NZ Finance Firm Fined over Credit Contracts
Issued 20 March 2008/no 124
A consumer finance company which lends almost exclusively to the Tongan community has been fined $37,480 in the Manukau District Court for breaches of the Credit Contracts and Consumer Finance Act (CCCF Act) and Fair Trading Act.
The finance company, based in south Auckland, pleaded guilty to 18 breaches of the CCCF Act and two breaches of the Fair Trading Act following an investigation by the Commerce Commission. It has also been ordered to refund $12,520 to affected debtors.
The company provides short term loans of between $20 and $5,000, often using traditional woven Tongan floor mats and tapa cloths as security.
Between 1 June and 30 November 2006 they failed to provide initial disclosure (required under the CCCF Act) in 616 consumer credit contracts. The contracts provided to debtors did not include required information about what the annual interest rate was; how interest was calculated; the debtor’s right to repay early; and the debtor’s right to cancel the contract within three days.
The finance company also made false and misleading representations regarding its right to enforce the contracts in default letters and sold security items held for 27 contracts, when in fact the credit contracts could not be enforced as correct disclosure had not been made. They also published photographs and personal details of at least four debtors in a local Tongan newspaper claiming that these debtors had defaulted on loans that were in fact unenforceable.
In sentencing, Judge Blackie said that the company fell well below the standard expected and that it is important that people who borrow from private financiers get the required statutory protection.
Commerce Commission Chair Paula Rebstock said the breaches of the two Acts were serious, particularly given the vulnerability of the affected debtors. “Approximately 98% of debtors to the finance company are of Tongan descent and for the majority of them English is their second language.”
While the company had been made aware of its responsibilities under the CCCF Act and Fair Trading Act in 2005, it had made no effort to comply with the Acts.
“Any debtor needs to have all the information relevant to their borrowing, in order to make a wise and informed decision. The fact that these debtors had limited options for borrowing and limited understanding due to language difficulties makes the offending all the more serious,” said Ms Rebstock.
“It is not acceptable for fringe lenders to ignore their responsibilities under the law. The Commission was concerned by the apparently poor level of compliance amongst those providing personal lending to the Pacific Island community.” says Ms Rebstock.
In August last year, the Commission warned six lenders operating predominantly in the Pacific Island communities for allegedly failing to provide adequate disclosure to customers taking out personal loans. Since then, the Commission has been working with lenders and has noticed an increase in compliance with the CCCF Act.