24 Jan 2022

New law effective at reining in worst lending practices - budget advisors

2:21 pm on 24 January 2022

Budget advisors say a controversial new lending law is helping to clamp down on predatory practices in the financial sector.

calculator and dollar bills in New Zealand currency

Some of the most unfair car lending and excessive establishment fees can now be challenged by financial mentors, an expert says. Photo: 123RF

Changes to the Credit Contracts and Consumer Finance Act (CCCFA) came into effect in December in a bid to protect consumers from loan sharks and ensure they were not taking on debt they could not afford.

However, the responsible lending code within the new rules was recently [https://www.rnz.co.nz/news/business/459813/incredibly-prescriptive-lending-code-ruining-lives-mortgage-broker

labelled "incredibly prescriptive" by a mortgage broker], leading to complaints that some banks and other mainstream lenders were being unreasonably conservative when assessing credit applications.

The backlash has prompted Consumer Affairs Minister David Clark to bring forward an investigation into whether lenders were applying the rules correctly.

The budget advisory service FinCap - formerly the National Building Financial Capability Charitable Trust - said it was supportive of the new regime because it had given its financial mentors, who work with people in hardship, clearer ways to complain when it comes across exploitative lending and associated practices.

Its policy advisor Jake Lilley said under the new law some of the most unfair car lending and excessive establishment fees might be easily challenged by financial mentors.

"We can see already signs that some lending that's generally unfair ... won't be around soon."

Under the recent changes, lenders need to meet minimum advertising standards relating to the affordability of their loans.

In one case, one of FinCap's financial mentors made eight complaints in one day about misleading advertisements, Lilley said.

He said it was important the government inquiry determined why credit applications were being turned down.

"Are lenders finding out something they did not know before? Is that a worrying sign in general for where we are sitting at?"

Lilley said it was "super, super" important that the law continued to require lenders to conduct affordability assessments and gave borrowers the means to challenge lenders if they put them into hardship.

If changes were made to the CCCFA, Lilley said he would like to see buy now, pay later schemes placed into the legal framework.

"We have seen a lot of harm with people getting buy now, pay later loans that fall outside the law and don't have the same protections applied as other loans."

Lilley said he would also like to see mobile phone contract lending covered by the legislation, as well as specific protections put in place that guide the behaviour of debt collectors.

Last year, Victoria University and FinCap released a report that spelt out the country's debt collection practices from the perspective of financial mentors.

It found that people with outstanding debt were often bombarded with non-stop calls, texts and emails from collectors, even after it was clear that they had no means to pay.

At the time, Lilley called for changes to be made to the Fair Trading Act to outline what is a reasonable amount of contact with someone who is in debt to protect their mental health.

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