New Zealand Banking Association notes potential $12.9bn impact sans reform
The New Zealand Banking Association (NZBA) has shared that one scenario in an analysis by the Reserve Bank estimated that provisions of the Credit Contracts and Consumer Finance Act 2003 could have a $12.9bn impact on the financial system.
“The Reserve Bank’s analysis helps to quantify the potential risk to New Zealand’s financial system if the law is not corrected,” said Roger Beaumont, NZBA chief executive, in a media release.
“It reveals a risk of almost $13 billion in cases of incorrect disclosure where consumers may have suffered no harm,” Beaumont added. “That’s money that cannot be used to lend to consumers, businesses, and farmers.”
In a ministerial briefing, a summary of Reserve Bank modelling addressed three scenarios approximating the possible effects of improper loan information disclosure on banks’ ability to comply with their capital requirements.
The NZBA stressed that the analysis noted that other scenarios could lead to “much more severe” impacts.
In its media release, the NZBA explained that lenders should disclose loan information to borrowers under the Credit Contracts and Consumer Finance Act.
The NZBA stressed that the existing consumer lending law could potentially compel lenders making minor errors, such as wrong phone numbers, in the information given to customers from 2015–19 to return any interest and fees paid until the correction.
In its media release, the NZBA said the impact upon lenders under this interpretation was wholly disproportionate to the technical legal violation, especially if the mistake did not harm the consumers.
Beaumont, on behalf of the NZBA, said the association supported planned changes to remedy this “anomaly” in the consumer lending law.
“At a time of economic recovery and global uncertainty, the last thing New Zealand needs is the risk of this scenario playing out,” Beaumont said in the media release. “It shows why the law is bad and needs to be fixed.”
Beaumont noted that the proposed adjustments would not prevent consumers or regulators from initiating action against lenders for information disclosure breaches and would not interfere with proceedings pending with the courts.
“Rather, it would simply ensure that any remedy would be just and equitable,” Beaumont said in the NZBA’s media release. “It would be up to the courts, as it should be.”
Back in mid-May, the NZBA announced that the banking industry welcomed the Credit Contracts and Consumer Finance Amendment Bill’s first reading, with all 17 of its members backing the proposed changes.