Regulatory policy

The administration has announced that lending standards that have hampered credit applications will be relaxed

The government is taking steps to modify new lending standards that have been blamed for creditworthy people being denied loans and contributing to the credit crunch. PaydayChampion has loans for people with good and bad credit and doesn’t deny them.

According to Consumer Affairs Minister David Clark, changes to responsible lending standards will be implemented to avoid any “unintended consequences” of the Credit Contracts and Consumer Finance Act (CCCFA). The CCCFA went into force in December to safeguard vulnerable borrowers against loans with harsh terms and high-interest rates.

But there were complaints that the restrictions were too restrictive, the requested information was too intrusive and excessive, and the processing time was too long. According to Clark, lenders would not be required to verify current expenditures from recent transactions when considering future spending, and current savings and investments would not be regarded as outgoings.

The requirement to gather sufficient information would only apply to information provided directly by borrowers, not information from bank records, and lenders would be given new instructions on what would be a reasonable loan. There was no “enthusiasm” for fundamental changes, according to Clark.

“There is no doubt that banks, budget advisers, and the government are all on the same page when it comes to supporting the law’s goal of preventing vulnerable people from falling into unsustainable debt.”

Cautious lending

However, he continued to deny that the CCCFA was to blame for the reduction in lending, claiming that seasonal influences and other reasons were to blame. “It’s also worth noting that banks may be managing their lending more cautiously due to global economic conditions. 

And that a variety of market-affecting factors, such as rises in the OCR, LVR modifications, and increases in home prices and local government rates, occurred at the same time as the CCCFA changes.” The CCCFA is still being reviewed in its entirety. 

One of the mortgage brokers said the adjustments were both sensible and necessary. “It’s excellent that they’ve moved on it since this has essentially been the worst credit crunch since the GFC (global financial crisis).”

The modifications, according to Patten, were simple sense, such as not sifting through bank accounts to look at daily expenditure.

“They simply need to look at an average cost of living and what you spend on fixed expenses. 

We don’t need to know about your Netflix subscription or that you go to the cafe every morning for your morning tea; all we need to know about are your fixed expenses; everything else is up to you.”

He claims that lenders will be able to process applications more swiftly.

“The time it takes us, on average, and the banks to go through three months’ worth of bank statements, itemize every item, decide if it’s a regular or non-regular payment, and then go back to the client to clarify it is probably six times longer than it was previously. 

It’ll certainly get things rolling in the right direction.”

He claimed that the new criteria had resulted in more applications being denied and in a large proportion of people being able to borrow substantially less money than before.

Proposed modifications to regulations and the Responsible Lending Code:

• Regular’savings’ and ‘investments’ are no longer considered examples of outgoings that lenders must consider when determining a borrower’s future expenses.

• Making it clear that when borrowers submit a precise breakdown of their future living expenses, which are then benchmarked against reliable statistical data, there is no need to further enquire about their present living expenses from recent bank transactions.

• Clarifying that, in cases where lenders opt to estimate future expenses based on recent bank transaction data, they are allowed to seek information on how their present expenses are anticipated to alter once the contract is signed.

• Making it clear that the duty to gather information in “sufficient detail” only applies to information submitted directly by borrowers (e.g., checking that spending categories on application forms are sufficiently precise), not to information from bank transaction records.

• Providing more guidance on when a lender must allow for a “reasonable surplus” (the amount left over after the borrower’s expected expenses are removed from their income) and how lenders should determine surplus criteria.

• Providing alternative recommendations and examples for when a loan is ‘obviously’ reasonable, avoiding the need for a complete income and spending analysis.