Industry wants minister's ear over CCCFA
Financial Advice New Zealand is seeking an urgent meeting with the Minister of Commerce and Consumer Affairs as the impact of the CCCFA continues to snowball.
Thursday, December 23rd 2021, 2:39PM 
2 Comments
by Eric Frykberg
It says as an industry it supports measures to protect consumers and it understands the law changes were intended to do just that.
But the detailed information on spending habits demanded of would-be borrowers is backfiring, the organisation says.
It says borrowers who could previously obtain finance and service those payments for their home are often locked out of obtaining finance in the future.
In a letter, the organisation’s chief executive Katrina Shanks cites the example of a person who tried to obtain a mortgage after a separation being declined due to not meeting the new affordability criteria.
The consideration for the declined application included a number of takeaways on their bank statement being classified by the lender as non-discretionary food instead of discretionary.
In the same example judgment calls were being made by the lender that purchasing one Lotto ticket in three months was excessive and was considered gambling.
The applicant had two children and the lender considered they proved to be a financial burdon, even though the same two children existed before the act was passed.
In another case, a was preapproved for $950,000 with sound servicing. Due to the changes in regulations, they can now borrow only $800,000 despite strong stable incomes.
Shanks says the minister should agree to meet to discuss these impacts on ordinary people.
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Comments from our readers
Or any tithing at all in fact even though in the real world at applicable interest rate they actually can.
And of course in discussions they agreed would possibly have to cut down in future because the mortgage has to get paid.
Real world discussion.
The bank asked for written confirmation they will cease all tithing. ???
I understand why the bank feels obliged to do this because of the CCFA, they can't knowingly allow a client to go into hardship as defined by the model and the law.
The law of unintended consequences for sure
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Banks have always been extremely cautious lenders anyway and the proof is in the extremely low mortgage default stats, it’s just not good responsible business having customers default on their loans.
Prior to CCCFA banks In NZ as responsible lenders already had stringent mortgage lending assessment criteria in place when assessing customers as potential borrowers, LVR/s (loan to value ratios) UMI’s (uncommitted monthly income tests) employment stability, account conduct, spending habits, fixed expenses, expense allowances for numbers of dependents, for larger family’s credit rating, high test rates, income shading, etc etc etc.
Australian banks have been applying this type of criteria for decades and in my opinion have been some of the most stability sound banks in the world, Australasian banks came through the GFC virtually unscathed with low mortgage default rates, all because of this, I think.
After analyzing customers spending habits for 15 years plus now, I see some common themes.
When we don’t have a mortgage to fund our spending habits are not the same as when we are funding a mortgage.
We generally have a lot of surplus income to spend or save as we see fit (discretionary spending) so when a chunk of the UMI (uncommitted monthly income) is now put aside to fund a mortgage our spending habits change.
The mortgage always gets paid first (similar to paying rent), surplus income spending changes too, we tend to purchase retail items more associated with the house (kiwis are great DIY experts) and we have other fixed expenses like rates and insurances, all this before we decide to go out for dinner, and don’t even get me started when kids come along.
So getting back to “’discretionary spending”’.
Customer spending habits are also seasonal, that means we spend more and less at certain times of the year, for example Xmas time or consumer spending goes nuts, after the holidays we see a drop off, there are also differences in winter /summer spending as well, power being one of them,
CCCFA looks more closely at “’discretionary spending”’ and can actually include some of that discretionary spending as ä fix expense”.
Examples of this are
Putting away $ 200 per week savings could be classed as a fixed expense. (which seems a little counterintuitive as showing you have the ability to save shows you can fund a mortgage) .
Donations that are paid monthly. Fixed expense
Eating Uba eats every week. Fixed expense
Afterpay /Laybuy credit facilities that have a nil balance and can be closed but were used previously over a 3-to-6-month period, the average historical payments now become a future expense weather you use the facility or not.
You start to get the point that under the New CCCFA rule changes we seem to be analyzing customers discretionary spending at a very small snap shop in time which may not reflect their true ability to become a responsible borrower.
Maybe once again we have a governing institute dictating policy without understanding the actual on the ground workings of banking and responsible lending and borrowing.