A set of rules, introduced last year, was put in place to stop loan sharks from taking advantage of people.

But these rules have gotten “out of control” with people wanting a loan being judged for buying drinks at cafes, watching Netflix or using Uber, an expert says. 

People can get loans - borrowed money from an organisation or individual that is usually paid back with interest - from banks and other organisations, and there are lots of reasons why people might want to get a loan in Aotearoa. 

You might want to buy a car, go on holiday or even buy a house. 

But spending money on things like coffee and streaming services like Spotify can now be used as a reason to decline your application for a loan. 

These new rules, officially called “suitability and affordability” guidelines as part of the Credit, Contracts and Consumer Finance Act (CCCFA), require lenders to decide who gets a loan based on what people spend their money on. 

Re: asked young people in Auckland if they think they could get a loan approved under these new spending restrictions. 

They all said no as they spent their money on eating out, alcohol purchases and Netflix.

However, Kyrn Tanuvasa, said these purchases were not a good reflection of their ability to pay back a loan. 

“A lot of people spend money on recreation, but that doesn’t necessarily mean they don’t have the money to get a house or repay a loan,” the 19-year-old said. 

Simran Kaur, 24-year-old co-host of podcast Girls that Invest, said despite having made a career out of being financially savvy, she did not think she could get a loan approved under these new regulations based on her purchase history.

When she was saving for her house, she felt a lot of guilt around things like going out with friends, or going on holiday. 

Speaking to Re: while on holiday in Queenstown, Kaur says that trips like this would have excluded her from purchasing her home if she was looking to buy it now.

Instead of encouraging better spending habits, the regulations were pushing many people to hide their recreational purchases by, for example, getting cash out on supermarket trips, Kaur said.

While there need to be regulations to make sure people are not getting in over their heads with debt, the line that has been drawn with these regulations were too strict and needed to change, she said.

“When it gets to a stage where people feel like they have to go behind the banks back to have these spending, it shows how out of control it has gotten.”

“I do see where the law came from. There are a lot of unregulated ways people are getting loans and they need to be protected,” Kaur said. 

“But what has really happened is that even more people are being pushed out of the housing market.”

Roger Beaumont, chief executive of the New Zealand Banking Association, said since these rules came into effect, a “significant pattern” has emerged of people who would previously have been approved for a loan, now being declined based on what they spend their money on.

Previously, banks would look primarily at how much money a customer had coming in and  compare that to how much they were spending.

The banks would then make loan decisions based on this, Beaumont said.

Under these new rules, banks have to thoroughly look over someone’s purchases from the past 90 days and base their decisions on specific purchases.

Data from credit reporting agency Centrix shows mortgage approvals have dropped 23 percent since the introduction of these regulations.

There have been multiple reports from media outlets of people having their loans declined because of their purchases or having to change their lifestyle in order to try to get a loan.

One woman was prevented from getting a mortgage - a loan used to buy or maintain a home - because of a $187 Christmas shopping trip at Kmart. 

A 21-year-old “lived like a hermit” and reduced trips to see friends and family because his petrol costs were considered too high. 

One woman said she and her partner had their preapproval for a loan withdrawn. After an assessment, the woman said she was told she spent too much money on their dog.

Beaumont said banks were not happy about the impacts of these new rules. 

“They flagged strongly and repeatedly that this would happen. With these regulations, it will mean people who previously would have gotten a loan approved aren't getting their loans approved.” 

Minister of Consumer Affairs David Clark has ordered an inquiry into the new regulations and after that review, Beaumont said banks will work with relevant ministers and MBIE to understand the issues. 

“Then we can determine what changes need to be made to avoid some of these unfortunate stories.”


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