The legalisation of alcohol in New Zealand is likely to see more than $1.2 billion in debt servicing obligations incurred, the Financial Industry Regulatory Authority has announced.
New Zealanders have been drinking responsibly for years, but the number of drinks sold has doubled since 2011.
The government wants to encourage the consumption of alcohol by adults over 18, with a goal of reducing alcohol-impaired driving by 2020.
A number of new measures were announced last week in an effort to tackle the increasing numbers of people driving drunk.
According to the FRLA, about 2.8 million New Zealanders had some sort of debt service on their credit card or other financial account, and that number has risen to about 6.7 million.
In 2014, the number was around 2.6 million.
The financial industry regulator said it was concerned about the rise in the number who were using their credit cards to pay debts.
“The financial institutions which will be impacted by the changes will be those that have been using their existing debt to cover the costs of credit card processing and servicing,” the regulator said in a statement.
“The FRLa expects that this will result in an increase in debt for some debtors as a result of increased processing costs.”
It added that the increase in the numbers of borrowers using their debt to pay their debts would also increase the risks to their credit rating.
While the new legislation will allow the Government to impose new rules on financial institutions, the FSLA said it still had concerns about the way it will work.
“This will require the banks and other financial institutions to be more transparent about the costs they incur in servicing the debt,” the FHLA said.
“They will also have to make sure their debt servicing is consistent with their overall risk management strategy.”
The FSLa is also concerned about how the new system will affect people who had their credit debts forgiven by their financial institutions.
“If a person who has a debt in New York has a credit card in New England, that credit card will not be able to be used to pay that debt in the New Zealand market,” it said.
The new legislation includes a new requirement that a borrower’s financial institution must report to the Financial Information Commissioner’s Office how much money they have in their accounts and the balance on their accounts.
It is also designed to make it easier for consumers to contact their creditors.
“Under the new law, debtors will be able send a report to their creditors that includes their account balance, the total amount owing, and the amount owed to creditors,” the watchdog said.
The regulator also said it would work with the Financial Ombudsman Service and the Office of the Financial Regulator to better understand the extent of the debt issues facing people.
Meanwhile, the Consumer Credit and Consumer Protection Authority is recommending that the Government consider introducing new rules for the debt servicing industry.
The authority said it wanted to increase the transparency surrounding the industry, with the goal of encouraging people to use credit cards responsibly.
“A more transparent and equitable system will be more effective at reducing the use of credit cards by consumers, helping to reduce debt and reduce the risk of consumer distress,” the consumer watchdog said in its submission.
“By adopting a consumer-friendly financial system, the financial system will enable a more positive relationship between debtors and their creditors and the public.”
With this in mind, the regulator recommends that the government consider setting up a new industry body to develop the industry’s governance structure.