It is still not certain whether lenders can legally consider age when determining applications for longer term finance. Following recent amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) which require a lender to do an assessment of the borrower’s ability to repay a loan without substantial hardship, Andrew Shann again revisits the issue. Refer LawTalk 771(6 May 2011), 664 (17 April 2006), and 504 (17 August 1998).
There appears to be an increasing number of older people seeking to finance and refinance homes – particularly after coming out of broken relationships.
Grey Power maintains that increasing numbers of older people are being refused housing finance due to their age.
If older people are, in fact, being unjustifiably discriminated against then there could well be an issue. However, at the same time a lender now has the responsibility of assessing a potential borrower and needs to be satisfied that the loan applied for is unlikely to cause substantial hardship. I believe there needs to be a realistic balance on the issue.
Section 21(1)(i)(iii) of the Human Rights Act 1993 prohibits discrimination on the grounds of age commencing at 16. Section 48 contains an exception for age in relation to insurance facilities in circumstances that are considered justified. However, no such express exception exists to lenders regarding the provision of finance.
Section 97 provides a general exception where there is deemed to be a genuine occupational qualification or justification.
Section 65 prohibits indirect discrimination unless it can be shown that there is good reason for it. This may become relevant when taking a person’s remaining life expectancy into account as it could be seen to have the effect of differentiating on age. The meaning of “good reason” in s 65 may well invite parallel enquiry with s 97 when considering an exception for genuine justification. However, to date there has been no ruling in relation to age in the provision of finance.
Repayment ability
Recent amendments to the CCCFA require a lender to do an assessment of the borrower’s ability to repay a loan within the stipulated term.
In particular, s 9C(3)(a)(ii) of the CCCFA requires the lender to make reasonable inquiries before entering into the agreement so as to be satisfied that it is likely that the borrower will make the payments under the agreement without suffering substantial hardship.
There is also the Responsible Lending Code which attaches to the CCCFA, but the provisions of this are not binding as lenders are able to comply with the lender responsibility principles in other ways.
This Code makes specific reference to the prohibited grounds of discrimination contained in the Human Rights Act. It goes on to say that lenders must not refuse credit, or make it more difficult to obtain, on any of the prohibited grounds.
It stipulates that what is required in each case is an individualised assessment of all of the borrower’s circumstances to assess how the principles apply to that particular borrower. This could be interpreted as saying that a lender should not adopt an overall policy that might infringe on the prohibited grounds of discrimination, but a lender might be justified in taking individual circumstances into account if it seems likely that infringing on a prohibited ground might avoid the potential borrower from suffering substantial hardship.
Because mortgage finance frequently involves a term of a number of years, age may well determine a borrower’s ability to perform the contract.
However, it remains to be seen at what point a lender would be justified in taking a person’s age into account when assessing a request for long-term finance.
The Responsible Lending Code also states that a lender should be satisfied that it is likely that the borrower will make the payments under the agreement without undue difficulty as well as:
a) meet necessities; and
b) meet other financial commitments without having to realise security or assets – other than any security or assets that the borrower is, at the time of approval, willing and intending to dispose of or realise the value of.
It is also important to note that, as people age, living expenses such as power and medical requirements usually increase.
Personal view
In view of the above recent changes to the CCCFA my personal view is that if a 62-year-old borrower in reasonable health seeks a 20-year housing loan and has substantial superannuation that will commence at 65 which will adequately cover the loan repayments and other expenses, then I do not believe a lender would be justified in declining the loan because a 20-year term would be within the borrower’s reasonable remaining life expectancy.
However, if such a borrower has little provision for superannuation or maturing funds at retirement and seeks such a loan, a lender may possibly be genuinely justified in declining it.
Another factor to consider is that even if an older borrower has substantial superannuation in place, they may have a spouse of a similar age with little earning capacity or superannuation in place. This could raise an issue if the main income earner’s superannuation terminates on death.
In Avis Rent A Car Ltd v Proceedings Commissioner (Human Rights Commission) CRT 28/ 97 (16/ 98) the then Complaints Review Tribunal was asked to consider whether Avis’ refusal to rent cars to drivers under 25 was “genuinely justified”.
The Tribunal found the plaintiff (Avis) had presented sufficient evidence (mainly road accident statistics) to “genuinely justify” its practice of refusing to rent cars to drivers under 21. However, the Tribunal found that Avis was not “genuinely justified” in refusing to rent cars to drivers aged 21-25 years old.
The Tribunal went on to find that different terms and conditions of rental for drivers aged 21-25 years were “genuinely justified”. Very significantly, the Tribunal held that the power in s 97 would be exercised in exceptional cases only.
Accordingly, it still remains to be seen whether declining a loan due to age in the second circumstance above would be regarded as exceptional when a lender has the ability to take adequate security when providing finance. It will be for the lender to satisfy the evidential requirements of the exception.
Supreme Court
In GE Custodians v Bartle and Ors [2010] NZSC 146 the Supreme Court appeared to make an observation without reference to the Human Rights Act. At [52] the Court stated that the lender throughout knew that the Bartles’ were of retirement age and that “the potential term was a long one for people of the Bartles’ age but it must have seemed unlikely that the right of early repayment would never be exercised”.
The Court in this paragraph treated the Bartles’ age as a factor that a lender could take into account when determining a lending application.
Since the prohibition of age discrimination is so prominent in New Zealand and has been in force for over 20 years, one might argue that the Court had considered this but still believed that in the circumstances a lender would be genuinely justified in taking age into account. However, if this was the case then the Court surely would have at least noted the provisions of the Human Rights Act.
Whether or not the Court took into account the prohibition of age discrimination in the provision of services, the view taken by it could nonetheless be seen as being within the boundaries of the discretion allowed under s 97. This has been left to the Tribunal and courts to interpret.
Australia and Canada
Further, what the Supreme Court made reference to could also be seen to be in line with s 37(4) and (5) of the Australian Age Discrimination Act 2004 (Cth) which provides a specific exception for age in the provision of finance where “differentiation is based on actuarial or statistical data on which it is reasonable for a lender to rely, and is reasonable having regard to the matter of data”.
The Australian Human Rights Commission has recently advised that it is not aware of any judicial rulings on this part of the Act.
Canadian human rights legislation contains a similar exception to that of Australia. Similarly, the Canadian Human Rights Commission has also advised that it is not aware of any such rulings.
When dealing with human rights issues, courts in New Zealand readily refer to developments abroad. A leading case in this respect is Simpson v Attorney General (Baigents case) [1994] 3 NZLR 667, CA.
It could well come down to what is regarded as exceptional. When a lender can see that there is a high probability that security may have to be realised to satisfy a defaulting loan, and that the proceeds of mortgagee sales are usually somewhat less than that of ordinary vendor sales – thereby leaving the borrower less well off than would otherwise have been the case had the loan never been approved in the first place – could this be seen to be an exceptional circumstance and genuinely justify a lender in taking a borrower’s age and remaining working life expectancy into account?
Considering that there is now another statute that requires a lender to assess the circumstances of a borrower, I believe that this could be the case.
In Avis it is clear that the Tribunal only allowed refusal due to age when it was deemed absolutely necessary. Accordingly, the Tribunal may take a similar view when considering the age of applicants for longer term finance. However, until there is a ruling on s 97 in relation to age in the provision of finance, the issue will remain clouded with uncertainty.
Andrew Shann started out as a bank teller in the 1980s and soon developed a passion for banking and consumer law when he commenced his study towards the undergraduate banking and business diplomas. He later gained entry into university programmes. At 48 Andrew gained an LLM. He is also a Fellow of the Financial Services Institute of Australasia and is an Associate Chartered Accountant. Andrew welcomes comment on this issue. His email is andrew.shann@xtra.co.nz.