Lending probe investigative leads made public

Details of the impending investigation into tough new lending laws have been revealed.

Late last year, the government introduced amendments to the Credit Agreements and Consumer Credit Act (CCCFA) which were aimed at cracking down on loan sharks.

The new rules have caused banks to take a closer look at the spending habits and personal finances of mortgage applicants, resulting in mortgages being turned down because they spend money on things like Kmart shopping, restaurants and Netflix accounts.

A mortgage broker described it as a “forensic analysis” on someone’s bank accounts.

Earlier last month, after days of public pressure, the Minister for Commerce and Consumer Affairs, Dr David Clark, ordered an investigation, to be conducted by the Council of Financial Regulators (CoFR), into whether banks had overreacted to the new lending laws.

Yesterday, the terms of reference, which describe what the investigation will cover, were made public.

The survey will analyze the reported results of changes to the law, whether they achieve intended protections, whether they have unintended consequences, and how other external factors, such as the global economic situation, contribute to the current situation.

Dr Clark said in a statement that he approved the inquiry’s terms of reference over the weekend.

He had asked the leaders of the main banks in the country to meet him this week.

“It is important that we find out exactly which aspects of the CCCFA responsible lending rules were not being followed by some banks before.”

Anecdotal evidence to date suggests the new loan requirements have presented a greater challenge for some parties, he said.

Dr Clark has asked the CoFR for a preliminary analysis by mid-February, with a final report expected in April.

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Board missions

The Board of Financial Regulators should —

  • Examine the changes observed.
  • Investigate the causes of the changes.
  • Evaluate the impact of changes to the law on credit agreements and consumer credit.
  • Identify possible actions from here.

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