Editorial: Lending an ear to warnings could have spared red faces

As do bank customers, Commerce Minister David Clark faces some awkward questions around the new Credit Contracts and Consumer Finance Act. Photo / Mark Mitchell

EDITORIAL:

As Wellington business editor Hamish Rutherford reported this week, David Clark's inquiry into new credit laws might slow the headlines about loans being rejected for customers' regular spending habits, but questions hover over the Commerce Minister and his advisers.

Evidence is mounting the new Credit Contracts and Consumer Finance Act (CCCFA) is leading to loans being refused on the basis of what appears to be very normal spending.

One woman was rejected an urgent extension to her mortgage because she'd spent $187 on Christmas gifts at Kmart. Another woman was told she could get a mortgage only if she guaranteed she'd return to work within 90 days of having her baby.

Clark has responded by saying the Council of Financial Regulators will investigate whether banks and lenders are working within the intent of the legislation. Already some commentators are suggesting the legislation may amount to a mini credit crunch. Surely that's not what regulators intended.

The Financial Services Federation (FSF), the industry body for responsible non-bank lenders, has added to the chorus of disapproval by writing to Clark and officials outlining its concerns. "These laws do not just affect bank customers, but people seeking finance for anything from a motor vehicle to a household appliance or a mortgage from a non-bank provider, which is a steadily growing sector," the federation says.

The problem for the Government is, it was told this would happen.

The Herald this week documented the extensive warnings to the Government - mostly through submissions to MBIE - on the possible consequences of the CCCFA.

The legislation began as an attempt by Clark's predecessor, Kris Faafoi, to crack down on predatory lenders, or loan sharks. But banks, their lobby groups and law firms warned at some length it was more likely to affect registered banks than payday lenders.

The more one looks at this, the more discomfort emerges.

As Rutherford noted, the Reserve Bank has repeatedly lectured banks about the need to support customers through Covid-19, calling on the institutions to be "courageous" when deciding whether to lend.

The minister is refusing to comment until he has "heard back" from the Council of Financial Regulators. This isn't quelling speculation that Clark, on inheriting the legislation from Faafoi, was keen to move the legislation on, rather than send it back for further changes. Should the Council of Financial Regulators uncover evidence of such, that would prove more embarrassing again.

One possible saving grace, albeit an unlikely one, is if the council finds banks have wrongly interpreted the act and applied the new lending criteria too rigorously - thus proving their warnings were warranted.

What is certain is the act has thrown an immediate chill over New Zealanders' ability to obtain assistance, as predicted and as apparently ignored by Government.

In its letter to the minister, the Financial Services Federation offers this advice: "There needs to be a willingness from Government and officials to undertake to listen this time around to responsible lenders."

It's hard to disagree.