PHOTO: They are the “unintended consequences” of a new law change, one expert says. Photo credit: Getty Images
Financial advisers are “extremely concerned” by the “unintended consequences” of changes to a consumer finance law affecting people’s ability to get a bank loan.
There have been claims in recent days that banks have declined to approve loans due to prospective borrowers spending money on takeaways, drinks from a dairy and Christmas shopping.
Katrina Shanks, the Financial Advice New Zealand chief executive, says these are the “unintended consequences” of changes made to the Credit Contracts and Consumer Finance Act which came into effect in December.
Intended to protect vulnerable borrowers from loan sharks lending money without considering the recepient’s ability to repay, the changes mean banks need to take a forensic lens to any prospective borrower’s spending habits to check affordability before they can approve any loan.
But Shanks reports financial advisers are “extremely concerned” those changes are putting some home seekers at a “significant disadvantage”. She cited a report out on Friday by Centrix that she says shows the proportion of home loan applications that resulted in loans has dropped from 36 percent to 30 percent.
“This comes as no surprise to Financial Advice NZ, which has been reporting mortgage adviser are seeing a significant reduction in pre-approvals not being renewed and lending levels to all borrowers being cut due to the new requirements of the Credit Contracts and Consumer Finance Act (CCCFA),” she said.
A Government spokesperson told Newshub officials are “aware of the concerns”.
“Officials from MBIE will be engaging further with lenders and consumer advocates once the new law has had a chance to bed in.
“MBIE officials are continuing to assess the impact of the new requirements and will further update the Minister of Commerce and Consumer Affairs once Parliament resumes.”
Shanks says she wrote to Commerce Minister David Clark on December 16 raising the issues and requesting a meeting, but is still awaiting a response. She wrote that the industry supports measures to protect consumers and understood the changes were intended to do that.
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