CCCFA Rule Change Will Re-expose Affordability Crisis

Despite the recent amendments, the frustrations experienced by borrowers and lenders around the Credit Contracts and Consumer Finance Act’s (CCCFA) new affordability rules reported in the media, is not due to poor legislation, but instead banking technology which is still under development, and lenders who aren’t experts in how people spend their money.

Financial coach and founder of Affordit NZ, Shula Newland said: “The rules were good, but it is just very hard to determine how people spend money, or to have conversations around how they could get affordability.

“The new amendment rules will now open up the door to “made up” budgets again which look to the future without first understanding the past – which is the perennial problem confronting lenders.”

Having worked daily with regular Kiwi families, helping them get ahead and achieve true affordability for the things they need and want, Newland says the fact that so many people were declined is not so much an indictment of the new rules, but of the dire financial predicament that many Kiwi families are in; they just don't realise it.

To help solve the problem of affordability, Newland recently founded www.affordability.co.nz – a social enterprise website designed to help people who do not meet affordability criteria to rehabilitate their financial situation, or access credit from more responsible sources if their situation is dire.

Newland says that the methods lenders and brokers use to assess affordability are “pretty clunky”, while the consequences for breaking the law are severe.

“This leads to time delays and more conservative decision making, and it is why some lenders may have been perceived as overzealous in their application of the new rules.

"Accurate and quick technology that can properly assess affordability just doesn't exist at the moment, which means lenders need to manually check everything, and that's a reason why we're getting some marginal decisions."

Newland says that while there has been some publicity in the media about the increase in credit rejections, it is not something she has witnessed yet.

If anything, Newland says she is seeing mortgages approved for higher amounts than is affordable because income streams, like additional overtime, have been affected by Omnicom.

"We are happy to do a free review if you have been declined a loan and think you did have affordability or vice versa – we can look at your True Affordability and assess whether the decline or approval was reasonable, and discuss options for you to prove your affordability.

“We recently helped a client that got into their own home before the new affordability rules started. They borrowed from a non-bank lender, but their income had dropped and interest rates are rising. Now they can barely afford the loan repayments and will likely need to sell their home.

“This is not a good thing when the market is dropping, and is an example of why the rules were introduced. It is the reason why banks sometimes need to err on the side of caution.”

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