Minister David Clark discusses some changes to the Responsible Lending Act

The government is making changes to responsible lending regulations, which banks blame for creating an artificial credit crunch.

The changes remove some of the more controversial aspects of tougher responsible lending laws, including borrowers being asked about their current living expenses based on recent banking transactions.

People said they were turned down for loans based on things like spending too much on a dog after the regulations were introduced in December as part of an effort to protect vulnerable borrowers from loans they couldn’t not afford.

Mortgage advisers and opposition politicians claimed the regulations had prompted banks and other lenders to become “ultra-conservative”, turning down loans they would have made before.

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In a letter to lenders and financial sector associations on Thursday, the Department for Business, Innovation and Jobs’ Competition and Consumer Policy Unit confirmed how the responsible lending code would be updated. day.

Lenders would not need to ask about borrowers’ current living expenses from recent banking transactions, and living expense breakdowns would need to be checked against “hard statistical data”.

The amendments removed regular “savings” and “investments” as examples of expenses that lenders must consider when assessing a borrower’s likely expenses.

Some people had said having a higher KiwiSaver contribution rate as they saved a deposit had counted against them, as banks calculated how much they could afford assuming the contribution level would hold.

If a lender was estimating expenses from recent bank transaction records, they might also ask how borrowers’ expenses were likely to change after loan approval.

Brokers had complained that banks had assumed current spending would continue once a mortgage was issued, leaving borrowers no leeway to adjust their spending when they had a loan to repay.

A “reasonable surplus” was no longer necessary if a lender applied adequate buffers and adjustments to income and expenses.

The changes also included guidance on when it was “obvious” that a loan was affordable.

The obligation to obtain “sufficiently detailed” information only concerned information obtained directly from borrowers, and not information obtained from bank transaction records.

Trade and Consumer Affairs Minister David Clark had ordered an investigation into the new lending laws and regulations.

The changes, made after feedback from banks, other lenders and consumers, are now finalized and will come into effect on July 7.

The update aimed to address the most pressing issues raised after the introduction of the changes to the CCCFA, while the rest of the investigation continued.

The final report was to be published in July.