Banks deny minister's irresponsible lending accusation

Tuesday, 1 February 2022

Pressure from mortgage brokers forced Commerce and Consumer Affairs Minister David Clark to call an inquiry into the impact of lending law changes.

Commerce and Consumer Affairs Minister David Clark has accused banks of failing to abide by responsible lending laws before December 1.

Clark has ordered an inquiry into the impact of tougher new lending laws and regulations designed to protect vulnerable people from unscrupulous lower-tier lenders.

Introduced at the start of December, the new laws were followed by an immediate sharp drop in loan approvals by banks, and non-bank lenders, including loans for first-time homebuyers mortgage brokers said would have qualified in November.

But as well as ordering the inquiry, Clark said he had also summoned bank chief executives to face-to-face meetings to explain how some of them were failing in their responsible lending duties before the lending law changes were introduced.

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

Harry and Kate Uffindell assumed they would stay in Auckland near family when they returned from overseas, but Christchurch's more affordable housing and lifestyle won them over.

* First home buyer says he ‘lived like a hermit’ to get approval under new mortgage lending rules

Roger Beaumont, chief executive of the Bankers’ Association denied the accusation, saying banks were simply complying with the new rules as they are written.

Clark said he had asked to meet with the heads of the big banks this week.

“It is important we get to the bottom of exactly what aspects of the Credit Contract and Consumer Finance Act (CCCFA) responsible lending rules were not being adhered to by some banks previously,” he said.

Beaumont said the suggestion banks were not complying with their responsible lending obligations before the latest CCCFA changes “comes as a surprise”.

“Banks take their obligations to comply with the law very seriously. That was the case before the rule change, and remains the case.”

Bankers’ Association chief executive Roger Beaumont says it warned the Government its planned lending law changes would result in fewer people qualifying for loans.

Banks warned the Government the changes to the act would result in a some people no longer qualifying for loans, he said.

“We’ve made several submissions on the CCCFA law change and new regulations since 2018. In our submissions we’ve set out our concerns all along the way. The investigation might be able to clarify some of those concerns and hopefully identify some useful solutions,” he said.

Clark’s inquiry into the law changes, which were supposed to protect vulnerable borrowers from unscrupulous lower tier lenders, would be conducted by the Council of Financial Regulators, which included the Reserve Bank Te Pūtea Matua and The Treasury Te Tai Ōhanga.

Clark ordered the inquiry after pressure mounted from mortgage brokers and opposition parties about what they saw as unintended consequences of the laws.

ACT and National had pressed for an inquiry following a campaign by John Bolton, chief executive of mortgage broker, Squirrel.

Beaumont welcomed the inquiry and said some changes to the lending regulations would the best way to resolve the current issues.

“At this stage the Government is working to clarify the issues. We welcome the fact they’ve responded quickly to recognise there’s a problem with the new rules,” Beaumont said.

“There’s a one-size fits all approach for all lenders and all loan types, from home loans to overdrafts and extensions to credit card limits. This means banks don’t have the same discretion or flexibility they used to.

Beaumont said the changes meant some loan approvals that were accepted before December 1 would be declined after that date.

Clark said he finalised the terms of reference for the inquiry during the weekend, and had asked for a preliminary analysis by mid-February, with the final report due in April.

The inquiry would seek to work out what portion of the drop in lending in December was due to the changes, and what was due to other factors.

These include the impact of recent Reserve Bank limits on how much low-deposit lending banks could do, and a seasonal drop-off in lending.

“The terms of reference state the investigation will analyse the reported outcomes of the CCCFA and whether they’re attributable to the act’s intended protections, unintended consequences or any other external factors, like the global economic situation,” Clark said.