“We also think it’s important that people are prepared for what the law change will mean for them when they apply for a loan. Customers will have to provide more information and lenders will need to do more to check it’s correct, which will make the whole process longer.”
Changes to consumer lending law to help people avoid unaffordable debt mean it may take longer to get a loan from 1 December. Information to help consumers prepare for the changes has been welcomed by financial mentors and lenders.
The changes to the Credit Contracts and Consumer Finance Act 2003 mean credit applications are likely to take longer, and consumers will need to provide more information than they have previously. Lenders will no longer be able to rely on information provided by customers – they’ll need to collect extra information and check it is correct. Credit applicants will need to provide detailed information about their financial situation, including income, debts, and expenses. This may include having to provide their recent transaction history.
The Financial Services Federation and the New Zealand Bankers’ Association have prepared some information that sets out how the law change affects consumers in a way that’s easy to understand. The information is available on the FSF website and the NZBA website. Hard copies will be available at local financial mentoring services.
The law change requires lenders to make sure their customers can afford their loan repayments, and that the loans suit their customers’ needs.
Financial Services Federation Executive Director Lyn McMorran says, “There has been a lot of work going on behind the scenes to ensure responsible lenders such as our members understand and comply with the changes to help protect vulnerable borrowers, but it’s also important that everyday consumers know what to expect and how these changes will affect the lending process.”
New Zealand Bankers’ Association Chief Executive Roger Beaumont says, “Banks are responsible lenders, and we support the aims of the law changes to help people avoid taking on unaffordable debt. We also think it’s important that people are prepared for what the law change will mean for them when they apply for a loan. Customers will have to provide more information and lenders will need to do more to check it’s correct, which will make the whole process longer. We were delighted to work with the Financial Services Federation and FinCap to help get the message out about what all this means in practice.”
FinCap Chief Executive Ruth Smithers says, “These protections are valuable for everyone in the community. Our financial mentors do excellent work in their communities and there will be more referrals to them under the changes. What is meaningful is these changes will mean fewer people have to choose between eating and repaying a loan.”
The new law applies to all credit applications, small and large, including new loans and changes to existing credit arrangements. Examples include borrowing to buy a dishwasher, upgrading your car on finance, getting a home loan, or extending your credit card limit.
It might be harder for consumers to get credit or a loan because the more detailed information that lenders need to collect may show the applicant can less easily repay the debt. Lenders will now also need to build in reasonable surpluses or buffers to ensure applicants will be able to repay the loan.
Anyone who needs support with their personal finances is encouraged to contact the MoneyTalks team on 0800 345 123.
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“As an industry we sometimes find implementing deadlines can be challenging,” Beaumont said. “For example, the law sets a compliance date but the more detailed regulations or guidance are not available until close to the deadline.”
The New Zealand Bankers’ Association asked for the first reporting period the rules will apply to, to be extended by three months to March 31. “Without this period, banks will need to temporarily slow high LVR lending in a much more dramatic way to meet the new requirements.”
Reserve Bank of New Zealand
NZ Bankers’ Association chief executive Roger Beaumont told the Herald, “All banks can offer options for customers experiencing hardship. We’ve been particularly conscious of this through the economic impact of Covid-19.
“Last year, under the loan repayments deferral scheme agreed with the government, Reserve Bank and credit rating agencies, around $70 billion in household and business loans had repayments fully deferred or reduced for up to six months. We’re not seeing the need to bring back the scheme at this stage but deferring or reducing repayments remain a potential option for people in hardship, on a case-by-case basis,” said Beaumont.
The number of customers contacting their bank has increased 20% since New Zealand went into Covid alert level 4 lockdown on 17 August.
“In the first week of lockdown banks saw little customer contact due to the Covid restrictions. Since then, calls have increased on average 20 per cent. We put the increase down mostly to people experiencing uncertainty,” says New Zealand Bankers’ Association chief executive Roger Beaumont.
“While it’s true there are some people experiencing financial hardship because of the current lockdown, we’re not seeing the same demand for help we saw with the first lockdown in March last year.
“Last year, under the loan repayments deferral scheme agreed with the government, Reserve Bank and credit rating agencies, around $70 billion in household and business loans had repayments fully deferred or reduced for up to six months. We’re not seeing the need to bring back the scheme at this stage but deferring or reducing repayments remain a potential option for people in hardship, on a case-by-case basis.
“Anyone experiencing financial difficulty because of the current lockdown should contact their bank to discuss how they can help. Banks can offer a range of options for customers facing hardship, depending on their circumstances.”
Ways that banks could help include:
- Temporarily suspending both principal and interest loan repayments
- Reducing or suspending principal payments on loans and temporarily moving to interest-only repayments
- Helping with restructuring loans, for example extending the term of the loan
- Consolidating loans to help make repayments more manageable
- Providing access to short-term funding
- Referring individual customers to budgeting services.
“The sooner you contact your bank, the better placed they are to help.
“It’s worth checking your bank’s website to find out the best way to contact them at this time.”
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