Scrapping of 11 pages of lending regulations will make it easier for people to borrow money
When the Government’s declared its intention to reform the Credit Contracts and Consumer Finance Act (CCCFA), the providers of financial mentoring services expressed concerns that vulnerable borrowers could be exposed to loan-sharks and more debt.
The CCCFA was designed to protect people from taking out loans they could not afford.
But the regulations introduced under the Act were criticised as heavy-handed, generating unnecessary compliance costs and making 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,” Housing Minister Chris Bishop said when explaining why the Luxon government will be scrapping eleven pages of regulations, to make it easier for lenders to assess the affordability of a loan.
Today Bishop and his colleague, Consumer Affairs Minister Andrew Bayly, announced that from tomorrow, those 11 pages “of overly prescriptive affordability regulations” will no longer be part of the Credit Contracts and Consumer Finance Act.
In place of the prescriptive requirements, the government has updated the Responsible Lending Code to provide guidance for lenders on how to make reasonable inquiries to assess the affordability of a loan..
“The updated Responsible Lending Code manages the risk of unaffordable lending while providing lenders with flexibility to assess affordability on case-by-case basis, taking into consideration individual circumstances,” Bayly says.
The announcement was among the latest ministerial statements posted on the government’s official website.
Most deal with domestic issues – but there are several foreign-focussed announcements too, most notably news that the Indian President will visit New Zealand next week and that NZ and Indonesia have launched an ambitious Plan of Action.
“We all remember the stories about banks going through people’s KFC receipts and Netflix subscriptions,” Housing Minister Chris Bishop said when explaining why the Luxon government will be scrapping eleven pages of regulations, to make it easier for lenders to assess the affordability of a loan.
Today Bishop and his colleague, Consumer Affairs Minister Andrew Bayly, announced that from tomorrow, those 11 pages “of overly prescriptive affordability regulations” will no longer be part of the Credit Contracts and Consumer Finance Act.
In place of the prescriptive requirements, the government has updated the Responsible Lending Code to provide guidance for lenders on how to make reasonable inquiries to assess the affordability of a loan..
“The updated Responsible Lending Code manages the risk of unaffordable lending while providing lenders with flexibility to assess affordability on case-by-case basis, taking into consideration individual circumstances,” Bayly says.
The announcement was among the latest ministerial statements posted on the government’s official website.
Most deal with domestic issues – but there are several foreign-focussed announcements too, most notably news that the Indian President will visit New Zealand next week and that NZ and Indonesia have launched an ambitious Plan of Action.
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On the removal of 11 pages of regulations from the ambit of the Credit Contracts and Consumer Finance Act, Bayly said:
“The affordability regulations stipulated very specific requirements a customer had to satisfy before being able to take out a loan. The hoops customers had to jump through resulted in a confusing and stressful process.
“Not only was it inefficient and frustrating for customers, but it also significantly increased the burden of compliance, leading to increased costs for lenders. This had a particularly chilling effect on lenders’ ability to offer small loans of under $5,000.”
Bishop said many Kiwis who applied for home loans while the regulations were in place will remember the immense stress caused by the screeds of information and disclosures they had to provide.
“The regulations treated people like children and required lenders to do things like check whether the information provided by an applicant about their personal expenses was in line with information held by Stats NZ about the cost of living.
“They had to explain why they bought an occasional coffee, or why they treated the family to fish and chips every now and again, even when they could clearly afford to.”
Removing the CCCFA affordability regulations fulfils part of the National-ACT coalition agreement which commits to rewriting the CCCFA to protect vulnerable consumers without unnecessarily limiting access to credit.
Lenders must continue to properly assess affordability and we expect failure to do so will be appropriately enforced. The CCCFA includes clear penalties for lenders who fail to make reasonable inquiries that the loan is likely to be affordable.
Bishop said the change is all about restoring flexibility and freedom to Kiwis who are working hard to get ahead “and just want to the government to get out of the way so they can get on with their life”.
Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton
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