The country's banks say amendments that have been made to correct controversial new credit rules are a rushed fix that won't make things easier for would-be borrowers.
The amendments come into force on July 7.
Banking industry representative body the New Zealand Bankers’ Association said the changes to the Credit Contracts and Consumer Finance Act (CCCFA) introduced last December had an immediate dampening impact on the availability of consumer credit.
“The government’s rushed attempt to fix the problem hasn’t made things easier for consumers seeking credit. Instead, it’s raised hopes of a solution that hasn’t been delivered,” NZBA chief executive Roger Beaumont said.
“We don’t think the tweaks published today [Thursday, June 9] will make a big difference for most borrowers. That’s because 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.
“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.
"We look forward to the outcome of the ongoing Council of Financial Regulators review. We believe that by working with government and organisations like FinCap, we can find a way to both protect vulnerable consumers from unscrupulous lenders and ensure a less restricted flow of credit to those who can afford it.”
NZBA made an earlier submission on the proposed tweaks to the rules and why these didn't go far enough.
The new rules had been basically aimed at the more unscrupulous end of the lending market - but also applied to the main banks. And in essence the rules required the banks to collect far more detail from those seeking loans than had been the case before. The banks and their officers were at risk of punishment if they didn't collect this detail.
Anecdotally the changes led to a freezing up of lending over the New Year period as the banks tried to adjust to the prescriptive new rules.
Commerce and Consumer Affairs Minister David Clark announced in March that there would be fixes put in place for the changes to the Credit Contracts and Consumer Finance Act (CCCFA) that took effect from December 1.
The amendments would be to the CCCFA Regulations and Responsible Lending Code.
A statement from the Ministry of Business, Innovation and Employment (MBIE) said these initial changes "were made to expeditiously address some issues that have been heard since changes to the CCCFA came into effect, such as unnecessary inquiries".
In April, MBIE released an exposure draft of the Regulations and the Responsible Lending Code changes for consultation and now following consideration of submissions on the exposure draft, the Regulations and Responsible Lending Code have been updated to reflect the feedback received.
The changes have now been finalised and will come into force on July 7 2022.
These are the the changes:
- Remove regular 'savings' and 'investments' as examples of outgoings that lenders need to inquire into when assessing the borrower's likely expenses.
- Clarify that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions.
- Clarify that when lenders estimate expenses from recent bank transaction records, they can ask the borrower about how expenses are likely to change once the contract is entered into.
- Clarify that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly (e.g. ensuring that expense categories on application forms are sufficiently detailed) rather than relating to information from bank transaction records.
- Provide further guidance that a ‘reasonable surplus’ is not required if the lender has applied adequate buffers and adjustments to income and expenses.
- Provide alternative guidance and examples for when it is ‘obvious’ that a loan is affordable, such that a full income and expense assessment is not required.
Prior to the March announcement Clark had asked MBIE to take a closer look at the changes to the CCCFA and Regulations made late last year, in collaboration with other members of the Council of Financial Regulators (CoFR).
MBIE said while the initial changes were progressed, "the remainder of the investigation continued in parallel".
"The Minister of Commerce and Consumer Affairs has received a final report and advice from officials and is considering what, if any, further actions are required. We expect the final report to be released in July."
34 Comments
"A statement from the Ministry of Business, Innovation and Employment (MBIE) said these initial changes "were made to expeditiously address some issues that have been heard since changes to the CCCFA came into effect, such as unnecessary inquiries"."
MBIE & the politicians ignored the previous warnings on exactly these issues given by retail banks during the consultation process on the original legislation so they're now lying.
I don't think MBIE and the ministers in charge of any legislation have considered industry feedback on any of their law changes at any point during this government. Industry are the enemy and are trying to screw over the common man so can't be trusted over ideological gut feel.
Some predicted that these changes to CCCFA would alleviate some the downwards pressure on the housing market. A few comments on here about RE agents predicting an upswing from the resulting changes. It seems like we're in a completely different financial world than we were in 2021 and there's more to come.
Reading those changes makes you wonder how this Govt managed to pass such an incompetent piece of legislation in the first place. You'd have to be a complete idiot to see how inappropriate they are for the mortgage market. "Savings are expenses"? "Spending may change post-purchase"? Words fail me.
They are colluding to try and arrest the fall. Banks and borrowers can go back to pretending they know enough about each other to justify huge mortgages. Reserve Bank will get the inflation target adjusted to 4%. Government has increased the cap for FHB grant and removed it altogether for FHB loan scheme.
One more step to go. Lower interest loan product under FHB scheme financed by government borrowing.
Create a fresh pool of potential home buyers to soak up the rentals that will be forced onto the market.
If I recall correctly, the FHB stuff is still restricted to either a single income < 95k, or dual < 150k. Those incomes won't be getting loans without prices dropping substantially anyway, so it's just another piece of fluff legislation that makes it 'look' like they are doing something while actually doing nothing.
Though the grant does allow a higher price floor, as it adds [whatever DTI] * 10k to the poor suckers' purchase price...
We had the laughable reality of needing to earn enough to save a deposit after living costs but then also still fitting under an earnings cap for the lending assistance program. It was weapons grade idiocy, the kind you get only if you entrust a paper-shuffling machine to leave thresholds and rates unchanged for years and years while the fundamentals went wonky and blew the market apart. Much like our tax rates, really. You get paid either way, so why go through the hard work of actually keeping these things up to date or fit for purpose?
Like it or not. New Zealand's entire economy relies on a functioning mortgage and housing market. What ever needs to be done to make that happen will be done. Existing owners buying from each other only gets you so far. You need new entrants. That is now beyond the banks alone. Fresh meat for the grinder is required. For that the government will need to help.
For that the government will need to help.
The taxpayer, likely. Probably some more price and yield subsidies, paid by taxpayers to benefit asset owners and banks. We don't want prices to be generally lower in the long-term obviously. That would be horrid. We have portfolios, don't you know?
Look at the 2021 RBNZ DTI stats. FHB within that couple income limit were borrowing very large amounts. Granted they probably had a reasonable deposit courtesy of bank of mum and dad and other sources. FHB scheme only needs 5% deposit and the government provides security.
RBNZ figures for March 2021 peak sales month. Auckland first home buyers with DTI >7. total 87 mil loaned to 101 borrowers @ average 861k each. Best case average income 123k to support
Sometimes I think these types of rules backfire. If you give someone a fixed set of rules they often don't feel empowered or obliged to point out the elephant in the room that somehow sidesteps the rules. Banks will be applying these rules to the letter, some people will miss out on a loan they could afford, others will get one they couldn't.
By all means regulate the loan sharks, but I thought the banks were already doing a fairly good job.
banks don't care about individual borrowers so much as the overall risk profile of a mortgage book. Banks lend on the assumption that a certain % will fall over. How much they plan for is a risk reward question. Profit vs written off loans.
At the end of the day banks are filled with normal people, doing things under pressure from some manager. Must be better, more sales, more profit.
Intervention was needed. As it forced banks to shift the dial about 10%. So now excluding about 10% customers who'd previously get a loan.
So they can maon all they want, but The original cccfa changes have resulted less people now in negative equity.
Thank you CCCFA from protecting people from entering the housing market at the peak.
As for the NZBA.. sounds like they are getting a bit desperate knowing that their biggest cash-cow is deflating.
Boo-hoo, you now actually have to do some level of due diligence before crippling people with debt they can't afford.
Correct. Only those who deviate from Responsible Lending have reason to fear the personal liability fish hook in the CCCFA. Medical professionals get pinned for personal liability if they detract from sound practices. Engineers hold up to the same on work sites if an accident takes place. Why should bankers belong to a privileged class to be absolved from any personal responsibility for their acts? Is this what bankers were expecting out of the tweaks to the CCCFA?
Central bank manipulation (western world), has created a slew of problems. Interest rates need to be above the inflation rate. Let the market collapse, let the speculators go insolvent and then our kids (wage earners) will have a chance at home ownership. Or is that not fair...
- Clarify that when borrowers provide a detailed breakdown of their future living expenses, and these are benchmarked against robust statistical data, there is no need to also inquire into their current living expenses from recent bank transactions.
So the borrowers words, and statistical data are better benchmarks than the individuals personal spending data? Crazy.
CCCFA was well intentioned but poorly conceived. Unfortunately slamming the brakes on mortgage lending will have major side effects that the Government hasn’t considered and apparently doesn’t understand. As an example, many, many small businesses in NZ rely on property asset leverage to fund their businesses so this profoundly impacts the wider economy as well as home buyers.
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