New responsible lending laws - harmful or helpful?


In 2021 the Government implemented changes to the Credit Contracts and Consumer Finance Act (CCCFA), changes that were driven by good intentions and designed to protect vulnerable consumers from taking on debt which they could not afford.

The changes didn’t only apply to “loan sharks”.  They applied to the banks, our biggest lenders, which have faced significant (and increasing) regulatory pressure in recent times.  So, faced with further regulatory requirements under the CCCFA, it’s perhaps understandable that they reacted conservatively, and applied the new requirements very strictly.

The process of getting a loan, or adding to an existing one, became far more onerous. Borrowers had to provide more detail and evidence around their spending, as well as their income, when they applied for loans.  Earlier this year, the media was rife with anecdotes from applicants for loans who had been grilled about the number of takeaways on their bank statement, their Netflix subscriptions or Afterpay purchases.

While lending laws are certainly important to stop vulnerable people from finding themselves with unaffordable debt, there is also a need to facilitate access to credit so people have a fighting chance of getting on the property ladder.

However, the changes did the opposite. As a result of the restrictive rules, more loan applications were declined, and a number of people were able to borrow significantly less than had initially been preapproved.

The Government has since amended the responsible lending rules to make the process less arduous.  But there are other factors in play now also – particularly rising interest rates and higher deposit requirements for a mortgage, which in part are intended to “cool” the housing market and bring down house prices.  First home buyers would obviously benefit from lower house prices…but only if they can get a loan to buy.

Positively, the Government has also taken steps to help alleviate the situation. It recently announced it has set aside $2 billion in its 2022 budget for initiatives to help more people buy their first home and increase affordable housing options. Other groups are also developing products to help finance new housing.

There’s no easy answer, but we know whānau housing is important. We’ll be talking to the Government, and other groups, to see if it can be made easier for whānau to buy a home in our upcoming whānau housing development at Hawaiki Street.