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Financial Services Quarterly
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Commerce Commission prosecutions
An Auckland consumer finance company has been ordered to refund over $12,000 to 143 customers who bought vehicles from Auckland car yards between April 2005 and February 2006.
In a settlement with the Commerce Commission, the company admitted that it breached the Credit Contracts and Consumer Finance Act 2003 (the CCCFA) by not giving key information to 951 borrowers, not calculating interest properly, and over-charging those who wished to repay their loans early.
It also admitted breaching the Fair Trading Act 1986 by telling customers it could enforce the contracts and taking collection action against 93 people, including repossessing 26 vehicles.
The company had used the "rule of 78" to calculate the interest owing by debtors on full prepayment. The Commerce Commission has stated that this method of calculation unfairly disadvantages debtors and results in a greater prepayment figures, and is not allowed under the CCCFA.
The Commerce Commission considered that an out-of-court settlement was appropriate in this case as the company had moved to correct the breaches and to make refunds of all default and collection fees to affected customers.
The Commerce Commission has also prosecuted a finance company, which pleaded guilty, for failing to disclose its terms and conditions as required under the CCCFA.
The breaches related to situations in which the terms and conditions had been faxed and photocopied in ways that distorted the text to such an extent that they were illegible. The Commerce Commission's press release mentions one instance of a customer being told by a car salesman to "use a magnifying glass" if he was having trouble reading the terms.
The financier was fined $59,000, and 17 affected customers were awarded a total of $13,700 in statutory damages. On top of this, the financier was unable to enforce the terms of the affected contracts (this is a consequence of failure to disclose under the CCCFA) and also pleaded guilty to various related charges of breaching the Fair Trading Act 1986 (it being a breach of that Act to claim that a contract is enforceable when it is not).
Although the case itself is straightforward, this prosecution is interesting for a number of reasons:
- finance companies relying on dealers or other agents to fulfil their disclosure obligations need to monitor agents' practices carefully and ensure that they have appropriate contractual recourse in the event of sub-standard performance;
- the Commerce Commission is prepared to pursue breaches of legislation in a "pincer movement" using its enforcement capabilities under both the CCCFA and the Fair Trading Act; and
- disclosure is an important "strategic priority area" for the Commerce Commission, who have stated that their rationale is based on the importance of customers understanding their rights and obligations since the CCCFA imposes no limits on the interest that can be charged.
Enquiries and information
For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
