Late last year, the Government brought in new changes to the Credit Contracts and Consumer Finance Act (CCCFA) intended to crack down on loan sharks borrowing to vulnerable people.
However, it instead caused banks to closely vet mortgage applicants’ personal finances and spending habits.
The Otago Daily Times reported multiple stories about people struggling to gain mortgages because of Kmart shopping trips, Netflix accounts, restaurant eating habits and therapy sessions.
- Therapy seen as loan risk
- Shopping trip affected mortgage approval
- Pregnancy hidden with puffer jacket for mortgage
- Mum ‘shocked’ by 90-day maternity leave mortgage condition
Dr Clark brought forward an investigation, which is being undertaken by the Ministry of Business, Innovation and Employment (MBIE) and the Council of Financial Regulators (CoFRs), to see if the changes were having unintended consequences.
He received a draft report last month and this morning announced changes from its recommendations.
Those are:
- The removal of regular savings and investments as examples of outgoings that lenders need to inquire into.
- Clarifying that when borrowers provide detailed breakdown of future living expenses there is no need to inquire into current living expenses from recent bank transactions.
- Clarifying that the requirement to obtain information in ‘sufficient detail’ only relates to information provided by borrowers directly rather than relating to information from bank transaction records.
- Providing alternative guidance and examples for when it is ‘obvious’ that a loan is affordable
The changes were made are feedback Dr Clark received from banks, other lenders and consumers.
The changes ensured ‘‘borrower-ready’’ New Zealanders could still access credit while the Government continued to protect those most at risk from predatory and irresponsible lending, he said.
“There is no question that the banks, budget advisers and Government are all on the same page when it comes to supporting the intention of the law – we want to stop vulnerable people from finding themselves with unaffordable debt.’’
The new changes would now go through a consultation period and Dr Clark hoped they would be in place by June.
Dr Clark did not rule out further changes once the final report is completed next month.
