Commerce Minister promises to change controversial lending laws, but National says 'tweaks' not enough

Friday, 11 March 2022

Some people blamed the rules for keeping buyers on the sidelines of the property market.

Changes are coming for controversial new lending rules, which may mean banks are not required to conduct such close scrutiny of borrowers’ current spending behaviour.

Commerce and Consumer Affairs Minister David Clark says the Government is updating the rules, which have been blamed for a “credit crunch” on first-home buyers in particular.

The rules were introduced as part of an effort to protect vulnerable borrowers from loans they could not afford.

But mortgage advisers, and opposition politicians, claimed they had unintended consequences, and prompted banks and other lenders to become “ultra conservative”, declining loans they would previously have made. People reported being turned down for things like spending too much on a dog.

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John Bolton, chief executive of mortgage broking company Squirrel, who led the campaign to get Clark to make changes to his new laws and regulations, said: “They have listened. They have heard. They have made appropriate changes without throwing the baby out with the bathwater.

“These changes deal to the immediate issue. It's a good outcome,” Bolton said.

But the changes won't happen until June, after a consultation with lenders and consumer advocates, and the New Zealand Bankers' Association (NZBA) says the “tweaks” Clark is proposing do not go far enough.

Roger Beaumont, NZBA chief executive, said: “We think they’ve identified some of the main pain points for consumers, but it’s not clear the changes announced today will move the dial enough to make a difference.

“More detail is needed to see how the changes will actually work.”

National's Housing spokesperson Nicola Willis said: “We doubt the changes announced today will fix the problems being faced by everyday people trying to get mortgages.”

Banks had complained that the new lending rules were too prescriptive.

Clark said the planned changes to the new lending laws clarified that when borrowers provided a detailed breakdown of future living expenses, there was no need for lenders to inquire into current expenses from recent transactions.

Minister under fire: David Clark met with bank chief executives to talk about the impact of lending law changes introduced in December.

Brokers had complained that banks had assumed that current expenses would continue once a mortgage was issued, allowing no leeway for borrowers to adjust their spending when they had a loan to repay.

Lenders also did not need to count savings and investments as outgoings, Clark said.

Some people had reported having a higher KiwiSaver contribution rate while they saved a deposit had counted against them, because banks calculated how much they could afford on the assumption that contribution level would continue.

The requirement to obtain information in sufficient detail would only relate to information provided by borrowers directly rather than information from bank records.

The Government was also provided alternative guidance and examples for when it was “obvious” a loan was affordable, he said.

Clark ordered the inquiry into whether tweaks were needed to the new lending laws and regulations, which introduced at the start of December as part of the Credit Contracts and Consumer Finance Act, in an effort to protect vulnerable borrowers from unscrupulous lenders.

“The amendments we are making are informed by the feedback I received from banks, other lenders and consumers and sit within the intent of the Act,” Clark said.

That included direct feedback from bank chief executives in face-to-face meetings.

“These initial changes ensure borrower-ready Kiwis can still access credit while we continue to protect those most at risk from predatory and irresponsible lending,” Clark said.

“There is no question that the banks, budget advisers and Government are all on the same page when it comes to supporting the intention of the law, we want to stop vulnerable people from finding themselves with unaffordable debt.”

Clark said he detected “little enthusiasm” for wholesale changes to the law but a preference for practical amendments to be made to ensure the purposes of the legislation were met.

But a broader investigation into the implementation of the amendments continued.

Clark said investigations had shown no reason to believe the rule change was the main driver in the drop in lending that had been recorded, and seasonal movements could be a factor.

There was $4.667 billion in loans issued in January, compared to $4.714b last January, and $9.084b in November, before the rule change took effect.

FinCap, the umbrella organisation for budget mentors, said the new responsible lending rules were having a welcome impact at the lower end of the lending market.

“Financial mentors report the most blatantly unfair lending practices are fading away while borrowers in a tough spot have more options. This means more wellbeing for our whānau and communities,' it said.