Making lending easier

Parliament passed legislation late in 2019 aimed at predatory lenders. Although National supported it, it became a thorn in Labour’s side.

Bank and mortgage lending became caught up in onerous requirements. Stories emerged via this newspaper of a bank loan being turned down after a woman’s bank questioned a $187 Christmas shopping trip to Kmart in Invercargill and her husband’s daily trip to the dairy to buy a drink while at work. 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.

The unintended consequences caused Labour to bring forward a review of the legislation and introduce modifications. It was difficult, however, for Labour to admit too much was wrong about its own law.

The coalition government on Sunday announced planned changes to financial services in its bid to make it easier to get home loans and other lending.

The changes include a review of the Credit Contracts and Consumer Finance Act (CCCFA). This is part of the coalition agreement with Act.

Affordability regulations will be revoked. They required lenders to do more due diligence about their customers before granting credit or a loan. The Responsible Lending Code will be updated and clarified. The government claims it will also strengthen customer protection.

The moves have been welcomed by banks, mortgage brokers and the main non-bank lending organisation. It is easy to see why.

The affordability regulations introduced what Commerce and Consumer Affairs Minister Andrew Bayly called "overly arduous checks".

He said the time to process even small loans jumped from two hours to eight. It was not worthwhile for banks to lend small amounts, and borrowers were forced to high-interest loan sharks. The process also made it harder to get home loans.

Revoked will be "11 pages of overly prescriptive affordability regulations".

Four dispute resolution schemes are to be aligned and the amount that can be awarded increased to $500,000, to try to keep more cases out of the courts.

Sensible is the exemption of local authorities from the CCCFA as they administer voluntary targeted rates schemes – such as loans to install insulation and heat pumps – without too many compliance costs.

Concerns, nevertheless, have been expressed by financial mentoring services about winding back regulations and exposing vulnerable borrowers to loan sharks.

Labour says CCCFA changes were needed. However, its commerce and consumer affairs spokeswoman, Arena Williams, said the government had gone too far.

She said protections shouldn’t be taken away without something being put in their place.

The Commerce Commission will be encouraged to come down on illegal lenders, Mr Bayley said.

But the commission will have to do this after being slimmed down in government public service cuts.

Banks should not have lending issues. They are conservative by nature. Bad loans are not in their interest. The slashing of paperwork should benefit both them and customers in time and, therefore, money saved. Mortgages should be able to be approved more quickly.

Endeavours to reduce regulatory burdens and their impact on companies and customers again come down to a matter of balance, of finding the sweet spot between protection and effectiveness and economy.

The same principles apply to building regulations. Debacles like the "leaky homes" disaster must be avoided. So, too, must excessive rules that make building unaffordable. Similarly, balance will be needed for the lead-paint soil contamination regulations when old wooden Dunedin villa sites are redeveloped.

Sometimes, as in the case of house methamphetamine contamination, regulations went far too far. Sometimes, they do not go far enough.

It is the nature of regulators and bureaucracies to seek more rules and to try to cover every contingency. Businesses, naturally, seek as limited control as possible.

The government must ensure the pendulum has not swung too far as it works on the details of updating the Responsible Lending Code and "strengthening" customer protections. Vulnerable borrowers still need protection.