The Government's tweaks to the responsible lending rules may not move the dial enough to make a difference to borrowers, a group representing New Zealand's banks says.
This morning Commerce and Consumer Affairs Minister David Clark announced changes to Credit Contracts and Consumer Finance Act - less than four months after it was tightened.
Changes to the law came into force on December 1 prompting complaints from consumers and mortgage brokers frustrated that borrowers were being turned down for loans due to spending habits like takeaways, going to the pub or seeing a counsellor.
More than 10,000 people signed a petition against the law changes and the Government announced at the end of January it would review them.
Today Clark said it was making practical amendments to curb any unintended consequences of the Act.
"The amendments we are making are informed by the feedback I received from banks, other lenders and consumers and sit comfortably within the intent of the Act.
"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.
"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."
The changes include;
• clarifying that when borrowers provide a detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
• Removal of regular "savings" and "investments" as examples of outgoings that lenders need to inquire into
• Clarifying 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.
• Providing alternative guidance and examples for when it is "obvious" that a loan is affordable
Roger Beaumont, chief executive of the New Zealand Bankers' Association said it was pleased to see the Government move quickly in response to consumer concerns about the impact of the new lending rules.
"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."
Beaumont said more could be done to reduce the impact on most consumers while maintaining protections for vulnerable consumers.
"We'd like to see the new rules work in a way that doesn't restrict access to responsible lending for consumers who can afford it, while ensuring vulnerable consumers are protected from high-cost credit that may not suit their circumstances. These changes maintain the one-size fits all approach that hasn't worked so far.
"More detail is needed to see how the changes will actually work."
Beaumont said the range of benchmarked expenses was very limited and the regulations still required lenders to gather detailed information on outgoings.
Lyn McMorran, executive director of the Financial Services Federation which represents finance and leasing companies, said the Government's announcement lacked critical detail.
"Apart from the vague outline of changes in today's press release, we haven't been informed of any detail such as when they might take effect, or in what circumstances the exception in regulation 4AG may now be used.
"We have requested that officials provide more detail as soon as possible so all lenders can actually consider what this means for them and their customers."
A spokesman for Clark confirmed after the announcement was sent out that the changes would come into effect in early June after a brief consultation period between stakeholders and Ministry of Business, Innovation and Employment to work out the practicalities of the changes.
Clark said a broader investigation led by MBIE and the Council of Financial Regulators into the CCFA amendments was ongoing.
But he said investigations had so far given no reasons to believe the act was 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.
"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."
That is despite lenders saying the CCCFA has curbed application and approval rates.
Last month Heartland Bank chief executive Chris Flood told the Herald the decline rate for its vehicle lending had tripled since the Government tightened consumer credit laws.
While Kiwibank chief executive Steve Jurkovich said mortgage applications had "fallen sharply" in the wake of the law change.
But others say the law change is working well.
FinCap - the umbrella organisation for New Zealand's financial mentors, said the CCCFA reforms had already brought about a fairer playing field for whanau.
North Harbour Budgeting Service financial mentor David Verry said the CCCFA reform so far had meant mobile or payday lenders - like truck shops - had virtually disappeared from the landscape.
"The number of people that we had coming into us before - I had clients that had five or six payday loans - I'm not seeing any payday loans now, or anything close to a payday loan."
Debtfix director and co-founder Christine Liggins said the reform meant fewer people were being sold a loan which they couldn't afford.
"A true and honest affordability assessment will easily stop a debt spiral because it takes into account all costs - all the things that people don't think about."
Jake Lilley, FinCap senior policy adviser, said it would continue to support the changes.
"Too often financial mentors see lenders collecting on loans that were never going to work and immediately put a whānau on a difficult journey where it was hard to buy kai.
He said safe lending laws with affordability assessment financial health checks meant lenders could not turn a blind eye to the harm they could cause or have caused.
"As the Commerce Commission has recently revealed, predatory flex commission practices which are banned overseas, are rife within the car lending industry. It is important that borrowers have safe lending laws backing them up."
Clark said today's changes were not the final word on the law.
"Any further changes to credit laws and the Responsible Lending Code will be considered as part of the remainder of the investigation which is due next month."