New rules to protect Kiwis from unaffordable loans

Commerce and Consumer Affairs

The Government is making sure all consumers who borrow money get the same protections, regardless of where they get their loans.

“Building on the work to crack down on loan sharks last year, we’re now making the rules clearer for all lenders to help protect borrowers from unaffordable loans” Minister of Commerce and Consumer Affairs David Clark said.

“Lenders currently have high-level obligations to check that a borrower will be able to pay back a loan, but there are hundreds of lenders, and some are much less careful and diligent than others.

“Around 20 per cent of repayment problems experienced by Kiwi borrowers are thought to be due to the cost of the loan itself. We know that the harm caused by unaffordable debt is serious and long-lasting. We need to support all lenders to do a more thorough job of understanding their customers’ circumstances before approving a loan.

“We are making changes to ensure that the rules are clear, consistently applied and easy to enforce if they are broken,” said David Clark.

Before approving a loan, all lenders will need to:

  • make consistent inquiries about the borrower’s needs and objectives, to help ensure the credit product is suitable
  • verify the borrower’s income and expenses to be satisfied that the repayments are unlikely to put the borrower into significant hardship.

“The requirements are part of a suite of changes to protect consumers from high-cost loans and unaffordable debt. Last year we took action to take the bite out of loan sharks with changes to the Credit Contracts Legislation Act. These new requirements also mean that all lenders will need to do income and expenses checks when considering whether to grant a top-up loan or increase a credit limit,” said David Clark.

“During this period of financial uncertainty, it will be more important than ever that people don’t take on debt that will ultimately put them in even more difficulty long term.

“If people are in financial hardship, there are other options besides taking on a loan. I encourage them to contact MoneyTalks to find out what support is available.

“The detailed requirements will be complemented by the Responsible Lending Code, which provides guidance for lenders on their obligations. We will soon be consulting on the Code to ensure it is updated in time for the new requirements coming into effect next year,” said David Clark.

The new lending requirements come into force on 1 October 2021 under the Credit Contracts and Consumer Finance (Lender Inquiries into Suitability and Affordability) Amendment Regulations 2020 allowing time for lenders to implement them. More information can be found here.