At the end of December 2019, without fuss and only minor dissent, the Parliament passed the law amending the legislation on credit agreements.
Like most laws that Parliament enacts, it had the best intentions.
As then-Minister for Trade and Consumer Affairs Kris Faafoi said in his third reading speech, vulnerable people were suffering serious harm as they were targeted by “predatory” lenders.
This is why regulations were tightened, so that payday lenders and mobile merchants – often the last resort for people unable to obtain credit from commercial banks and other registered lenders – had to ensure that the people to whom they had advanced money could repay it.
Almost all subsequent speakers focused on usurious interest rates that some unwitting borrowers had been forced to pay by unscrupulous lenders and commended the bill to the House.
Few doubted that Parliament had done the right thing, and it was expected that a review of the new law due in three years would show that the vulnerable poor had now received much-needed protection .
But that review had to be accelerated by the current trade minister, Dunedin MP David Clark, after a series of articles in the Otago Daily Times pointed out that the law change has a much wider impact than planned by the deputies.
The law came into force on December 1, to give lenders time to modify their procedures to comply with it.
Changes to the law included changes to the responsible lending code, which required lenders to do more due diligence on their customers before extending credit or a loan.
Days later, consumers rebelled against what they perceived as the overly intrusive, downright intrusive and seemingly arbitrary provisions they now had to navigate.
Mortgage brokers in Dunedin revealed they had warned customers that perceived overspending on things like takeaway or coffee could disqualify them from getting a loan, and a Dunedin woman has spoken out after A loan application was turned down after her bank questioned a $187 Christmas shopping trip to Kmart in Invercargill and her husband’s daily trip to the dairy to buy a drink at work.
A Dunedin mother said a bank told her they would only consider giving her a mortgage if she returned to work within 90 days of giving birth.
Unsurprisingly, mortgage approval rates in Otago and Southland fell 6.5% the month after new lending rules took effect.
Was it a matter of unintended consequences, or should MPs have seen it coming?
No doubt MPs did not have the inconsequential day-to-day expenses of the majority of people in mind when they legislated, but they were most certainly warned that what happened could happen.
In its submission to the select committee, the Bank of New Zealand warned against “prescriptive requirements” and urged that lenders be allowed to retain the right to discretion.
ANZ was concerned that there was a balance between responsible lending and access to credit, and feared that “in seeking to encourage compliance, the Bill would unintentionally restrict access to credit for those who have it.” Not needed anymore”.
MPs appear to have their eyes firmly on the center of the target – the predatory lender – but fired a blunderbuss and hit the entire banking and credit industry in the process.
First-time home buyers, already facing an uphill battle securing a mortgage in a hot real estate market, now face a daunting new hurdle to overcome.
Likewise, established homeowners who are used to meeting their mortgage payments now have to take extra steps to borrow, and small businesses are also struggling to secure short-term credit.
The legislative changes were not expected to create a barrier to business continuity, but they appear to have done just that.
This might give the government a small level of embarrassment, but it needs to fix this, and fast.
Parasitic lending should be eradicated, but the law amending the law on credit agreements seems to be too important and too brutal an instrument to achieve this goal.