PHOTO: Loans. FILE
If you want to borrow money, allow time, be prepared, and be clear, says Banking Ombudsman Nicola Sladden.
Banks, and all lenders, will need to ask more questions before they can approve loan applications when changes to the Credit Contracts and Consumer Finance Act (CCCFA) come into force on December 1. The Banking Ombudsman has issued a guide on what to expect.
“We welcome the changes, which will help protect consumers from unaffordable debt,” says Ms Sladden. “The new requirements will help to ensure all lenders do a comprehensive job of understanding their customers’ circumstances before approving a loan.”
Ms Sladden adds she expects to receive complaints and enquiries about the changes, as is often the case when bank obligations change. “There can be a fine balance between customer protection and convenience,” says Ms Sladden. “Lending applications will be more comprehensive and are likely to take longer, so we encourage you to plan ahead.”
In a recent case, Jacob* – who applied for lending approval three days before a property auction – complained he didn’t get approval on time and couldn’t bid. However, he didn’t have all the information required, and was warned by the bank the timing was too tight. “Last-minute lending approvals are even less likely to get through. If you’re house-hunting, get in early and find out from the bank what you need to do to prepare.”
Lenders may require more information to assess whether loans are affordable, including recent and reliable evidence of income (including any foreseeable change to income), debts and expenses. This applies to small loans, changes to existing loans, or credit limit increases. “From December it is explicit that all lenders are expected to carry out full affordability assessments even for a simple credit limit top-up. This will provide further protection from credit card lending practices of the past – like for Ellen*, who earned $27K on ACC and received a $24K credit limit increase in 2016.”
Lenders must be satisfied the borrower can make loan repayments without suffering substantial hardship. From December, lenders must also be able to provide records of all their inquiries, including their assessment of why they were satisfied the loan was both suitable and affordable. “The changes may mean that some lending, which was previously approved, will no longer be approved.”
Want a loan? Tips for banks customers
- Allow time: to have discussions and work through the process with your bank.
- Be patient: remember banks are not allowed to provide lending unless they follow this process.
- Be prepared: by asking your bank what you need and gathering all recent information about your income, debts and expenses.
- Be clear: about your reason for the loan, and the amount you need and why.
See our quick guide: Changes to consumer lending
See the Commerce Commission Responsible Lending guidance here
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