments to the Credit Agreements and Consumer Credit Act (CCCFA) which came into force on December 1.

The changes would affect the CCCFA Rules and the Responsible Lending Code.

A statement from the Department for Business, Innovation and Employment (MBIE) said that these initial changes “have been made to quickly resolve some issues that have been heard since the changes to the CCCFA came into effect, such as useless investigations”.

In April, MBIE published an Exposure Draft of amendments to the Regulations and Responsible Lending Code for comment and now, after reviewing submissions on the Exposure Draft, the Regulations and Responsible Lending Code have been updated to reflect comments received.

The amendments are now finalized and will come into force on July 7, 2022.

These are the changes:

  • Remove regular “savings” and “investments” as examples of expenses lenders should ask about when assessing the borrower’s likely expenses.
  • Clarify that when borrowers provide a detailed breakdown of their future living expenses, and these are compared to sound statistical data, there is no need to also inquire about their current living expenses from transactions recent banking.
  • Clarify that when lenders estimate expenses based on recent bank statements, they can ask the borrower how the expenses are likely to change once the contract is finalized.
  • Clarify that the requirement to obtain “sufficiently detailed” information only relates to information provided directly by borrowers (for example, ensuring that expenditure categories on application forms are sufficiently detailed) rather than information from borrowers. bank transaction records.
  • Provide additional guidance that a “reasonable excess” is not required if the lender has applied adequate buffers and adjustments to income and expenses.
  • Provide alternative advice and examples where it is “obvious” that a loan is affordable, so a full assessment of income and expenses is not required.

Prior to the March announcement, Clark had asked the MBIE to take a closer look at changes to the CCCFA and regulations late last year, working with other members of the Council of Financial Regulators (CoFR ).

MBIE said that while the initial changes were progressing, “the rest of the investigation was continuing in parallel.”

“The Minister for Trade and Consumer Affairs has received a final report and advice from officials and is considering possible further action. We expect the final report to be released in July.”