Details of review into tough new lending rules revealed

Source: 1News

New details of the review into tough new lending rules have been revealed, after the Government brought forward the inquiry into whether the law is working as intended, or was having unintended consequences.

It came after reports of some customers being rejected from mortgages due to changes to the law that was originally designed to target loan sharks.

Commerce Minister David Clark said he wanted to make sure the legislation was working “as it was intended, that’s why I brought forward the review”.

“I have asked the heads of the country’s major banks to meet with me this week. It is important we get to the bottom of exactly what aspects of the CCCFA responsible lending rules were not being adhered to by some banks previously.

“Anecdotal evidence to date suggests the new lending requirements have presented a greater challenge for some parties.”

Clark approved the Terms of Reference for the inquiry over the weekend.

“It could be that these are the intended consequences of the legislation, that people who would otherwise find themselves in severe hardship are saved from that by virtue of having proper suitability and affordability tests around their lending. It could be are unintended consequences in the legislation and then we would look at changes if that were the case. Or it could be that there are global economic factors at play, and wider economic factors.

“Overseas we know when the UK and Australia brought in similar measures, it took a while for the legislation to bed in. We want to understand what factors are at play – are there other global economic factors at play here, are there impacts from LVR (loan to value ratio) changes or the changes in the OCR (official cash rate)?

“It's important to understand what is actually going on before jumping to conclusions on this,” he said.

The study “will take as long as it needs”, but Clark expected an interim report in February “so we can decide whether further work needs to be done or whether we’ve got a clear enough picture to make any changes that might be needed.”

“That’s something we’re going to want to make early progress on.”

The final review was due in April.

NZ Bankers' Association chief executive Roger Beaumont said the impact of the new rules meant that some customers pre-December 1 "would have got a loan approved, post December 1 are getting that same loan declined".

"The regulations are really prescriptive; they require banks to go through a whole range of questions and interrogation with their customers. And what's really changed is that banks don't have the same kind of description they might of when deciding on whether a customer should get a loan or not.

When asked if purchases such as coffees and avocados on toast were impacting loans, he said they were as it was "part of the interrogation that banks need to do to".

"Banks are in the business of lending, it's fundamental to what they do, they want to be able to lend to customers but they're not going to do that if it risks breaching their regulatory obligations because the consequences for that are really serious."

Reserve Bank data showed that in November 2021 there was $9.1 billion in lending. In December, when the new law came into force, it dropped to $7.9b.