Photo: RNZ
The Commerce Commission's market study into personal banking services has unleashed a torrent of negative feedback on the current state of sector competition.
The commission received 38 written submissions to its study, including those representing the interests of the big four Australian-owned banks, as well as New Zealand-owned banks, non-bank financial institutions and bank customers.
Among them was a joint submission by New Zealand's Co-operative Bank, Kiwibank, SBS Bank and TSB Bank, which highlighted the relative competitive advantages the big banks had over New Zealand's banks, which they wanted addressed.
But most scathing was a report by the Financial Services Federation (FSF), which singled out the Credit Contracts and Consumer Finance Act (CCCFA) as the one piece of legislation or regulation that has done more to stifle innovation and competition than any other.
FSF executive director Lyn McMorran said the CCCFA disadvantaged its 94 members, which included a number of financial organisations, such as credit unions, building societies, and their 1.7 million customers.
For example, she said the government passed regulation to allow registered banks to waive the affordability assessment requirements of the CCCFA in order to assist customers seeking relief from mortgage payments during the Covid-19 lockdown, but the non-bank sector was not granted the same allowance.
She said many federation members decided to help their customers anyway, despite being seen to be in breach of the CCCFA.
McMorran said the CCCFA had also made it difficult for bank customers to shop around for a non-bank lender, as the legislation remained overly restrictive despite some minor tweaks made to the legislation last year, creating a consumer class of "mortgage prisoners."
"We believe that it's probably created an underclass of people who are unable to get access to credit from a responsible provider, whether that be a bank or one of our members. Because if it doesn't strictly meet the criteria and even tick every single box, then the lender is just not going to be able to help them."
McMorran said the CCCFA was just one example of badly written legislation that was not fit for purpose.
"So we just wanted to make sure that regulators consider that when they're making regulation, when they're changing things, that it doesn't just affect banks. Non-bank lenders are equally as important for the competition and innovation that they provide," she said.