Commerce Commission settles with Third Tier Lender
Commerce Commission settles with Third Tier Lender
The CCCFA places a number of restrictions on lenders of all sizes and the Commerce Commission is charged with enforcing the CCCFA legislation. The management of the lender's obligations a lender has can be assisted though the use of good IT systems and processes including the installation of a Loan Management System like finPOWER Connect. The case below highlights areas where finPOWER Connect may well have helped Elderton better comply with the legisialtion.
The Commerce Commission has entered into a settlement with a third tier mortgage lending company, Elderton Limited, after Elderton admitted breaching the Credit Contracts and Consumer Finance Act 2003 (CCCFA) and the Fair Trading Act in relation to loans it made to four customers.
Under the agreement Elderton has refunded those customers and the company has agreed to cease making consumer loans.
The Commission alleges that Elderton acted unlawfully by failing to disclose certain key information required by the CCCFA, charging unreasonable establishment and default fees and attempting to contract out of its obligations under the CCCFA, in breach of the Fair Trading Act.
The CCCFA requires creditors to disclose certain key information to customers. The Commission believes that Elderton’s loans did not contain all of the key information required by the CCCFA. Further, Elderton charged substantial establishment and default fees, including a $9,050 establishment fee on a loan of $315,900 and a $6,900 establishment fee on a loan of $89,000. The Commission alleges that these fees were unreasonable.
The Commission also believes that Elderton attempted to contract out of the obligations imposed by the CCCFA, which in turn breaches the Fair Trading Act.
Commerce Commission General Manager Competition, Kate Morrison says this decision sends out a clear message to the industry.
“Lenders, even small ones like Elderton, need to be aware of and comply with the law. While Elderton is a small player in the market, the effect of the breaches of the CCCFA is serious.”
“Credit is a highly regulated industry and lenders need to make sure they are aware of their obligations. There are rules relating to documentation, interest and fees. Fees have to be reasonable and reflect a creditor’s costs and a lender has to have made proper disclosure to the borrower about the loan before it can enforce the contract.”
“The Commission will take action against lenders of this type where even a relatively small number of borrowers are affected.”
Elderton co-operated fully with the Commission’s investigation and have made cash refunds of $42,000 and adjusted the balance on one continuing loan by about $55,000.