Banks and insurers say they didn't lobby National to scrap 'fair conduct' laws

Friday, 18 August 2023

Christopher Luxon has an audience with the Financial Services Council.

National deputy leader Nicola Willis said the party’s decision to ditch laws requiring banks and insurers to treat customers “fairly” came after lobbying convinced the party the laws were a “mess of red tape”.

But neither the banking nor life insurance industry say they lobbied the opposition to repeal the laws.

Opposition leader Christopher Luxon announced the plan at the Financial Services Council (FSC) conference in Auckland on Thursday, saying the Government had added “rules layered top of rules with no regard for the cost for consumers or business”.

Luxon also said National would repeal changes to lending laws designed to reign in irresponsible lenders preying on the poor, which banks said resulted in them having to reject more home loan applications.

While National has made no secret of its dislike for the lending law reforms, its decision to repeal the Conduct of Financial Institutions (COFI) Act is a complete about-turn as 12 months earlier at the previous FSC conference, Willis said the party would leave COFI in place.

“We’ve taken on the views of many who have convinced us it's a mess of red tape and its goals can be achieved in less costly ways,” Willis said.

Neither Willis, nor Luxon said what those less costly ways were, but it appears National intends to make big changes to the laws governing banks and insurers, should it win power.

The leader of the opposition Christopher Luxon speaks at the Cordis Hotel in Auckland.

National’s commerce and consumer affairs spokesperson Andrew Bayly said when in government, the party would “simplify and clarify” the mass of laws and regulations governing banks and insurers, but did not intend to weaken consumer protection.

That echoed Luxon’s speech to the conference.

“The focus should be on cleaning up the rules we already have and enforcing those rules in a fair and predictable and certain way so consumers are protected and there is no genuine misconduct,” Luxon said.

Exactly who was lobbying for COFI’s repeal is not clear, with the FSC, which lobbies on behalf of life insurers, and the Banking Association Te Rangapū Pēke, which lobbies for banks, denying they had been working to have COFI scrapped.

Richard Klipin, chief executive of the FSC, said after it has passed into law, FSC members had simply got on and started preparing for it to come into effect in 2025.

This included readying their “fair conduct programmes”, which COFI required.

However Klipin noted speakers at the conference had criticised the number of laws and regulations that had come their way.

Naomi Ballanytne, managing director of the life insurer Partners Life, spoke about the huge number of regulations that had come the industry’s way, and the way it was introduced was often chaotic, often with short deadlines for consultations.

Clare Bolingford, the FMA’s director of regulatory delivery, reminded the FSC conference as to why conduct laws had been created.

National’s announcement to ditch COFI came after a speech at the conference by regulator Clare Bolingford, the Financial Markets Authority Te Mana Tātai Hokohoko, in which she said the COFI law brought New Zealand into line with countries overseas, and was about “closing conduct gaps”.

Bayly said the conduct and culture reviews by the FMA and Reserve Bank that led to the creation of COFI had not found any “systemic issues” in the banking and insurance industries.

However, in her speech on Wednesday, Bolingford reminded conference delegates about the “significant” amount of money banks and insurers had had to pay back to people after failures to treat customers fairly; Insurers alone have paid more than $43 million in remediation for bad behaviour to half-a-million customers.

That was a result of systemic failures of “poor conduct risk management, and weak systems and processes for identifying and managing poor customer outcomes”.

National’s Andrew Bayly says banks and insurers are ‘over-regulated’.

The Banking Association and the FSC said they were ready to work with whatever government was voted into power at the October general election.

The Banking Association noted that the Government had already committed to reviewing the lending law changes National intended to repeal.

Luxon said the lending law changes Labour had brought in were “well-intentioned”, but “those changes have just loaded costs and delays onto anyone looking to borrow even a small sum of money”.

They had created “horror stories”, such as people being asked by banks to justify their spending on cat food, or Netflix when seeking loans, and tying people up in hours of red tape when seeking to extend their mortgages.

National would, however, maintain tight restrictions on predatory lenders, Luxon said.

Financial mentors, who help families struggling under unaffordable debt, say the lending law changes under the Credit Contracts and Consumer Finance Act (CCCFA) had reduced predatory lending.

Jake Lilley, senior policy analysts at Fincap, urged National to listen to financial mentors before repealing lending laws, and to “keep in mind that lending protections help everyone”.

He was concerned to hear about National’s plan to ditch COFI as Fincap hoped that would see the end of car dealers selling “junk insurance” to car buyers, a product the Commerce Commission and financial mentors have both damned as being a waste of money, except for the car dealerships who earn commission on selling it, and the insurers who issue the policies.

But some grass-roots institutions would be happy to see the lending law changes repealed.

“CCCFA was just so restrictive. It is nuts. We do huge amounts of personal lending to working people and beneficiaries,” said Simon Scott, chief executive of the First Credit Union.

Media coverage of the CCCFA changes focused on people not being able to get mortgages, Scott said.

But he said it was also about lower-income people being able to borrow money from the likes of a credit union, so they could get to work to survive.

Credit unions are effectively owned by their customers, and had low loan default rates, Scott said.

As a result of the law changes two years ago, credit unions had been turning down “heaps and heaps” of loans to working people they would have previously made.

In one dreadful case, that led a credit union customer to borrow from a gang, which ended up with her being assaulted by gang members.