Recent changes to the Credit Contracts and Consumer Finance Act (CCCFA) that came into effect has made getting approval for home loans incredibly difficult for aspiring buyers. And, the same impacts are also being felt in the car industry.
The changes, which the government has labelled “unintended”, have resulted in banks turning down loan applications over trivial and often relatively mild spending on things like fast food or alcohol on the basis that this spending is evidence of an inability to repay loans.
Embattled Minister for Commerce and Consumer Affairs, David Clark, has called for a review into the legislation. Although it’s unclear when this will take place.
Speaking to Autofile, the Motor Industry Association reports that it’s seeing loan approval rates drop by between 50 and 90 per cent among those shopping for new cars. Following an against-the-odds gangbusters year of sales in 2021, the strict rules could see sales drop in 2022 if they remain unchanged.
“David Clark has asked for a review. We urge the government to take a close look at the mechanisms and severity of guidance on people’s spending habits. We would urge it does so urgently,” says MIA chief executive David Crawford.
The Financial Services Foundation has issued an open letter to the government over the changes, stating that it expects the legislation to impact anyone applying for finance for anything.
“We believe that a fundamental problem with the process of developing the 2021 CCCFA changes is that while the intention was to address the issue of irresponsible lenders preying on vulnerable customers, treating all consumers as being vulnerable, which is what these regulations are requiring lenders to do, is entirely unreasonable,” says FSF Executive Director, Lyn McMorran.
“The FSF is eager to work constructively with Government and officials on any further investigation to ensure better outcomes for all consumers seeking access to credit in New Zealand provided by responsible lenders, whether they be banks or non-bank lenders.
“Our members are also available and keen to talk to Government and officials about their experiences and those of their customers, and are hoping that they will be listened to.
“We hope that a level of understanding that we are all working together for the greater good – reasonable access to credit provided responsibly by all lenders, and protection of those who are vulnerable – can be constructively achieved this time around.”
In its open letter, the FSF singles out the motoring industry as one of the groups likely to be hit hardest by the legislation — a matter compounded by the current focus around making the national fleet safer and more environmentally friendly.
“Most New Zealanders require a motor vehicle to transport themselves and their families to work, school, shops, medical appointments etc. Many people rely on access to their motor vehicle to be able to sustain their employment and therefore their income,” it says.
“The vast majority of New Zealand consumers require credit in order to be able to purchase a motor vehicle. Again, restricting such access will result in substantial hardship for many New Zealand families.
“The FSF also believes that the less that New Zealand consumers can have access to finance to upgrade their vehicles when they feel it is appropriate for them, the longer they will retain their existing vehicle or the more they will be forced to purchase older vehicles with fewer safety features and less fuel efficiency.
“This will only make New Zealand’s situation worse with respect to the safety of the vehicles on New Zealand’s roads and the amount of carbon emissions for which they are responsible and will make the Government’s objectives with respect to conversion of the fleet to electric vehicles impossible to achieve.”