How the law aimed at protecting lenders (and their families) from loan sharks made it so much harder to borrow from banks

In October 2018 the PM popped up with Kris Faafoi, Commerce and Consumer Affairs Minister at the time, to announce a government crackdown on loan sharks.  Tough new measures were being introduced to protect people from loan sharks and truck shops

Jacinda Ardern said her government was committed to making New Zealand the best place to raise a child. To do this it must stop families becoming trapped in the appalling debt spirals and poverty that result from onerous lending and payback terms.

“These new measures will halt the very worst of those preying on vulnerable and desperate people while enabling borrowing that meets their needs in an affordable way.

 “They will protect families through capping the total interest and fees charged loans, introducing tougher penalties for irresponsible lending, and raising the bar for consumer lenders to register as a Financial Service Provider,” Jacinda Ardern said.

A Bill introduced to Parliament in April 2019 amended the Credit Contracts and Consumer Finance Act 2003 by strengthening requirements to lend responsibly, especially in relation to how affordability and suitability tests should be conducted, limiting the accumulation of interest and fees on high-cost loans, and providing new remedies and penalties for non-compliance.  It  had been enacted by the end of the year.

So far, so good.  But two years later, on December 1 2021, David Clark was the Minister of Commerce and Consumer Affairs and a statement released in his name was triumphantly headed New lending laws will further protect Kiwis from unaffordable debt.

Kiwis could  expect better protection from high-cost loans and unaffordable debt as a result of changes to lending laws coming into effect that day, Clark said.

The new rules included:

  • Detailed standards for lenders assessing the affordability and suitability of loans
  • Additional record-keeping requirements on lenders and duties on their directors and senior managers
  • Responsible advertising standards
  • Greater transparency and access to redress before debt collection starts

Fundamentally, lenders required much more information from borrowers about their financial circumstances before deciding whether to lend to them.

And how did that work out?

Not well (as Clark quickly learned).

In January ACT Leader David Seymour was scoring political points, saying he had written to the Finance and Expenditure Committee, asking it to open an inquiry into the effects of recent changes to the Credit Contracts and Consumer Finance Act.

“Over the past month I have heard about the new law from people in banking, mortgage broking, and people trying to get credit. They’ve been frustrated with needless red tape since it came into effect on December 1,” says Mr Seymour.

“In one reported case, a man who applied to have his credit limit increased by $500 was confronted with fifteen pages of forms, despite never having missed a payment in the seven years he’d had the card. It’s also reported that there may be an artificial credit crunch as the law slows down lending across the board.

The Finance and Expenditure Committee had examined the Credit Contracts Legislation Amendment Bill in 2019.  This law now was  creating widespread headaches for people trying to get credit form their banks, and the Committee should be asking why, Seymour said.

I have written to the Committee, and its chair Dr Duncan Webb, asking that the Committee use its powers to initiate a review or at very least seek a briefing into the havoc this law is causing. What is the point of the Committee having such power if it won’t use its powers to hear the public’s concerns about the laws it’s been involved in making?

The NZ Herald reported in February the changes had prompted a raft of complaints by consumers who had been turned down for mortgages over their spending on Netflix, takeaways or even being told they need to cut visits to a counsellor in order to meet the lending criteria.

Similarly, RNZ in a report today says

“… almost from day one there were complaints that the rules were too restrictive, the information required too intrusive and unreasonable, and the time taken to process applications too long.”

Early this month, RNZ reported credit approvals for mortgage loans and consumer finance continued to be negatively impacted by changes to credit rules.

The latest credit data from Centrix shows lending had become more restrictive since changes to the Credit Contracts and Consumer Finance Act (CCCFA) came into effect in December, as the number of approvals fell again in February.

The drop in credit approvals was possibly reflected in the value of new residential mortgage loans put in place. They fell 21 percent in January compared with the year earlier, with nearly $1 billion in reduced lending.

Clark can’t be accused of ignoring the complaints.  In January he was announcing a review of the changes by the Ministry for Business, Innovation and Employment and a few weeks later he was saying he wanted to move quickly to make changes to the consumer credit law.

Today RNZ is reporting the upshot:

The government has moved to change new lending rules blamed for causing creditworthy borrowers being refused loans and causing a credit crunch.

The news came from The Beehive in a statement from David Clark headed Govt updates responsible lending rules.

 The Government is making practical amendments to responsible lending rules to curb any unintended consequences being caused by the Credit Contracts and Consumer Finance Act (CCCFA), Minister of Commerce and Consumer Affairs, David Clark announced today.


“The amendments we are making are informed by the feedback I received from banks, other lenders and consumers and sit comfortably within the intent of the Act,” David Clark said.

“These initial changes ensure borrower-ready Kiwis can still access credit while we continue to protect those most at risk from predatory and irresponsible lending.”

The banks, budget advisers and Government were all on the same page when it came to supporting the intention of the law, to stop vulnerable people from finding themselves with unaffordable debt.

“Following my meetings with the banks at the end of last month to hear their concerns, I detected little enthusiasm for wholesale changes to the Act, but instead a preference for some practical amendments to be made to ensure the purposes of the legislation are best met.

“Meanwhile, a broader investigation, led by MBIE and the Council of Financial Regulators, into the early implementation of the CCCFA amendments is ongoing.”

Investigations so far had thrown up no reasons to believe the CCCFA is the main driver in reduced lending, Clark said.

The Reserve Bank’s December figures highlight seasonal variation as a prominent contributor and December 2021 was still above trends from the same month in 2017, 2018 and 2019.

Moreover, banks may be managing their lending more conservatively due to global economic conditions and several factors affecting the market have occurred at the same time as the CCCFA changes, including increases to the OCR, LVR changes and an increase in house prices and local government rates.

But wait – there’s more?

Perhaps. Clark said:

“It must be stressed, today’s changes are not the final word and any further changes to credit laws and the Responsible Lending Code will be considered as part of the remainder of the investigation which is due next month.” 

2 thoughts on “How the law aimed at protecting lenders (and their families) from loan sharks made it so much harder to borrow from banks

  1. Ahh the consequences of an incompetent government. All in way above their abilities. Maybe they should resign and apply for jobs with MSD to replace those mandated out by their ineptitude to foresee the consequences of following advice of paid inappropriate “experts.”


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