Some lenders were interpreting the rules more strictly than the policy had intended, MBIE says
Banks may have been more “onerous and restrictive” in interpreting regulations associated with the Credit Contracts and Consumer Finance Act (CCCFA) than the original policy intended, according to the Ministry of Business, Innovation and Employment (MBIE).
New rules that came into effect in December have been blamed by mortgage brokers and home buyers for making it more difficult than ever to secure a home loan. The law changes increased the penalties for irresponsible lending and required lenders to scrutinise borrowers’ finances before approving their loan applications.
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In its consultation document on draft changes to the CCCFA regulations and responsible lending code, MBIE said it had become apparent that some lenders were interpreting and implementing the rules more strictly than the policy had intended, Stuff reported.
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“Some lenders appear to be estimating living expenses by asking the borrower to declare them, reconciling them from bank transaction records, and comparing them against a benchmark,” the ministry said.
MBIE said the law’s intended approach had been more in line with what the banks were doing prior to December, which was to use either the higher of a customer’s declared expenses, or a typical benchmark, when assessing whether they could afford a loan.
The ministry noted that some lenders were using bank transaction records to estimate likely expenses but were concerned they could not inquire whether those spending habits would change in future, the report said.
“The policy intent was that these inquiries could occur and be taken into account by lenders in order to generate estimates that reflected likely cut-backs,” MBIE said.
The ministry said customers might have also been required by some lenders to have an excessive amount of income left over as a “buffer” each month.
It said some lenders were using the exception that allowed them to approve loans that were “obviously” affordable, but others found it difficult under the current guidance, Stuff reported.
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MBIE said Cabinet had agreed on six changes in response to these concerns, including:
- removing savings and investments from “listed outgoings”
- clarifying that when borrowers’ living expenses were benchmarked against statistical data about household expenses, there was no need to inquire into their current living expenses from recent bank transactions
- allowing lenders to ask how expenses that were seen in bank transaction records were likely to change once the contract was in place
- clarifying that the requirement to obtain sufficient detail to ensure a loan was affordable only related to information received directly from borrowers rather than when the information came from bank records
- clarifying when a “reasonable surplus” was required and how it should be set, and new guidance for when affordability was obvious
The consultation period is open for two weeks, with changes expected to be made in May and come into force in June.
“We consider the proposed changes to be purely ‘permissive’ in nature, rather than requiring lenders to change processes in order to comply with changes,” MBIE said.
Roger Beaumont, New Zealand Bankers’ Association chief executive, said the association was looking at the proposed tweaks to the new lending rules and expected to make a submission on the current consultation, Stuff reported.
