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Major overhaul of lending regulation recommended

Wednesday August 6

Report recommends major overhaul of lending regulation and consumer protection

Finsec, the finance workers union, has released a report today that recommends a major overhaul of the regulation governing lending by financial institutions and proposes the establishment of a new agency to act as a watch dog of the industry.

The report comes at a time when the level of New Zealanders household debt relative to assets and income is at an all time high.

"Urgent action is needed to clean up the unfair and unethical aspects of New Zealand's lending market. We recommend the establishment of a lending code and a social responsibility code that all lenders must follow, and the set up of a watch dog agency focused on ensuring all lenders adhere to the codes," said Andrew Campbell, Finsec Campaigns Director.

"Lenders in New Zealand are largely unregulated and many make their business out of preying on the most vulnerable in our society. The growth of loan sharks is of significant concern, however we shouldn't forget that most of the major banks also require their staff to push debt products onto customers," said Campbell.

"We need to curb the free market of debt in order to build a more stable economic future for all New Zealanders. Lenders have a role in acting ethically, informing customers of all their options and developing products that maximise long term financial security for customers rather than focusing on their own short term profit," said Campbell.

"The time for a real change on these issues is now. Much more needs to be done to build confidence in the financial system and minimise the level of customer indebtedness. New Zealanders need to take back some control of our financial system, rather than letting lending institutions run free," said Campbell.

"We call on all political parties to support the proposals to build a more just financial system that promotes responsible and ethical lending practices, "said Campbell.

For copies of the full report please contact Andrew Campbell at Finsec.

The report will be launched at in the Beehive at 9am tomorrow, Thursday August 7.


Summary of lending report recommendations

Recommendation 1

An independent Financial Consumer Agency, co-funded by the industry and government, be established to oversee the workings of the financial sector.

Recommendation 2

A New Zealand Code of Lending Practice be established. The finance industry, including consumers, workers and other stakeholder representatives would all be involved in the development and establishment of the Code. Compliance with the Code would be proactively monitored and enforced by the Financial Consumer Agency.

Recommendation 3

A Code of Social Responsibility be established for the finance industry

Recommendation 4

The Financial Consumer Agency (see Recommendation 1) shall oversee the implementation of the Code of Social Responsibility.

Recommendation 5

Amend the Reserve Bank of New Zealand Act to require the Reserve Bank to license and supervise any financial institution performing financial functions that is of a size or nature that could pose a risk to soundness of the financial system.

Recommendation 6

The Reserve Bank's supervisory arrangements be strengthened by introducing minimum liquidity requirements, targeted use of on-site assessments of banks' risk management, governance and lending practices, and taking into account best international practice.

Recommendation 7

Amendments be made to the supervision of non-bank deposit-takers that provide for:

* An objective of transparency of risk;

* A clear set of delineated responsibilities established for the Reserve Bank, for the trustee corporations, and for the Securities Commission as co-regulators of the system;

* Requirements established on capital adequacy; lending to related parties; responsibilities and accountabilities for the board of directors; risk management systems; and liquidity;

* Strengthening of trustee-based supervision.

Recommendation 8

The Government undertake a review of the disclosure requirements of financial institutions for the purpose of improving disclosure practices.

Recommendation 9

New Zealander's financial literacy, education, information, and counselling be improved through increased government funding to registered not-for-profit financial or budget advisory services.


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