Commerce minister David Clark orders inquiry into falling lending levels

Friday, 14 January 2022

Independent Economist Tony Alexander says mortgage lenders' willingness to lend has dropped.

Commerce and Consumer Affairs Minister David Clark has ordered an inquiry into whether banks have overreacted to new lending laws.

Changes to the Credit Contract and Consumer Finance Act (CCCFA) were introduced at the start of December to protect vulnerable borrowers from unscrupulous lenders.

But mortgage advisers, and opposition politicians, claim they have had unintended consequences, and prompted banks and other lenders to become “ultra conservative”, declining loans they would previously have made.

“I have asked the Council of Financial Regulators (Reserve Bank, the Treasury, Financial Markets Authority, MBIE and Commerce Commission) to bring forward their investigation into whether banks and lenders are implementing the CCCFA as intended,” Clark said.

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Commerce and Consumer Affairs Minister David Clark wants the country’s money authorities to look into whether banks have overreacted to lending law changes designed to protect vulnerable borrowers.

Clark said the new laws to protect vulnerable borrowers were in their early days, and there were other factors that could be influencing bank behaviour.

“Banks appear to be managing their lending more conservatively at present, and this is likely due to global economic conditions,” he said.

But, he said: “It may also be that in the initial weeks of implementing the new CCCFA requirements there has been a decision to unduly err on the side of caution.”

The changes also came shortly after the Reserve Bank restricted the volume of low-deposit mortgage lending which banks could do.

In November, the Reserve Bank lifted the Official Cash Rate (OCR), which influences home loan rates.

“A number of factors affecting the market have occurred at the same time as the CCCFA changes, including increases to the OCR, LVR changes, and an increase in house prices and local government rates,” Clark said.

But, he said: “An investigation by COFR (Council of Financial Regulators) will determine the extent to which lender behaviour, in respect of the CCCFA, is a significant factor in changes to banks’ lending practices.”

Both ACT leader David Semour, and Andrew Bayly, National’s spokesman for commerce and consumer affairs, had called for inquiries into the impact of the law changes.

The law changes increased the penalties for irresponsible lending, and required lenders to do deeper dives into borrowers’ finances before granting them loans.

But critics allege they have driven up lending costs, increased the administrative burden for lenders, borrowers and mortgage brokers, and made it harder for ordinary people to get loans.

“A parliament that seeks to be a good lawmaker should not allow such laws to stand,” Seymour wrote in a letter to Commerce and Consumer Affairs Minister David Clark on January 5, in which he asked for an inquiry.