Kiwi borrowers should face less interrogation over their current and future expenses when applying for loans, following updates to the responsible lending laws that were announced by the NZ government this morning (11 March).
The changes are described as "practical amendments to responsible lending rules to curb any unintended consequences being caused by the Credit Contracts and Consumer Finance Act (CCCFA)".
The CCCFA came into effect at the end of last year, requiring lenders to follow a robust process and ensure lending is affordable and suitable. The requirements were similar to the ASIC-driven Australian rules that have since been upended by the ‘Shiraz and Wagyu’ case.
Following the passing of the CCCFA amendments there was a flood of news stories about people being turned down for mortgages or having their pre-approvals withdrawn. Some borrowers reported cutting back on food or using cash for purchases such as takeaways, pet care or haircuts.
The media coverage and concern banks were adding to a credit crunch by adopting too hard a line with the guidelines prompted the government to bring forward an investigation into the impact of the changes and a statement by Commerce and Consumer Affairs Minister David Clark that banks may have been deciding to "unduly err on the side of caution”.
This morning Clark said that in his meetings with banks he “detected little enthusiasm for wholesale changes to the Act, but instead a preference for some practical amendments to be made to ensure the purposes of the legislation are best met”.
Today’s updates:
• clarify that when borrowers provide detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions;• remove regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into,• clarify that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records; and• provide alternative guidance and examples for when it is ‘obvious’ that a loan is affordable.
However, Clark continues to push back on claims that the government's legislative changes have caused a damaging credit crunch.
“Thus far investigations have thrown up no reasons to believe the CCCFA is the main driver in reduced lending. The Reserve Bank’s December figures highlight seasonal variation as a prominent contributor. In fact, December 2021 was still above trends from the same month in 2017, 2018 and 2019," he said.
“It is also important to note that banks may be managing their lending more conservatively and this is likely due to global economic conditions. And that a number of factors affecting the market have occurred at the same time as the CCCFA changes, including increases to the OCR, LVR changes and an increase in house prices and local government rates."
A "broader investigation", led by MBIE and the Council of Financial Regulators, into the early implementation of the CCCFA amendments is ongoing.