Trade Secretary David Clark orders investigation into loan decline

Trade and Consumer Affairs Minister David Clark has ordered an investigation into whether banks have overreacted to new lending laws.

Amendments to the Consumer Credit Agreement and Credit Act (CCCFA) were introduced in early December to protect vulnerable borrowers from unscrupulous lenders.

But mortgage advisers and opposition politicians say they have had unintended consequences and prompted banks and other lenders to become ‘ultra-conservative’, turning down loans they would have made before.

“I have asked the Board of Financial Regulators (Reserve Bank, Treasury, Financial Markets Authority, MBIE and Commerce Commission) to advance its investigation into whether banks and lenders are implementing the CCCFA as intended,” Clark said.

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Clark said new laws to protect vulnerable borrowers were in their infancy and other factors could influence bank behavior.

“Banks seem to be managing their lending more cautiously at the moment, and that’s likely due to global economic conditions,” he said.

But, he said, “It may also be that in the first few weeks of implementing the new CCCFA requirements, there was a decision to err unduly on the side of caution.”

Trade and Consumer Affairs Minister David Clark wants the country's monetary authorities to examine whether banks have overreacted to changes to the Lending Act aimed at protecting vulnerable borrowers.

ROBERT KITCHIN/Stuff

Trade and Consumer Affairs Minister David Clark wants the country’s monetary authorities to examine whether banks have overreacted to changes to the Lending Act aimed at protecting vulnerable borrowers.

The changes also came shortly after the Reserve Bank restricted the volume of low-deposit mortgages banks could make.

In November, the Reserve Bank lifted the official cash rate (OCR), which influences mortgage rates.

“A number of factors affecting the market have occurred concurrently with the CCCFA changes, including increases in OCR, changes in LVR and an increase in real estate prices and local government tariffs” , said Clark.

But, he said: “An investigation by the COFR (Council of Financial Regulators) will determine to what extent the behavior of lenders, vis-à-vis the CCCFA, is an important factor in the evolution of banks’ lending practices. .”

ACT chief David Semour and National Commerce and Consumer Affairs spokesman Andrew Bayly had called for inquiries into the impact of the changes to the law.

Changes to the law increased penalties for irresponsible lending and required lenders to dig deeper into borrowers’ finances before granting them loans.

But critics allege they have driven up lending costs, increased the administrative burden for lenders, borrowers and mortgage brokers and made it harder for ordinary people to get loans.

“A parliament that seeks to be a good legislator should not allow such laws to stand,” Seymour wrote in a letter to Trade and Consumer Affairs Minister David Clark on January 5, in which he called for an investigation. .

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