But banks want lending rules relaxed even more
The New Zealand government has confirmed that it will loosen rules under the Credit Contracts and Consumer Finance Act (CCCFA), as it released updated regulations and a new Responsible Lending Code, to come into force on July 07. However, banks are urging the government to relax the new consumer lending rules more than it already is.
The existing code, which has been in place since December to protect borrowers from predatory and irresponsible lending, has been blamed for making it more difficult for borrowers to get home loans, locking would-be homeowners out of the property market.
The lending rules were tweaked to remove the risk of lenders interpreting regulations too conservatively, to abolish the blanket requirement for lenders to go through borrowers’ spending habits with a fine-tooth comb, and recognise borrowers’ spending habits may change once they take on debt, NZ Herald reported.
Following a consultation process launched in April, Commerce and Consumer Affairs Minister David Clark is considering making further changes to the code and regulations. Clark has received a report and advice from officials and is mulling whether or not further actions are required. The report is set to be released in July.
Mortgage broker John Bolton, who petitioned the government to change the rules, was pleased Clark was changing the lending rules “with a degree of urgency.” But while he said the initial changes were a “good start,” he hoped the government would go even further in watering down the rules, NZ Herald reported.
Since the existing Responsible Lending Code took effect, annual growth in lending for housing has declined from 11% in November to 8.1% in April. Meanwhile, there has been an improvement in the annual change in consumer lending over this period, from -7.1% to -6.6%.
And while it’s difficult to know how much of an effect updates to the CCCFA have had on the flow of credit – with its implementation coinciding with the aggressive interest rate hikes and the reinstatement of LVR restrictions for mortgage lending – it’s worth noting that since credit conditions have been tightened, borrowers have increasingly been turning to non-bank lenders, NZ Herald said.
At 14.4% in April, the annual growth rate in housing and consumer lending by non-bank lenders has been double that of banks.
Roger Beaumont, New Zealand Bankers’ Association chief executive, said the government’s “rushed attempt to fix the problem” won’t make a difference for most borrowers.
“Most of the existing requirements remain in place, meaning customers will still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change,” Beaumont told NZ Herald. “While we agree with the government’s aim to protect vulnerable consumers from unscrupulous lenders, the one-size-fits-all approach for all lenders and all loan types means banks don’t have the same discretion or flexibility they used to.”