Commerce Commission says court ruling makes it clear a lender's credit fees should only cover costs closely related to a particular loan transaction

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Commerce Commission wins key fees case

The Commerce Commission says the Court of Appeal's dismissal of an appeal in a long running credit fees case makes it clear a lender's credit fees should only cover costs closely related to a particular loan transaction.

The Court of Appeal has dismissed Motor Trade Finance Limited (MTF) and Sportzone Motorcycles Limited’s appeal in a case brought by the Commerce Commission.

The Commerce Commission says the Court’s ruling upholds earlier High Court judgments backing the Commission’s approach to assessing whether credit fees charged by lenders are reasonable as required by the Credit Contracts and Consumer Finance Act (CCCFA).

The Commission alleged that MTF and Sportzone charged unreasonable establishment and other credit fees on 39 finance contracts entered into between 2005 and 2008.

In September 2013 the High Court found the fees were unreasonable in breach of the CCCFA. In October 2014, it released a further judgment clarifying the practices lenders should adopt when charging fees. MTF and Sportzone appealed both decisions to the Court of Appeal.

Commerce Commission Commissioner Anna Rawlings says the Court of Appeal has now provided a clear statement on the approach lenders should take to the fees they charge.

“The Court’s ruling provides easy to understand guidance for lenders, making it clear that credit fees should only cover costs that are closely related to the particular loan transaction. The Court of Appeal agreed with the Commission that the purpose of the CCCFA is to protect borrowers, especially vulnerable borrowers, by ensuring transparency in the costs of borrowing. Fees should not be used to recover general business costs or to generate profits, that is what interest is for,” Rawlings said.

“The Commission will be publishing further credit guidance to reflect the judgments of the High Court and Court of Appeal, and to ensure that lenders are clear about what the law requires. These judgments and important upcoming changes to the CCCFA, which include new Lender Responsibility Principles, will help to shape our programme of work aimed at ensuring that lending practices comply with the law," Rawlings added.

The Court has instructed MTF and Sportzone to pay the Commission’s costs.

The companies have 20 days to seek permission to appeal the ruling to the Supreme Court.

Here's the judgment.

Here's some background from the Commerce Commission, and see more on the Commerce Commission's website here.

Sportzone was a Christchurch-based company that sold, serviced and repaired motorcycles. It offered financial services, through MTF, to customers that purchased motorcycles. Sportzone has since gone into liquidation. MTF is a co-operative company that provides financial services to the customers of its associated dealers. Sportzone was a shareholder in MTF.

The Commission began investigating MTF and Sportzone in 2006 after receiving a complaint about their lending practices. Both companies were subsequently charged with charging unreasonable establishment fees, account maintenance fees, and arrears fees on 39 specific loan transactions to borrowers of motor vehicle finance, in breach of section 41 of the CCCFA.