Emergency move to relax lending laws for flood, cyclone victims

Tuesday, 14 February 2023

Across Auckland there are scenes of piles of flood-damaged furniture on the roadside awaiting collection.

The Government has passed emergency lending law regulations to allow banks to make loans to flood and cyclone victims in desperate need of cash.

The regulations allow banks and other mortgage lenders to extend people’s home loans by up to $10,000 without having to do affordability assessments.

The regulations also allow banks to extend emergency overdrafts of up to $10,000 to existing customers who are victims of extreme weather events in January and February without having to first do affordability assessments.

Only loan applications from people who are “experiencing, or reasonably expect to experience” negative effects from the flooding or other weather-related damage in the upper North Island in January and February 2023 are covered by the regulations.

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All other people seeking to extend their loans, or get overdrafts, are still covered by responsible lending regulations requiring lenders to do affordability assessments before deciding whether to give them loans.

The regulations say it would be “unduly onerous and burdensome” for lenders to have to do affordability assessments when lending was urgently required by flood victims.

The regulations will be in place until the end of March.

Banks have all put in place emergency support programmes for customers, under which they promise to work with customers who have suffered during the extreme weather battering the country since late in January.

Measures they can take include offering people overdrafts, and temporary reductions in home loan repayments.

Lyn McMorran, executive director of the Financial Services Federation, a lobby group for non-bank finance companies.

The country’s largest bank, ANZ, said it had simplified its processes for things like temporary overdrafts for customers with pending insurance claims, and for those applying for a KiwiSaver significant hardship withdrawal for amounts up to $5000.

“There are also a number of fee waivers in place, as well as the ability for customers in hardship to break term deposits.”

The emergency loan regulations have infuriated non-bank finance companies.

They are excluded as most are not mortgage lenders, and, because they do not offer transaction accounts, cannot offer overdrafts.

Lyn McMorran, executive director of the Financial Services Federation, lobbied for finance companies to be included in the emergency regulations.

“The decision not to extend the exemptions to personal loans or other credit products at this time will restrict relief for people who will be really needing it,” she said.

The regulations were biased towards the “lucky people” people who owned their own homes with a mortgage, she said.

Many people would be looking to replace flood-damaged cars, furniture and whiteware, and McMorran said home loans and overdrafts were not the appropriate kind of loan for people to fund those purchases.

Around half of all loans for cars and household goods like whiteware were from non-bank finance companies, she said.

Overdraft rates from banks vary, but ANZ charges 18.9% interest on its overdrafts, as long as people remain within their overdraft limit, while Westpac charges 19.95%.

McMorran said tightening of responsible lending regulations in December 2021 continued to have negative effects, making it hard for finance companies to extend loans to people who needed money urgently as a result of flooding.

“The idea that lenders have to get statutory relief to assist customers in an emergency, suggests the law is fundamentally flawed, and more needs to be done to get this right for New Zealand consumers,” McMorran said.