Government makes further changes to responsible lending rules
Tuesday, 2 August 2022
The Government has made more changes to responsible lending rules which lenders say created an artificial credit crunch.
Responsible lending laws and regulations were toughened at the start of December in a bid to reduce the harm done by irresponsible lending, but banks said it resulted in them having to turn down more home loan applications.
Commerce and Consumer Affairs Minister David Clark ordered a review, and in June some changes were made to get lending flowing again, but lenders said they didn’t go far enough.
On Tuesday Clark announced further changes which he said were designed to ensure “borrow-ready” Kiwis aren’t being unfairly penalised when applying for a loan.
**READ MORE:
* Banks: Proposed home loan changes still won't help
* Don't rush to change new responsible lending regulations, says social good lender Good Shepherd
**
These included making changes to loan affordability testing rules, and changes intended to make it easier for people who already had debts to refinance, or consolidate them with another lender.
Lenders wanted exemptions for safer kinds of loans like home loans, and for new, higher financial penalties for company directors who breached responsible lending rules to be reduced.
The Government ruled both out.
The changes would take effect in March, Clark said.
New Zealand Bankers’ Association chief executive Roger Beaumont said Clark’s changes would make a difference.
But, he said: “The best option presented to him would have been to target affordability regulations to riskier lending and lenders, as well as make changes to the penalties regime.”
Clark said: “Earlier this year we heard stories about bank loans being declined because people had spent money on takeaways and streaming services.”
“The banks, budget advisers, the opposition and the Government are all on the same page when it comes to supporting the intention of the regulations; stopping vulnerable people from finding themselves with unaffordable debt,” he said.
But it was vital people retained access to safe, responsible and affordable credit, he said.
“Whilst Government made some initial changes to address the most clearly articulated concerns in the shortest timeframe, these clarifications announced today will assist banks and lenders with some of the more technical aspects of the legislation,” he said.
Clark remained defensive of the intent of his responsible lending law changes.
He said the downturn in lending after December 1 coincided with other factors that could have suppressed demand for loans, including the Reserve Bank’s lending restrictions on banks, rising interest rates, inflation and the property market slowdown.
An investigation report from the Ministry of Business, Innovation and employment completed in June said there had been unintended consequences to toughening responsible lending rules.
It found lenders had been conservative in the way they reacted to the responsible lending law changes.
That was partly as a result of increasing financial penalties for directors and managers of lenders like banks, if they fail to lend responsibly.
But banks and consumers were learning to live with the new rules, Clark said.
“I’m also advised lenders are further refining their processes and consumers are becoming more familiar with the new requirements,” he said.
Ruth Smithers, chief executive of FinCap, an umbrella group for financial mentors, said: “We are pleased to see that these changes are not being rushed through without proper consideration of potential impact for harm.
“Over many years financial mentors have seen endless examples of collection on loans that were always going to be unaffordable. This causes very avoidable but very significant harm in our communities.
“Lenders need to be required to check properly that they are not setting up a whānau to go without food to meet the costs of a loan and additional default penalties.”