Banks, finance companies and mortgage advisors are gritting their teeth and bracing for mountains of paperwork as the (not so) courageous new world of credit law begins next week.
Tuesday 23 November 2021, 6 a.m.
by Eric Frykberg
Hardly anyone has anything good to say about the Credit Con tracts and Consumer Finance Act (CCCFA) as it imposed itself in Parliament, and they were even less laudatory on what they considered to be its rushed timing.
But like it or not, the law goes into effect on December 1 and everyone has to comply.
The bravest of the brave faces came from the Bankers Association, which declared that “banks are responsible lenders and support the goals of the law”.
Previously, the association had complained that the CCCFA was rushed without enough clarity on what needed to be done and without enough time to do it.
For now, bankers are just saying that customers will need to provide more information when applying for a loan, lenders will have to check it out much more carefully, and the whole process will take longer.
The Federation of Financial Services is more direct.
Executive Director Lyn McMorran says the new regime is very prescriptive, members could easily get the details wrong, and a checklist had to be provided so lenders could avoid accidental mistakes.
She adds that some borrowers will be shocked to approach a lender they have dealt with for years and will have to answer potentially intrusive questions about their spending habits.
Analyzing their responses would take time, cost money, and be rigid and formalized.
McMorran said lenders were losing their ability to make judgments about the reliability of borrowers to repay a loan.
“If all the boxes are not checked, they might have a hard time getting a loan.
“We are concerned about this because we see tough times ahead and access to credit is essential to keep an economy on the move.”
Mortgage brokers are even more vocal in their opposition. Mortgage Lab says the amount of work for its staff has doubled or tripled due to the new law.
Its chief executive Rupert Gough adds that the objective of the legislation makes sense but that it imposes additional work without pay on mortgage advisers.
“If you go from a fixed-term loan (loan) to a revolving loan, it involves a full application and no payment for it.
“So why would an advisor do 10 hours of extra work for free?
“However, this is a very important part of the process for the customer, so banks are going to have to rethink how they pay mortgage professionals and how they pass the costs on to the consumer ultimately.”
Gough adds that the law was passed to protect vulnerable people but has proven to be far too broad.
“The 1% of the market that targets vulnerable people (with predatory loans) forced the remaining 99% to do all that extra work.”
John Bolton runs Auckland brokerage firm Squirrel and says the law was poorly designed and has many unintended consequences.
“Business owners are going to have a hard time freeing up capital from their owner-occupied properties, which is crazy because that’s how most small businesses support each other.
“The government has just shown that it clearly does not understand how the residential mortgage market works and how it supports the wider New Zealand economy.”
But whether we like it or team it up, the CCCFA is coming and the industry is forced to fall back and face it.
Gough, for his part, has an idea to make the new regime less expensive: not to have different systems from different banks, so brokers don’t have to duplicate their efforts.
“What would be nice if the banks could agree on a uniform measure of what the policy looks like.
“They’ll worry about the dangers of collusion if they do, but at the end of the day they have to come together and say what a good mortgage application looks like, and we all agree on that. “
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