How effective has been government’s tweak to ‘responsible lending rules’ for genuine and credible borrowers?
Genuine and credible borrowers are still struggling to get access to credit from banks, despite the government's slight dial back of the controversial changes in the responsible lending rules late last year.
The government first changed the lending rules on December 1, 2021, which placed additional responsibility upon the banks to check the debt servicing capabilities of potential borrowers precipitating a dramatic turndown of loan applications.
Following a sustained furore and a petition being signed by 10,000 people requesting the government to reconsider the law changes, Commerce and Consumer Affairs Minister David Clark announced changes to the Credit Contracts and Consumer Finance Act in early March - less than four months after it was tightened.
However, four months after the dial-back by the government, potential borrowers are still facing rejection from banks even on their application for a secured loan against their houses, despite having enough equity.
Chander Aggrawal (name changed) told the Indian Weekender that he was frustrated after two banks declined to provide a small loan of 20K, including a top-up on his home mortgage.
“I have significant equity on my home, my wife and I are full time working, plus I drive uber on weekends to top up my income, and my wife runs a small part-time business which also brings cash in the home.”
“Yet banks questioned our debt servicing capabilities in future in declining the loan application,” Chander said frustratingly.
This frustration is even more palpable among many small business operators, who are struggling for access to cash for maintaining cashflow in their businesses owing to Covid and are relying on their ability to top up their home loans.
Shalina Singh (name changed) an Auckland-based restaurant owner, told the Indian Weekender that she has exhausted all possible avenues for a business loan, after having borrowed from the government’s small business cashflow scheme and was counting on her ability to top up her mortgage to keep her struggling business afloat – only to be disappointed by the bank.
“It is really frustrating to know that nothing has changed on the ground even after the government had announced in March that it was rolling back the changes initially brought late last year,” Singh said.
“Now I am forced to seriously contemplate borrowing unsecured loans from other private players, which would be at a significantly higher cost and restrictive terms and conditions.”
“I am not sure if the government is actually achieving its initial intention of safeguarding the interests of the borrowers. Not in my case, at least,” a frustrated Singh asserted.
New Zealand bankers Association – a consortium of leading banks in New Zealand which is a non-profit unincorporated organisation funded by member banks through subscriptions – is also of the view that the changes brought by the government in early March might not be enough to make a difference for the genuine and credible borrowers.
New Zealand Bankers’ Association chief executive Roger Beaumont told the Indian Weekender that nothing would have changed on the ground for the borrowers.
“The government made changes to the Credit Contracts and Consumer Finance Act that came into force last December. These new lending rules had had a big impact on banks’ ability to lend to customers who could afford to borrow before the changes came in.
“The new rules are designed to help vulnerable customers avoid unaffordable debt. The issue is that they apply a one-size-fits-all approach to credit applications which has affected many mainstream consumers and has resulted in more applications being declined. Banks no longer have the flexibility and discretion they used to have to help people get a loan. The new rules mean that some people who could afford loans before the December change are now missing out.
“The government recently made some tweaks to the new rules, which haven’t really made much difference for most borrowers. That’s because most of the existing requirements remain in place, meaning customers still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change.
“The new rules apply to any new consumer lending, big or small, from a new home loan or top up to increasing your credit card limit, or getting a car loan, so they’re having a widespread effect.
“Some small businesses may be affected by the new lending rules, especially if they’re securing a loan with their residential property. Other business lending applications will be assessed on a case-by-case basis taking into account the particular bank’s lending policies and risk appetite,” Mr Beaumont said.
Genuine and credible borrowers are still struggling to get access to credit from banks, despite the government's slight dial back of the controversial changes in the responsible lending rules late last year.
The government first changed the lending rules on December 1, 2021, which placed...
Genuine and credible borrowers are still struggling to get access to credit from banks, despite the government's slight dial back of the controversial changes in the responsible lending rules late last year.
The government first changed the lending rules on December 1, 2021, which placed additional responsibility upon the banks to check the debt servicing capabilities of potential borrowers precipitating a dramatic turndown of loan applications.
Following a sustained furore and a petition being signed by 10,000 people requesting the government to reconsider the law changes, Commerce and Consumer Affairs Minister David Clark announced changes to the Credit Contracts and Consumer Finance Act in early March - less than four months after it was tightened.
However, four months after the dial-back by the government, potential borrowers are still facing rejection from banks even on their application for a secured loan against their houses, despite having enough equity.
Chander Aggrawal (name changed) told the Indian Weekender that he was frustrated after two banks declined to provide a small loan of 20K, including a top-up on his home mortgage.
“I have significant equity on my home, my wife and I are full time working, plus I drive uber on weekends to top up my income, and my wife runs a small part-time business which also brings cash in the home.”
“Yet banks questioned our debt servicing capabilities in future in declining the loan application,” Chander said frustratingly.
This frustration is even more palpable among many small business operators, who are struggling for access to cash for maintaining cashflow in their businesses owing to Covid and are relying on their ability to top up their home loans.
Shalina Singh (name changed) an Auckland-based restaurant owner, told the Indian Weekender that she has exhausted all possible avenues for a business loan, after having borrowed from the government’s small business cashflow scheme and was counting on her ability to top up her mortgage to keep her struggling business afloat – only to be disappointed by the bank.
“It is really frustrating to know that nothing has changed on the ground even after the government had announced in March that it was rolling back the changes initially brought late last year,” Singh said.
“Now I am forced to seriously contemplate borrowing unsecured loans from other private players, which would be at a significantly higher cost and restrictive terms and conditions.”
“I am not sure if the government is actually achieving its initial intention of safeguarding the interests of the borrowers. Not in my case, at least,” a frustrated Singh asserted.
New Zealand bankers Association – a consortium of leading banks in New Zealand which is a non-profit unincorporated organisation funded by member banks through subscriptions – is also of the view that the changes brought by the government in early March might not be enough to make a difference for the genuine and credible borrowers.
New Zealand Bankers’ Association chief executive Roger Beaumont told the Indian Weekender that nothing would have changed on the ground for the borrowers.
“The government made changes to the Credit Contracts and Consumer Finance Act that came into force last December. These new lending rules had had a big impact on banks’ ability to lend to customers who could afford to borrow before the changes came in.
“The new rules are designed to help vulnerable customers avoid unaffordable debt. The issue is that they apply a one-size-fits-all approach to credit applications which has affected many mainstream consumers and has resulted in more applications being declined. Banks no longer have the flexibility and discretion they used to have to help people get a loan. The new rules mean that some people who could afford loans before the December change are now missing out.
“The government recently made some tweaks to the new rules, which haven’t really made much difference for most borrowers. That’s because most of the existing requirements remain in place, meaning customers still have to provide detailed information about their spending, resulting in a more painstaking process and more loan applications being declined than before the December rule change.
“The new rules apply to any new consumer lending, big or small, from a new home loan or top up to increasing your credit card limit, or getting a car loan, so they’re having a widespread effect.
“Some small businesses may be affected by the new lending rules, especially if they’re securing a loan with their residential property. Other business lending applications will be assessed on a case-by-case basis taking into account the particular bank’s lending policies and risk appetite,” Mr Beaumont said.
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