National says it will stop banks asking intrusive questions of borrowers’ spending habits when they apply for a loan, but the bigger issue, says Bayley, is while he can make regulatory changes and remove some of the liabilities and requirements, “the CCCFA rules are now sort of semi-embedded in banks”.
“And that cultural change is going to be quite an issue. I think we can make the changes, but actually driving those changes through the banks is going to be difficult,” he says.
“The question is how we get banks back into the game of doing what they should be doing, which is lenders to the market. They have the discretion, sophistication and capability to do that, that's what we should be working on.”
He wants to take the CCCFA back to the original 2020 65-pages of regulations focused just on high cost lenders. “What we want to do is repurpose it towards what was Parliament's intent.
“Instead of having a prescriptive approach, we would rather say here is the boundary we want you to work within. Now, you work out what's right for your specific business. If you get it wrong, we'll be after you.”
Penalties for banks could go
Financial organisations say one of the biggest changes any Government can make to the CCCFA is relaxing the obligations of directors and managers who can face personal liability and a penalty of up to $200,000 if they get things wrong. They cannot be insured against this.
Bayly says he has not got inside the penalty aspect of the CCCFA but he wants to take banks out of it. In a large bank, for instance, the directors wouldn't have a clue what's going on amongst the 8,000 lending people, and nor should they. It's not what their role is, it is governance.
However, he wants to make sure there are adequate penalties for high cost lenders who are preying on people. “The principle is if a lender preys on someone and disadvantages them severely and deliberately, then they should pay the top fine.
“The trouble is, all legislation assumes directors must be sued and be liable for all sorts of stuff. In some cases, the liability should sit with management. So in reframing the CCCFA, we will look at all those sort of issues and try and get the principles right.”
Wider social problems
Problems with the CCCFA, says Bayly, are wide ranging and need never have got to this stage if MBIE had been stopped from putting its finger into the pie.
“It was originally all about stopping or reducing the likelihood of predatory lending to vulnerable New Zealanders. Everyone in Parliament agreed with that, but MBIE rewrote the original 65 pages of regulations, adding prescriptive rules, such as lenders having to ask borrowers if they had a Netflix or gym subscription and other intrusive questions.
“It was like someone in MBIE decided to become a banker and write a report about how to assess credit, even though banks were already sophisticated about assessing credit.
“The minister was then was stupid enough to take that advice and issue that new CCCFA regulations that came to 104 pages. Advice to the minister from lenders, banks, FSF, Financial Advice NZ, and the Banking Association that the rules were going to be too restrictive was ignored. Banks and all the mainstream lending organisations are now captured under these new rules, as are the high cost lenders.”
Bayly says it is even worse because it has become a social issue when it originally was an economic issue – people were paying too much interest on valid loans. As a result, banks estimate about 5-10% of lending stopped – lending they would have agreed to before the CCCFA regulations.
Adding to the pressure is second-tier lenders say they used to take two to three hours to assess a borrower’s credit for a loan, he says. On that basis they could afford to do 2,000 $3,000 loans a year.
“Now it takes the lenders eight to ten hours to assess a loan because of the CCCFA’s prescribed questions they need to ask a borrower. The minimum amount many now lend is $10,000 because the cost of the extra time and paperwork needed has gone up. Anybody wanting to borrow $600 for car repairs is precluded.
“So where we have ended up is with a big social issue. Some vulnerable borrowers have gone to likes of outlaw bikey gangs and their ilk and been ripped off.”
He says the big picture for National is the country’s overall financial architecture and that will take some time of sort out.
