Interest-rate breaches bring warning

Press, 12 April 1984, Page 1

Interest-rate breaches bring warning

Parliamentary reporter

Life offices have been threatened with having the tax concessions on their premiums removed because of breaches of the interest rate regulations.

The Prime Minister, Sir Robert Muldoon, issued the threat after members of the Government caucus yesterday reported complaints in their electorates against lending institutions which were not “playing the game” by the regulations. Sir Robert said he was not entirely happy with life offices, and he warned that he could consider measures taken by the British Chan-

cellor of the Exchequer, Mr Nigel Lawson, in his recent Budget. “That had some interesting changes for life offices,” Sir Robert said. “But I am not making any kind of promise on that.” Mr Lawson’s Budget, presented last month, eliminated special tax treatment for investments in insurance and pension plans.

Sir Robert said that finance houses were also “a bit of a problem.” Some were playing the game and some were not. He said that the Finance Houses’ Association was “a bit apologetic” about those not playing the game, and

had asked for some type of policy that targeted those that were not. “That is worth looking at,” Sir Robert said. Other penalties Sir Robert considered available against what he called the “delinquent institutions” were: • Targeting higher asset ratios on the offending companies, so that they would have to hold a higher proportion of low-yielding Government stock than other institutions, • “Correcting” mortgage contracts, in which a lender has changed its policy and lent more on second mortgage than it would have

done previously. Sir Robert conceded there were anomalies and difficulties which were being watched constantly. “If any change in policy is necessary, it will be made,” he said. “I have no changes of policy in mind at present but we are looking at targeting the delinquent institutions as against those that are toeing the line.” Sir Robert said a penalty was open to the courts already under the Credit Contracts Act. The Deputy Prime Minister, Mr McLay, had told the caucus that once a loan was finalised, if an offence had been com-

mitted, the court had the power to correct the position, but the contract still stood.

Some life offices appeared to have reduced the amount they lent on first mortgages and “greatly” increased the amount lent on second mortgages, so that the loan was predominantly at 14 per cent.

Sir Robert said that if this represented a change in policy and could be substantiated, it was an offence. The difficulty, however, was in substantiating the change of policy. In many cases, the borrower was borrowing from the institu-

tion for the first time, and some borrowers could be reluctant to complain for fear of losing the mortgage altogether. Sir Robert also quoted a case involving a finance house, which he said was selling up a borrower because the finance house claimed the regulations prohibited it from renewing his mortgage. “What they mean by that is ‘The regulations prohibit us from renewing your mortgage at an interest rate that is acceptable to us,’ and they are selling him up,” Sir Robert said. He would not disclose the name of the company involved but said the bor-

rower did not mind as he was a very wealthy man who believed the company should receive “appropriate” publicity.

Sir Robert said, nevertheless, that the general opinion from his caucus members was that the interest rate policy was well received. “The information that I get from the caucus is that the methods are far less important than the fact, and this is coming back very, very strongly from all round the country, that people want interest rates down. They are far less interested in the method by which they are brought down,” he said.