Don't rush to change new responsible lending regulations, says social good lender Good Shepherd

Friday, 11 February 2022

Good Shepherd chief executive Fleur Howard wants the new responsible lending regulations to be given more time to bed in, before we look at changing them, potentially weakening protections for vulnerable borrowers.

There should be no changes for at least six months to new responsible lending regulations designed to protect vulnerable people from unscrupulous lenders, says Fleur Howard, chief executive of social good lender Good Shepherd.

Commerce and Consumer Affairs Minister David Clark has ordered an inquiry into the regulations, which came in on December 1, and which bank chief executives say are too prescriptive, resulting in them being able to approve fewer home loans.

But Howard said the regulations were needed to reset lending as society was awash with damaging, unaffordable debt.

“It’s too soon to be reviewing,” she said. “There can be a review in six months, if we are still seeing issues.”

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Howard said the new regulations needed time to become embedded, and to give lenders the chance to get used to them.

“Everyone needs to settle down a little bit,” said Howard.

The flexing of muscles by lenders, including banks, had taken the focus off the reasons new regulations were brought in, she said.

“There’s been a lot of discourse around the obvious issues, but not a lot about why we needed this in the first place,” Howard said.

“New Zealand has got a massive debt problem, and it just spirals and at some point we needed to just draw a line in the sand, and prevent any further damage from happening,” she said.

Commerce and Consumer Affairs Minister David Clark has ordered an inquiry into whether changes are needed to new responsible lending regulations.

“We need a reset, so we can start to normalise socially responsible lending.”

“There are some people in some really dire situations, and that’s from high-cost lending,” she said.

Previous responsible lending reforms had effectively driven truck shops out of business, Howard said, but irresponsible lending had continued.

“We need socially responsible lending to be the norm, just like we are moving to socially responsible investing being the norm,” she said.

She said all the new regulations had done was standardise the process lenders had to go through to gather evidence, and to record it, when assessing whether a loan was affordable for a borrower.

The regulations would make it much easier for the Commerce Commission to investigate allegations of irresponsible lending, she said.

It would also mean that organisations like Good Shepherd, which helped people get out of problem debt, could more easily challenge irresponsible lenders as they would have better records to work from.

The National Party has drafted a law that would allow for different regulations to cover different kinds of lenders. The idea was that would allow for a crackdown on lower-tier lenders accused of trapping people into financial hardship, while not disrupting bank lending.

Howard said tiers of regulation had been introduced in other countries, and could work, but they introduced complexity.

Clark has rejected National’s proposal, saying if tweaks were needed to the rules, his inquiry would provide a faster fix.

The minister initially accused banks of over-reacting the new regulation, and even having failed to lend responsibly before the regulations came in, which banks denied.

Howard was sceptical about claims that the regulations were responsible for drops in home loan lending.

“I find that surprising because I think if a loan was affordable before, it would still be affordable now,” said the former commercial lawyer.

“If there is a difference, perhaps they should not have been making those loans.”

Good Shepherd has published its annual review, which shows its no-interest and low-interest loans had saved the people it worked with $1.3m in fees and interest.

Among the uses of its loans have been to pay off high-interest debt to enable people to establish better lives.

Its DebtSolve programme helped 444 clients get on top of unmanageable debt. People's debt problems were often so deep they had to work with Good Shepherd’s debt coaches for a year.

Other uses Good Shepherd loans have been put to include paying for car repairs and dental work.