Court looms for car finance firms

The Commerce Commission is preparing to launch legal action against two vehicle finance companies, alleging they breached the Credit Contracts and Consumer Finance Act (CCCFA) when providing car loans to consumers.

The watchdog says plans to file civil proceedings in the high court in the coming months will be its most significant action in the car finance sector and involves seeking pecuniary penalties.

Louise Unger, the commission’s general manager credit, says the two separate cases follow long-standing investigations into the firms that looked at whether they sufficiently assessed borrowers’ needs and financial means when providing finance.

“In our view, both lenders have not been appropriately assessing loan affordability when making car finance available,” she adds.

“Our legal action will address the potential for these lenders to have caused substantial financial hardship to Kiwi consumers.”

Unger says providers of consumer credit, including car finance lenders, have a responsibility under the CCCFA to ensure any credit provided meets the borrower’s needs and objectives. 

They must also check the borrower will be able to make payments under the loan without suffering substantial hardship.

The commission’s action will seek declarations from the high court that Go Car Finance and Second Chance Finance breached the lender responsibility principles by failing to sufficiently assess whether consumers could afford their car finance between 2019-2022 and 2021-2022 respectively.

In addition, it will seek declarations that Second Chance Finance breached its record-keeping obligations and its director failed to exercise their due diligence duty to ensure the company complied with its duties and obligations under the CCCFA.

"For the first time, we will be seeking pecuniary penalties from the high court for these alleged breaches,” explains Unger. 

“We are also seeking orders for the lenders to pay statutory damages to named borrowers as well as the waiving of any outstanding amounts owed by borrowers where their vehicles have been repossessed.”

Unger says the commission’s investigations into the finance companies was carried out over two years and concluded in December 2023.

“We are now working through the next steps in order to file civil proceedings in the coming months.”

More information about lender responsibility principles can be found on the commission’s website.