The Government has tweaked regulations to make it easier for those affected by extreme weather to borrow money from their banks or other lenders.

It has amended the Credit Contracts and Consumer Finance Regulations 2004 to exempt lenders from doing affordability tests on prospective borrowers.

Lenders won’t have to make inquiries about whether flood/cyclone/slip-affected borrowers can repay debt, and whether the guarantor will be able to comply with a guarantee without suffering substantial hardship.

The “emergency relief” exemption applies to individuals - not businesses - seeking an overdraft or home loan worth up to $10,000.

To qualify, borrowers need to have been affected by bad weather in the upper North Island in January and February.

The Credit Contracts and Consumer Finance (Exemption for Emergency Relief) Amendment Regulations 2023 specifies the “upper North Island” covers Auckland, Bay of Plenty, Northland and Waikato.

The regulations might be updated to include other cyclone-affected areas, such as Hawke’s Bay, a spokesperson for Commerce and Consumer Affairs Minister Duncan Webb told the Herald.

The home loan or overdraft contract needs to be entered into before March 31.

The maximum term of credit provided under the exemption is 12 months in the case of a revolving credit contract or a “period that is reasonable in any other case”.

The borrower needs to be an existing customer of the lender to make use of the exemption.

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The regulations include some conditions aimed at preventing vulnerable borrowers from finding themselves in a debt spiral.

They specify that if a borrower struggles to repay the debt, the lender must help the borrower avoid “suffering substantial hardship” by refinancing the credit contract on affordable terms, granting interest relief, or reducing the debt owing, for example.

The Government was due to unveil the regulations, which came into force on Monday, on Wednesday.

However, the Financial Services Federation, which represents finance and leasing companies, drew attention to them ahead of time by issuing a press release complaining about the exemption’s coverage.

The organisation’s executive director Lyn McMorran argued overdrafts and home loans weren’t the appropriate products to provide emergency assistance.

“An overdraft is likely to be unsecured lending and therefore the cost of credit would be greater than that of a personal loan secured over the goods being purchased,” she said.

“The fact that an overdraft facility does not amortise over a specified term like a personal loan does, will mean that the borrower could be left with a hardcore debt with compounding interest being charged on it each month.”

The Herald approached Webb to respond to McMorran’s concerns ahead of making his formal announcement, but he was tied up with more immediate cyclone-related issues.