The financial sector is calling for urgent action to make it easier for people to borrow money, suggesting that the new restrictive rules can be quickly amended with some tweaks.
The government has already submitted a review of the recently implemented Credit Contracts and Consumer Finance Act (CCCFA), after a series of consumer complaints and negative feedback from the industry, less than two months after it went into effect.
Under the new rules, many people, who were once considered a good risk person, are no longer able to access credit, such as a personal loan, credit card or mortgage.
One mum in Dunedin said a bank told her they would only consider giving her a mortgage if she returned to work within 90 days of giving birth.
John Bolton, CEO of real estate brokerage, Squirrel, said people’s lives were devastated by the implementation of the new law, which was guided by the Compulsory Responsible Lending Act, which outlines the responsibilities of lenders.
“I don’t think you need a complete rewriting of the law. The law is fundamentally correct and it exists to protect consumers from predatory lenders.”
But Bolton said the problem is mostly with the “incredibly prescriptive” law, not the new legislation.
“So the good thing about it is that it’s the code and not the verb, it’s easier to change,” Bolton said, adding that one-size-fits-all code doesn’t apply to every lending case and that’s what needs to be changed.
“It’s a very complex and delicate market…The entire small business economy in New Zealand is dependent on working capital from residential real estate which is probably the preferred form of borrowing for small businesses because it’s really hard to borrow any other way.”
Bolton said some lenders have been unreasonably conservative when evaluating credit applications, including checking all family expenses, including copies of purchase receipts.
“When did we lose faith in people?” Bolton said, adding that he started a parliamentary petition to raise awareness of the issue, after an initial petition collected 10,000 signatures.
“Restricting people’s access to credit when they need it for whatever reason…has a huge impact on their lives.
“And to do nothing about it, in my view, was completely irresponsible.”
Similarly, economist Tony Alexander said the government should consider CCCFA legislation and keep consumer credit lending separate from high-risk lenders from mortgage lending because the standards applied do not necessarily need to be the same for both.