Story by Giles Dexter of RNZ
Financial mentoring services are worried the wind-back of lending regulations could expose vulnerable borrowers to loan-sharks and more debt.
The government is reforming the Credit Contracts and Consumer Finance Act (CCCFA), which it said had created unnecessary compliance costs, and blown out the timeframes for accessing a loan.
The CCCFA was designed to protect people from taking out loans they could not afford.
But when the rules first came in, they were heavy-handed, and made it harder for first-home buyers to get a loan.
"We all remember the stories about banks going through people's KFC receipts and Netflix subscriptions," said Minister of Housing Chris Bishop.
The previous government had tried to address that, before it was voted out.
So the new government has taken the reins, throwing out eleven pages' worth of regulations, to make it easier for lenders to assess the affordability of a loan.
Minister of Commerce and Consumer Affairs Andrew Bayly said the CCCFA simply had not done what was supposed to.
"The whole intent of the changes back in 2019, when National supported the changes, was about protecting those smaller people, the people that didn't have thousands sitting in their back pockets or in their accounts. And what we've ended up doing, totally unintentionally, but just not responding to it, is the fact that these people can't get money. It's outrageous, it's wrong."
ACT has celebrated the changes, which it secured as part of its coalition agreement with National.
"Labour was too eager to see mutually-beneficial agreements as a conspiracy against borrowers, and, ironically, making it harder to borrow from the bank drove would-be borrowers into the arms of high-interest loan-sharks," said leader David Seymour.
FinCap is a non-government organisation which supports financial mentoring services.
Its senior policy advisor Jake Lilley said the rules made it easier to unwind loans that went wrong.
"It is really worrying that people end up with loans that are unaffordable, and those aren't going to be followed up with the relevant authorities for some time, is the potential issue we're going to face now," he said.
Labour agreed changes to the CCCFA were needed.
But its commerce and consumer affairs spokesperson Arena Williams said the government had gone too far.
"Taking away the protections without something in place to make sure that credits is responsible and affordable is a mistake. We should always have rules in place which protect people from things like loan-sharks," she said.
The Banking Association said the changes would make it considerably easier to get a loan.
"What it means is it'll go back to the way it was prior to these regulations, when banks could exercise discretion in determining whether a customer was suitable for a loan or not," said chief executive Roger Beaumont.
He said lenders would still be expected to act responsibly.
"It's in no one's interest for customers to get a loan they can't afford to repay. Banks have been making these assessments about a customer's ability to repay a loan for, frankly, thousands of years, and they're pretty good at determining that themselves."
Bayly said in many cases, lenders would still need to carry out inquiries, but the law needed to be fit for purpose.
"Whilst we're giving greater discretion to lenders to work appropriately how they're going to assess affordability, the other side of the coin is strengthening the dispute mechanisms. Also, I've asked the Commerce Commission to pursue with vigour any poor actors."
But Lilley said it should not get to that level in the first place.
"It could give a bit of a green light to lenders looking to do the wrong thing to go for it and see how long it takes for the regulator to catch up with them. It makes things a bit more complicated for us to deal with issues before they have to go through a long and complicated process for a regulator to take a lender to court."
Concern more people will need budgeting services
Auckland financial mentor David Verry, who has 30 years of experience in banking, said the government was not telling the whole story.
Verry told Morning Report making credit easier may have unintended consequences.
He said mortgage lending already had layers of protection, even before the CCCFA, he said.
"They've got the added protection of loan-to-value ratios. Later in the year, we're going to have debt-to-income ratios brought in by the Reserve Bank."
However, the new rule changes would make it harder for budgeting services to challenge lenders.
His "biggest issue" was car loans, unsecured personal loans, overdrafts, and credit cards.
"Doing away with the need for affordability assessments, that's going to do away with our ability to challenge loans that basically shouldn't have been made.
"Allowing lenders to set their own standards will undoubtedly lead to more people arriving on the doorsteps of budget services."
Local councils would be exempt from the rules, if they were providing small loans for low-risk products like heat pumps or insulation. The responsibilities overseeing the CCCFA would also move from the Commerce Commission to the Financial Markets Authority.
The changes are expected to come into place over the coming months.
A wider review of the entire CCCFA will follow.
RNZ
