Lenders and brokers challenge minister to publish terms of inquiry into lending law disruption

Wednesday, 19 January 2022

Commerce and Consumer Affairs Minister David Clark, has ordered an inquiry into the unintended consequences of recent lending law changes, but lenders and mortgage brokers remain suspicious.

Lenders are calling on the Government to publish the terms of an inquiry into how lending law changes supposed to protect vulnerable people from loan sharks came to slow the mortgage market.

Commerce and Consumer Affairs Minister David Clark announced the inquiry on Friday after credit reporting agency Centrix released data showing a sharp decline in the proportion of loan applications being approved, including a plunge in home loan approvals.

But lenders and mortgage brokers said Clark should publish the terms of the inquiry to give the public confidence that an inquiry would happen soon, and that it would be handled with due seriousness.

“We want to see evidence there is an inquiry, what it’s inquiring into, what are the terms of reference, who is actually going to be part of this inquiry, and will they actually listen this time?” Lyn McMorran, executive director of the Financial Services Federation (FSF), an industry association for non-bank lenders.

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

Former National MP Katrina Shanks, now chief executive of Financial Advice New Zealand, which represents mortgage brokers, also called on Clark to reveal the terms of the inquiry he announced.

“This is an issue of urgency for the average Kiwi,” Shanks said

“We can help with the terms of reference, so he can understand where the issues are, and how they can be resolved.”

Clark said he would be briefed on the terms of reference and proposed timeframes next week, and the Government was committed to ensuring the regulations operated as intended to protect vulnerable people from predatory lenders and unaffordable debt.

Keith McLaughlin, managing director of Centrix said since the changes to lending laws kicked in at the start of December, the proportion of home loan applications that resulted in home loans being issued fell from 36 per cent to 30 per cent. Centrix, tracks loan applications and approvals.

In October, the rate had been 39 per cent, he said.

A relaxed minister of commerce Kris Faafoi, who was the minister initially in charge of changing lending laws, with Financial Services Federation executive director Lyn McMorran, pictured in 2018 before the new lending laws were developed.

If that trend continued, it could result in about 7000 fewer home loans being approved each month, McLaughlin said.

The drop was sharper on consumer loans like credit card, car and personal loans, dropping from about 34 per cent approved before December to 23 per cent, Centrix data showed.

Lenders said lending laws were now so prescriptive, and the potential penalties for company executives and directors so harsh, they have had no choice but to lend much more conservatively. As a result some people who would have qualified for loans in November last year, no longer qualify.

In his Friday announcement, Clark seemed to blame lenders for not implementing the law changes “as intended”.

“I have asked the Council of Financial Regulators to bring forward their investigation into whether banks and lenders are implementing the CCCFA (Credit Contract and Consumer Finance Act) as intended,” he said.

But McMorran said banks and other lenders had warned the Government in submissions during the lawmaking process that the law changes would result in some ordinary people no longer being able to get home loans, and car loans.

“Everything we said would happen is happening,” McMorran said.

“We always thought it was a stupid thing to do. Over-reacting and going too far towards prescription was going to be a bad thing. It's proven to be.

“We can never complain that we weren’t given the chance to make submissions. The problem is we just weren’t being listened to,” she said.

The FSF published an “open letter” to Clark on Wednesday applauding him for calling the investigation, saying it needed to be “immediate and urgent”.

“We remain optimistic, in hopes to finally achieve a level of understanding between both the regulator and the industry, as we both strive to achieve the same objectives– reasonable access to credit provided responsibly by all lenders, and protection of those who are vulnerable – which can be constructively and more efficiently achieved this time around,” the letter said.