Acute Finance in breach

Acute Finance Limited, a Christchurch-based lender, has been fined $22,000 and says it has taken steps to return $10,000 to borrowers after pleading guilty to four charges under the Credit Contracts and Consumer Finance (CCCF) Act, the Commerce Commission reports. These charges are in relation to the fee that borrowers paid for Acute’s repayment waiver, where Acute agreed to meet a borrower’s obligations under the loan if they died, became disabled or were made redundant. The repayment waiver was mandatory under the terms of the loan. Because the fee was mandatory, the CCCF Act states the fee must not be unreasonable. The repayment waiver fee charged by Acute varied, depending on the size of the loan. The ruling made reference to the Sportzone/MTF ligitation case, where the Supreme Court held that creditors cannot profit from fees. Acute’s repayment waiver fee exceeded the costs of providing the waiver, meaning it was in breach of these legal requirements. Judge Gilbert of the Christchurch District Court said during sentencing that the offending was careless, and Acute was “charging about three times more than it was entitled to and therefore generating profits not permitted by the Act.” The Commerce Commission general manger of competition, Antonia Horrocks said “the Commission welcomes today’s judgment which confirms that these fees were unreasonable. Acute’s RWF meant that borrowers paid three times more than they should have for the protection offered by the repayment waiver.” “All Acute borrowers prior to May 2016 were likely to have been required to pay the fee, and we note that consumers were unaware of the conduct. The case arose from the Commission’s proactive compliance work with the credit sector.” Acute specialises in small personal loans between $300 and $5,000 for terms of up to three years. Acute said that it has taken steps to credit the accounts of existing customers and refund former borrowers. This case follows the Supreme Court ruling in favour of the Commerce Commission in the Sportzone/MTF case in 2015, which assessed whether credit fees charged by lenders are reasonable as required by the CCCF Act. The Supreme Court held that credit fees can only cover costs that are “closely related”to the loan transaction and the CCCF Act “indicates a transaction-specific approach to the setting of fees.”  “It is not permissible to take all operating costs (or virtually all) and allocate them to one fee or the other.” The Court said at the time.