Loan company to refund borrowers
UDC Finance Limited has agreed to compensate borrowers after acknowledging it charged unreasonable default fees on its car loans.
It has entered into a settlement with the Commerce Commission following an investigation in 2016 that led to High Court action.
The regulator says UDC typically provided loans of about $10,000 or more for the purchase of motor vehicles.
Between June 2015 and September 2016, the company charged a $45 dishonour fee when a borrower failed to make a scheduled loan repayment.
If the consumer remained in default seven days after the scheduled payment was missed, UDC charged a late-payment fee.
The size of the late-payment fee between June 2015 and February 2021 ranged from $45 to $73, according to the commission.
Following entry into the settlement, the commission sought, and UDC did not oppose, High Court declarations that UDC had contravened section 41 of the Credit Contracts and Consumer Finance Act by charging unreasonable dishonour fees and unreasonable late-payment fees.
Commission chairwoman Anna Rawlings, pictured, says consumer credit law requires credit fees should only cover costs closely related to the particular loan transaction.
“In this case, the dishonour fee and late-payment fee exceeded UDC’s reasonable costs,” she explains.
“The late-payment fee covered costs that UDC had not yet incurred and that UDC might not incur at all if borrowers remedied their defaults promptly.
“UDC has accepted that its fees were unreasonable and has agreed to compensate borrowers for their loss.”
UDC will pay $37 compensation for each borrower who was charged a $45 dishonour fee between June 6, 2015, and September 4, 2016.
Each customer charged a late-payment fee between June 6, 2015, and February 2, 2021, will receive a full refund of the fee if they remedied their arrears within seven days of it being charged.
Meanwhile UDC will refund the difference between the late-payment fee paid and the amount payable had it charged $14 for every 14 days the borrower was in arrears – beginning at 14 days – for all remaining customers.
UDC will also pay $50,000 towards the commission’s legal costs.
As part of the settlement agreement, UDC has posted a notice on its website notifying the public it charged unreasonable dishonour and late-payment fees and explaining it will contact customers who are owed a refund.
Customers can also contact UDC to see if they are entitled to any money back.
The company was one of 36 lenders whose fees were reviewed by the commission in 2016, which led to the regulator opening an investigation.
