The Government's latest attempted fix of controversial new credit rules it introduced in December 2021 under the Credit Contracts and Consumer Finance Act (CCCFA) are set to come into force on May 4.
But the bankers are still not thrilled.
In essence, the original rules had been aimed at the more unscrupulous end of the lending market - but they were also applied to the main banks. Essentially 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.
The initial response to the December 2021 implementation was to see bank lending grind to a halt as the banks struggled to deal with the complexities of what was required.
The Government went back to the drawing board and came up with some fixes, which were applied in July 2022.
At the time the banking industry representative body the New Zealand Banking Association said it didn't think the July 2022 tweaks would make a big difference for most borrowers. That’s because most of the existing requirements from the December 2021 changed remained 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."
So, anyway, the Government's had another go in the face of stories suggesting would-be borrowers were getting penalised for discretionary spending such as ordering in pizzas etc - something that certainly went beyond what the stated intent of the original rule change was.
Just before the long Easter weekend, the new Commerce and Consumer Affairs Minister Duncan Webb announced that the latest series of tweaks to the rules will come into force in May, "improving safe access to credit for Kiwis".
The changes include:
- explicitly excluding discretionary expenses from affordability testing
- providing more flexibility for lenders about how certain repayments are calculated
- extending exceptions from full income and expense assessments for refinancing of existing credit contracts.
"Whilst not departing from the original policy aim to ensure borrowers can repay loans without hardship, this tidies up the December 2021 changes to the CCCFA and Credit Contracts and Consumer Finance Regulations." Webb said.
The Government was "confident we’re striking the right balance between ensuring Kiwis can access credit effectively, while also maintaining a strong level of consumer protection", Webb said.
However, NZBA's chief executive Roger Beaumont, asked for a response to the Government's latest repair effort, said the tweaks to the CCCFA regulations "still mean affordability assessments are needed for all types of lending and borrowers".
"This also means banks no longer have the discretion or flexibility to help customers in need, for example in cases of natural disasters, or a change in personal circumstances."
Beaumont said this point had been emphasised to "devastating effect" with the recent North Island flooding and Cyclone Gabrielle.
He pointed out that the Government made two changes to CCCFA regulations by Order in Council. The first change created the temporary affordability assessment exemption (available until 31 March 2023) for up to $10,000 for home loan top ups or overdrafts for people affected by the upper North Island flooding. The second change expanded the applicable geographic area and included the effects of Cyclone Gabrielle for the temporary exemption.
Beaumont said having to introduce two separate changes to the regulations to provide banks with the flexibility to provide affected customers with credit, including low or no interest loans or overdrafts "took time."
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