Squirrel welcomes changes to New Zealand’s Responsible Lending Code

Post by David Cunningham

In a nutshell:

• Squirrel applauds the latest changes to New Zealand’s responsible lending laws—which have come into effect today—unwinding problematic 2021 CCCFA regulations that made it significantly harder for Kiwi to borrow.
• The intention of the 2021 laws was to better protect vulnerable customers. Instead, they made it much harder and more time-consuming, invasive and costly for everyday Kiwi to get a loan. In short, bureaucracy and form-filling got in the way of good business.
• Squirrel founder, John Bolton, took a petition to Parliament in an effort to get the 2021 CCCFA regulations amended. It attracted almost 10,000 signatures.
• The changes are a welcome outcome after a significant period of disruption for New Zealand borrowers.

It’s been a hard-fought battle, but we got there in the end.

Government has today pushed through a series of changes to the Responsible Lending Code, which promise to make the process of applying for a loan in New Zealand a whole lot less painful for many Kiwi borrowers.

The new rules are designed to address major problems created by the previous version of the Code—introduced in December 2021—which forced New Zealand banks to significantly tighten their lending criteria and caused a major credit crunch practically overnight.

For context, let’s remind ourselves where the previous version of the Responsible Lending Code got it so wrong

The goal of the 2021 changes was to provide better protection for vulnerable borrowers when dealing with predatory lenders. To that end, the new rules laid out strict and prescriptive credit assessment processes for lenders to follow, to ensure they weren’t saddling people with loans they couldn’t afford.

The big issue came about in the way the new rules were applied: not just to those parts of the industry that were cause for concern, but across the entire lending industry as a whole.

It meant that high-quality lenders (like our banks) got caught up in the rule change—and were effectively stripped of any flexibility and discretion they’d previously had when deciding whether or not people were fit to lend to.

As a result, the time and effort involved in processing a loan application ballooned massively, and even the most credit-worthy of borrowers became subject to intense scrutiny of their spending habits.

The fallout was huge. You probably remember the news headlines: people having their loan applications declined over things as minor as Kmart shopping trips, buying coffees and spending “too much” on their pets.

Meanwhile, those that could still get a loan often found that their borrowing power had been significantly reduced.

The 2021 rules were met with widespread criticism from the outset. Squirrel founder, JB (John Bolton) helped lead the charge, even taking a petition to Parliament in an effort to get the laws amended.  

So, how well does the new version of the Responsible Lending Code address problems with the previous iteration?

In short, Squirrel welcomes the changes.

The new version of the Code strikes the right balance between reinforcing lenders’ responsibility to protect vulnerable borrowers and giving them room to decide how much caution to exercise (and how extensive their credit enquiries need to be) in determining whether or not a borrower meets affordability requirements.

Our lenders, particularly our big banks, are experts at this stuff, and so it feels appropriate that they be trusted to do this job—and do it well.

It’s great to see common sense prevail in the end.

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

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