Borrowers are facing additional challenges when it comes to accessing credit following the implementation of changes made to the Credit Contracts and Consumer Finance Act (CCCFA). The changes were made in 2019 to institute better protections for borrowers against spiralling costs of debt and came into effect from December 1.
The changes however seem to be having an unintended negative effect as reports indicate that lenders are taking an overly conservative approach while trying to keep in line with the guidelines. First-time home loan borrowers are a particularly hard-hit segment as they find themselves heavily scrutinised over even the most mundane spending habits like Netflix subscriptions, pet expenses, takeaways, and domestic travel.
These new and invasive assessments have resulted in many borrowers now failing affordability tests. Some borrowers have had to alter their spending habits adversely to meet the new lending standards, while others have given up on house hunting for the time being.
Small and mid-sized business owners are also being adversely affected in their attempts to access unsecured debt financing. Lenders have cut back on this lending during the pandemic, favouring home loans that are secured. This has pushed many business owners to borrow against their family homes. With the CCCFA rules, even this borrowing is becoming more restricted. Many are now opting for non-bank lenders who charge much higher interest rates. BusinessNZ is warning that this situation will make it harder for new businesses to be established and existing ones to expand due to the sector’s reliance on home loans for financing.
In response to the outcry, the government is turning to the Council of Financial Regulators to make a review of lending practices. Minister of Commerce and Consumer Affairs, David Clark, is calling for an early investigation into how banks and lenders are implementing the CCCFA and determine if there have been unintended consequences that are negatively impacting borrowers. He further indicated that in the early weeks of implementing the new CCCFA requirements, lenders were possibly unduly erring on the side of caution.
He added that it was not just CCCFA changes that were affecting the market. He identified increases in the Official Cash Rate (OCR), housing prices, loan to value (LVR) ratio, and local government rates as possible contributors. He said that an investigation would help work out how much of the problem was attributable to lender behaviour.
While supporting the call for an inquiry, ACT leader, David Seymour, has asked Clark to take the issue seriously. He termed the behaviours being reported as madness and that the minister needed to take responsibility. He added that he intended to push for the Finance and Expenditure Committee ta take up the issue if Clark did not give details on a serious inquiry.
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