Getting our money lending right

The laws that govern our money-lending landscape are in for another shakeup.Law makers tread a tricky tightrope when it comes to getting money-lending rules right.The Credit Contracts and Consumer Finance Act is a mouthful of a law that has far-reaching effects for would-be borrowers. Make it too easy to get cash and vulnerable people end up in debt. Make it too hard and potential home buyers become perpetual renters. In yet another shakeup by the new government, the rules are changing again. The Detail today talks to a property investment firm and a social service organisation to get their views on where the laws should sit, and the dangers of swinging too far one way or the other. Ed McKnight is an economist at Opes Partners, a property investment firm, and co-hosts The Property Academy Podcast."What this law is all about is making sure that people who go to get out a loan, whether that's a mortgage or a personal loan, whatever it happens to be, that they can actually afford it," McKnight says."If you're a lender and you're giving somebody some money that they then have to pay back, you're in a bit of a position of power. So it's all about making sure people who are lending out money are treating borrowers fairly."The previous Labour government brought in various changes to try to protect borrowers - but some of these got a lot of criticism."The rules became really prescriptive," McKnight says. "It said to all types of lenders, not just pay-day lenders but even the banks - and that's really where the issue - 'this is how you must assess somebody's mortgage'."McKnight talks about some of the rules lenders had to follow - such as counting gym memberships, tithing and even savings as ongoing expenses. If you spent too much you simply wouldn't get a loan."That's where it started to get a little bit silly, I think, and why they made changes quite quickly - only four months after they released the first version."The changes included removing discretionary expenses from affordability testing.But National's coalition agreement with Act states the government will "rewrite the Credit Contracts and Consumer Finance Act 2003 to protect vulnerable consumers without unnecessarily limiting access to credit". Commerce and Consumer Affairs minister Andrew Bayly is leading the charge. But what exactly these changes will be is unclear. "The only detail we've really got is a speech given to the Financial Services Council," McKnight says…Go to this episode on rnz.co.nz for more details