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Navigating the New Lending Rules

On December 1, 2021, the laws around lending money to consumers in New Zealand were changed. Under the new regulations, all lenders are required to follow robust processes to determine a borrower’s income and expenses, in an effort to ensure lending is both affordable and suitable. If you are considering borrowing money – whether a new loan or topping up – it’s important you know how these changes affect you and what to expect as a borrower.

What’s changed?

To help protect consumers in New Zealand against taking on debt they cannot afford, Government has made some changes to how money can be lent. Under the Credit Contracts and Consumer Finance Act 2003 (CCCFA), stricter duties have been imposed on all lenders, including banks, around how they make inquiries and verify information, to ensure any lending is both suitable and affordable.

While the changes aim to protect New Zealanders from predatory lending by high-cost lenders, the rules apply to both new customer lending and existing lending. Which means any time you apply for a new home loan, car loan or personal loan, or you top up your mortgage, extend your credit card limit, or apply for any type of credit, these new requirements will impact you.

The changes to rules have meant an increase in the time it takes to process a loan application, because lenders will now have to follow a number of extra steps. Rules around checking affordability in particular are stricter and require lenders to scrutinise a borrower’s income and expenses in far greater detail.

Borrowers will be asked more in-depth questions about their finances and may find it harder to get credit which, in the past, they would have had no problem getting approval for. Where previously lenders had some ability to use discretion when assessing a borrower’s financial situation, from December 1, lenders will be required to collect more information and ensure the applicant has sufficient means to pay back their loan before approving.

How do I prepare?

As a borrower applying for finance under the new CCCFA regulations, it’s important that you:

  • Act honestly and provide full and accurate information.
  • Check that the lending you are applying for is suitable and affordable for your circumstances.
  • Check that you have 90 days’ worth of bank statements from the account you use to pay your expenses.
  • Provide evidence of your income in the form of payslips or on your bank statement.
  • Track your spending in a budget – have a good idea of how much you spend on food, utilities, travel and other expenses every month.
  • Cut down on discretionary spending and pay down expensive debt before you apply.

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