Amendments to credit agreements worsen the plight of borrowers

Credit Loan Nightmare with the latest amendments to the Consumer Credit Agreements and Finance Act 2003 (CCCCA).

I have received many complaints from brokers and lenders, especially from lower socio-economic groups, whose clients find it almost impossible to borrow money.

It’s not about first-time home buyers or property prices in Auckland.

Enough said.

It involves borrowing a small amount of money to spend Christmas and other needs.

The new amendments to the Credit Contracts and Consumer Credit Act (CCCCA) do not help either the borrower or the lender.

Patrick Wilson, managing partner, Stace Hammond Lawyers, said recent changes to the Credit Agreements and Consumer Finance Act 2003 were aimed at preventing loan sharks from taking advantage of disadvantaged and socio-economically disadvantaged borrowers.

“However, they have actually had the unintended consequence of forcing these groups to lend moneylenders. For example, credit unions, which are mutuals where borrowers are members of the financial lender, know their borrowers well and even provide advice in budgeting to ensure that their borrowers can meet their commitments Many of their members cannot get bank assistance anywhere else and depend on the credit union for reasonable loans to help them survive financially But as a result of these recent legislative changes, credit unions have been hampered in their work (which, as non-profit organizations, see their relationship with their members as more than just a money-making opportunity) and , in many cases, may not lend as much consequence to the new restrictions.Therefore, credit unions report that their members are in tears and most likely forced to turn to loan sharks for financial assistance from lenders who otherwise do not care about legislative restrictions,” he said.

“Total Madness”

The burden placed on lenders, mortgage brokers and financial advisors is so great that some are considering quitting and changing jobs. The risk, they say, is not worth it. Affordability and suitability assessments are madness, time consuming and stressful for both borrower and lender.

As of October 1, 2021, consumer lenders must be certified by the Commerce Commission. In addition, they must comply with the following: (a) Amendments to the Consumer Credit Agreements and Finance Act 2003 (CCCFA) will require creditors’ directors and senior management to exercise due diligence reasonable to ensure that creditors comply with the obligations of the CCCFA and that they are certified by the Commerce Commission as “fit and proper”; and (b) Amendments to the Credit Agreements and Consumer Finance (Regulations) Regulations 2004 will prescribe minimum standards for the assessment by lenders of the suitability and affordability of consumer loans.

(Picture by MBIE)

“Fit and proper, due diligence, suitability, affordability” are already tough words for seasoned gamers, let alone someone new and untrained. Why would anyone make it so difficult, by imposing onerous processes on small borrowers?

Failure to comply can result in penalties of up to $200,000 for an individual or $600,000 in any other case.

Some questions

What should the lender do to determine if the loan is “suitable for a borrower”? What does it mean if I need money for Christmas? How can a lender verify my expenses in detail? How long does compliance take? What questions should the lender or broker ask before they are satisfied?

It is understandable that if the lender lends money hundreds of thousands of dollars with or without collateral, but we are not talking about this segment.

In a rush to protect borrowers and banks, the government is punishing the non-bank lender and small players who victimize the most vulnerable.

There are many “other” lenders, under the radar, who lend money to vulnerable people at exorbitant interest rates, in addition to inadmissible “fees” for management.

Illegal moneylenders continue to thrive

I believe the illegal moneylender industry will thrive, making vulnerable people more likely to take on more debt, exacerbating an untenable position and placing enormous stress on families.

The new rules not only require lenders to estimate borrowers’ income and expenses, but also to verify expenses and ensure borrowers can afford to repay.

According to a mortgage broker, the spending requirement boils down to how many fish and chips the borrower buys per week.

“It’s sheer stupidity, treating borrowers like morons,” the broker said.

Whether it’s borrowing money for kitchen countertop renovations or paying bills, borrowers will be screened, like a survey, at the mercy of the lender, with the set of borrower spending patterns exposed, even if one buys ice cream every week.

Practical implications ignored

The CCCFA does not address the practical implications, mocking the intended objectives of the amendments. It is time for someone from the Financial Markets Authority (FMA) to review the regulations to make them more practical.

All the various proposals and committees, discussions and submissions, have made the situation worse.

Dave Ananth is Senior Tax Advisor at Stace Hammond Lawyers in New Zealand and Chairman of the New Zealand Malaysian Business Association (NZMBA). He lives in Auckland.

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