New lending laws not just about mortgages, banks

Alapasita Teu

Opinion

Imagine this: a family has car loan repayments to make. To do so, they ration food. They only have $20 left to feed a whole family with three kids under the age of six. Nappies and baby formula are unaffordable, so sugary water becomes food and old sheets are nappies. Their car is essential for travelling to work and commuting, so missing loan repayments is not an option. The loan absorbs a large part of their weekly income, often leaving them without daily essentials.

How did this happen? If we dig a little deeper; someone granted this family a high-interest car loan, despite the financial hardship risks.

Unfortunately, this is the reality for many families in our backyard. A reality propagated by unscrupulous and harmful credit lending, leaving many in vulnerable circumstances with unmanageable debt. These harsh realities —addressed through the new lending regulations — are absent from the public discourse.

Media stories of declined mortgages due to Netflix subscriptions and Kmart trips have pointed to apparent failings in the new lending laws.

However, the new lending laws are only one part of the story. Somehow, they have become the sole villain. The other perpetrators? Global inflation, monetary and fiscal policies, a lowered cash rate, debt-to-income ratio income limits, lowered interest rates, loan-to-value restrictions, and banks reducing overheads.

The public backlash towards recent lending changes is in contrast to the “team of 5 million” throughout the pandemic.

Sentiments of kindness, the collective, and “loving thy neighbour”— once in abundance — are absent here. Frustrations appear to be justified when the banks are declining people who can afford home loan repayments. But let's not forget the intent of the laws, and who they protect.

For some in our team of 5 million, this disgruntled posture isn't an option. Those who become victims of predatory lending — leading to financial hardship — have not featured in the frenzy surrounding new lending requirements.

Discretionary expenses like gym memberships, Disney Plus subscriptions, and dining out now affect an individual's lending eligibility.

However, for many New Zealanders, having extra spending money and being eligible for a mortgage will never be a possibility in their lifetime. Don't get me wrong, concerns around homeownership and the ability to finance mortgages are warranted. However, what of those in our families, neighbourhoods, and communities who fall prey to irresponsible lending actions? Do they not matter as well?

The new lending legislation intends to protect vulnerable consumers from having to choose between feeding children and making loan repayments. It aims to curb the predatory and unethical lending that traps people into unmanageable debt, financial strife, and generational poverty. It aims to promote responsible lending practices that ensure a family or person can repay a loan without sacrificing living essentials.

Now imagine a country where a family can provide food for children and afford a car loan without the anxiety of choosing between the two. This is what the new lending regulations aspire to achieve.

■ Maxim Institute is an Auckland-based independent think tank, working to promote the dignity of every person in New Zealand, by standing for freedom, justice, and compassion.