New lending rules have been in the spotlight after borrowers said they had been rejected because of their spending habits. But for poorer New Zealanders who depend on much smaller loans, the lending restrictions have been far more devastating.
Low income New Zealanders are being rejected for loans as small as $50 because of strict new lending rules, despite having never missed payments.
They are instead turning to more dubious sources, including loan sharks and even gang-related lenders - exactly the type of practices which the Government's changes were meant to stamp out.
Credit unions told the Herald they are having to reject loans for borrowers who have not missed a payment for more than 20 years, and that in one case a solo mother had to be turned away simply because she had too many children.
Unions and building societies said they warned the Government two years ago that the changes would hit poorer New Zealanders hard, but were told the impact would be minimal. The new rules have exacerbated inequities caused by the Covid-19 pandemic, they said.
"It's a nightmare for the low end of society," said lawyer Patrick Wilson, who represents an Auckland-based credit union.
"Credit unions are there for the little guy and just getting hammered every which way. If this fails then members have nowhere to go, because the bank won't want to know them."
Credit unions operate on small margins and said that the huge increase in compliance combined with a drop-off in loans could cause them to fold completely. Staff said it was taking at least twice as long to process applications, and that borrowers with spotless credit records were being turned down regularly.
The lending changes introduced in December are designed to stop predatory lending and prevent people from taking on unaffordable debt. Strict new affordability rules require banks and other lenders to collect and verify far more information about a client before giving them a loan.
Wilson said one of his clients, Westforce Credit Union, provided budgeting services but in many cases needed to provide weekly top-up loans to allow working families to buy food until their next pay packet.
"They need $50 or $100, they have an expense that is immediate. They can't put it on credit card because that is ridiculous. They can't find the money any other way other than a loan. But they will repay the loan back over a period of time. Borrowing is not a bad thing in that circumstance."
A survey of Westforce members this month found that many of them were supportive of increased protection for borrowers. But some were baffled at why they had been turned down.
"I've proved that I can repay my loans," one said. "It was extremely upsetting that I was declined after banking with you for seven years."
A handful of people who had been rejected said they had been forced to get money from far riskier sources.
"Some of them have been to loan sharks that the legislation was designed to deal with. And worse still, some of them are gangs," Wilson said. Others said they would have to steal to survive.
NZCU CEO Rudolf Laumatia said his organisation's loans were mostly for working people who were living day to day and trying to provide food for their families. They were not risky loans and the union knew its members could pay them back, he said.
"We understand our demographic and know their wage patterns and see that, yes, they'll be able to pay this back within a certain amount of time. That's where we differ from those banks and those finance companies."
NZCU was now rejecting one in three applications for a loan, far more than before the rule-change.
"Members give up and go to the sharks," Laumatia said.
A group of credit unions and building societies want the affordability regulations to be repealed immediately.
Commerce Minister David Clark last week asked for a review of the lending rules to be brought forward after banks protested that they were overly restrictive and were stopping creditworthy people from getting loans.
The minister did not directly answer questions about the impact of the changes on poorer New Zealanders and credit unions or whether the review would cover this sector.
In a statement, a spokesman said Clark would let the review take place before commenting on potential outcomes.
"The Government is committed to ensuring the regulations operate as intended – to protect vulnerable New Zealanders from predatory lenders and unaffordable debt.
"The Minister is being briefed on the terms of reference and proposed timeframes this week."