19 Jan 2022

'Incredibly prescriptive' lending code ruining lives - Mortgage broker

12:45 pm on 19 January 2022

The financial sector is calling for urgent action to make it easier for people to borrow money, suggesting restrictive new rules could be quickly amended with just a few tweaks.

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The government had already brought forward a review of the recently implemented Credit Contracts and Consumer Finance Act (CCCFA), following a rash of consumer complaints and negative industry feedback, less than two months after it was put into effect.

Under the new rules many people, once considered a good risk, were no longer able to access credit, such as a personal loan, credit card or mortgage.

A Dunedin mother said she was told by a bank it would only consider giving her a mortgage if she returned to work within 90 days of giving birth.

Mortgage brokerage firm Squirrel chief executive John Bolton said people's lives were being ruined by the application of the new law, which was guided by a prescriptive Responsible Lending Code, setting out lenders' responsibilities.

"I don't think you need a full rewrite of the law. The law is fundamentally right and it's there to protect consumers from predatory lenders."

But Bolton said the problem was mostly to do with the "incredibly prescriptive" code, rather than the new legislation.

"So the good thing with that is because it's the code and not the act, that's much easier to change," Bolton said, adding the one size fits all code did not apply to every lending situation and that was what needed to change.

"It's a very complex and nuanced market ... the entire small business economy of New Zealand relies on its working capital from residential property that's probably the favourite form of borrowing for small businesses because it's really hard borrowing any other way."

Bolton said some of the lenders were unreasonably conservative when assessing credit applications, including a verification of all household expenses, including copies of purchase receipts.

"When did we lose faith in people?" Bolton said, adding he had started a parliamentary petition to raise awareness of the issue, after an initial petition gathered 10,000 signatures.

"Restricting people's access to credit when they need it for whatever reason ... has a big impact on their lives.

"And doing nothing about it, from my perspective was completely irresponsible."

Similarly, economist Tony Alexander said the government must look into the CCCFA legislation and keep separate consumer credit lending by high-risk lenders from mortgage lending because the criteria being applied did not necessarily need to be the same for both.

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