Finance company to pay out $1.1m

A vehicle finance company has entered into a settlement of $1.1 million with the Commerce Commission over unreasonable fees.

Mainland Finance has acknowledged that it charged unreasonable credit and default charges, and has agreed to compensate borrowers.

The company has agreed with the regulator that credit contracts with borrowers between April 1, 2015, and March 30, 2019, breached the Credit Contracts and Consumer Finance Act (CCCFA) by providing for unreasonable fees.

These included establishment fees of between $495 and $595 per new loan, and between $95 and $295 per top-up loan.

There was also an administration fee of $5 per week and 11 different types of default charges.

Anna Rawlings, pictured, who chairs the commission, says: “The CCCFA requires credit fees to be reasonable. They should only recover costs that are closely related to the matter for which the fees are being charged.

“In this case, following a commission investigation, Mainland Finance has accepted the establishment, administration and default fees in relation to around 2,000 loan contracts exceeded reasonable costs associated with the matters giving rise to those fees. It has agreed to compensate borrowers for their loss.”

As part of the settlement, the company has provided the regulator with enforceable undertakings that explain how it will find and remediate borrowers who were charged the unreasonable fees. 

Payments to customers have been calculated based on the difference between the fees charged to them and the commission’s estimate of the reasonable costs that could be recovered under those categories of charges.

The total amount to be paid to clients of Mainland Finance, which has its registered office in Newmarket, Auckland, is about $1.1m. This includes $366,500 in establishment fees, $489,600 in administration charges and $249,600 in default fees.

Unreasonable fees

In May 2016, the Supreme Court ruled that fees under consumer credit contracts cannot be used to generate profits or to recover business costs not closely connected to the matter giving rise to the charge. 

Lenders must recover their profits and any costs not allowed by the fees’ provisions from interest charges or charges for optional services.