Home hunters and other borrowers may have to wait longer for a loan

Borrowers may soon have to wait longer for loan approval and face more questions due to changes in consumer credit law.

Under the Credit Agreements and Consumer Credit Act, lenders must already
be confident that the person borrowing from them can make the repayments without experiencing significant financial hardship.

But from December, they will need to provide records of all their requests, including their assessment of why they were satisfied the loan was both appropriate and affordable.

Banking ombudsman Nicola Sladden said the changes could mean that some loans that may have crossed the line in the past have not been approved and warned that the application process could take longer.

“Loan applications will be more complete and likely take longer, so we encourage you to plan ahead. “

Sladden said she expected to see an increase in complaints and inquiries as a result of the change.

“There can be the right balance between customer protection and convenience. “

The Bank Ombudsman Program recently received a complaint from a man who was concerned about his bank’s lending decisions.

The man had found a property he was eager to buy and sought approval from a bank for a loan for the auction which was due to take place in three days.

Unfortunately, the man did not have all the information the bank required and when he asked the bank to give him conditional approval so he could bid on the day they turned him down.

The scheme revealed that the bank had acted fairly despite the tight deadline to review the loan application.

Sladden said last-minute approvals were even less likely to be accepted under the change in law.

“If you are looking for accommodation, arrive early and ask the bank what you need to do to prepare.”

Sladden said lenders may need more information to assess whether the loans are affordable, including recent and reliable evidence of income (including any foreseeable changes in income), debts and expenses.

She said the changes applied to small loans, changes to existing loans, or credit limit increases.

“Beginning in December, it is explicit that all lenders must complete full affordability assessments, even for a simple top-up credit limit. “

Sladden said the changes would help protect consumers from unaffordable debt, including some past credit card lending practices, such as a case in which a woman who made $ 27,000 on ACC was able to receive a raise in the credit limit of $ 24,000 in 2016.

“The new requirements will help ensure that all lenders do a full job of understanding their clients’ circumstances before approving a loan.”

Sladden urged borrowers to allow sufficient time to go through the lending process with their bank and to be patient.

“Remember that banks are not allowed to give loans unless they go through this process.”

Borrowers should also be prepared by asking their bank what they need and gathering all recent information about their income, debts and expenses.

“Be clear about the reason for your loan, the amount you need and why. “