Banks worry that proposed changes to the new lending rules still don’t go far enough.
The government is reviewing the rules that were introduced as part of the Credit Contracts and Consumer Credit Act (CCCFA) in December.
The rules, which introduced much stricter guidelines for lenders to determine whether borrowers could afford loans, have been blamed for a “credit crunch” in the housing market. Shoppers said they were turned away because they were spending too much on takeout, or even their dogs.
It has been reported that around 7% of loans that would have been previously approved were turned down.
* Commerce minister promises to change controversial lending laws, but National says ‘tweaks’ aren’t enough
* Trade Secretary David Clark rejects National’s plan to restore homebuyers’ borrowing power
* Credit crunch: Mortgage brokers respond to changes in lending rules
Trade and Consumer Affairs Minister David Clark said in January that the rules would be reviewed to see if banks had overreacted.
Last month the Department for Business, Innovation and Jobs released draft proposed changes for consultation, saying some banks were applying the rules in a “more onerous and restrictive” way than expected.
The New Zealand Bankers Association, which represents the country’s major banks, welcomed the review.
But chief executive Roger Beaumont said the proposed changes still didn’t go far enough.
“The changes made by the government to the CCCFA lending rules announced in March are just a band-aid. We don’t think the adjustments will make much of a difference for most borrowers. Indeed, most of the existing requirements remain in place, which means that customers will still have to provide detailed information on their expenses, which will lead to a more thorough process and a higher number of loan applications refused than before the change. December rule,” he said.
“The new lending rules add an additional layer of compliance to the already responsible lending requirements for banks. Unscrupulous lenders who offer unsuitable credit should be subject to additional compliance, not responsible lenders like banks. We suggested some improvements to the tweaks in our recent submission to MBIE.
“Banks are already subject to prudential lending requirements that do not apply to other lenders, including Reserve Bank value lending restrictions. Banks also apply their own lending policies based on their risk appetite, which helps to ensure that the loans they offer are in the best interest of the customer. For example, when reviewing a loan application, banks apply a “service” interest rate to check if the borrower can still afford to repay the loan at a higher interest rate. This means that banks are already ensuring that their loans are both affordable and customer-friendly. »
In its submission to the ministry, the association said further review was needed.
“We understand that the Minister for Commerce and Consumer Affairs is still considering whether further regulatory changes are needed based on the findings of MBIE’s investigation. We strongly support further urgent regulatory changes.
He said there was still a major problem with the definition of “quoted expenses”, which banks must take into account in an application. Lenders and mortgage brokers have complained that there is no leeway given to borrowers who will reduce certain expenses when they have a loan or run into financial difficulties.
“The code should distinguish between basic necessities and discretionary expenses,” the association’s submission said.
“The code provides an example where food spending changes because a borrower won’t be eating out as often. That’s helpful, but similar issues can arise with clothing and personal care, as well as entertainment costs. We suggest clarifying that the lender only needs to enter basic essential expenses and basic quality of life costs. The code should specify that a lender may adjust expenses that it is comfortable to go beyond what is necessary for basic necessities for that type of expense, confirming the amount used with the borrower as needed. … A borrower may not be willing to stop spending before taking out the loan, but could and would be willing to do so if they were in financial difficulty. In this case, the lender should be able to omit the expense from its affordability assessment. »