Car loan provider Motor Trades Finance (MTF) says, with support from others in the finance industry, it’s seeking to take a closely watched credit fees dispute with the Commerce Commission to the Supreme Court.
The case relates to establishment and credit fees dating from 2006 to 2008. MTF says the total amount by which the fees have been held to be unreasonable, and is to be repaid to 39 borrowers, is less than $10,000.
In a judgment issued in late March the Court of Appeal dismissed an appeal from MTF and Sportzone Motorcycles Ltd. At the time the Commerce Commission said the ruling provided 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.
However, in its half-year report MTF says it’s disappointed with the decision and is concerned that the Court failed to address some key aspects of the case.
“With support from others in the industry, MTF has filed a notice of application for leave to appeal to the Supreme Court,” MTF says.
However, the company adds; “MTF will work with the Commission and industry participants, regardless of the outcome, to develop workable guidelines in relation to fees, in compliance with the law.”
Here’s more from MTF’s half-year report
The Court of Appeal hearing in the Sportzone case was held in November 2014 with the judgment delivered on 30 March 2015. The Court of Appeal dismissed the appeal by Sportzone Motorcycles Ltd and MTF.
The Court of Appeal upheld both the High Court’s ‘Liability Judgment’, that some establishment and credit fees charged under the loan contracts were unreasonable in terms of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), and the ‘Quantum Judgment’, which detailed specific costs that could be recovered by way of fees.
The Quantum Judgment allows the recovery of many of the fixed and indirect costs the Commission originally sought to exclude as an unreasonable recovery through fees. In applying the Quantum Judgment there are increases of up to 1,500% from the single figure fees that formed the Commission’s original position in the High Court. That original position was that each of MTF’s establishment fees, for the 2006 – 2008 period, ought to have been less than $10.
Consequently the total amount by which the fees have been held to be unreasonable, and is to be repaid to 39 Sportzone borrowers, is less than $10,000. As this amount can now be determined with reasonable certainty, it has been fully provided for in these financial statements and disclosure of the Sportzone case as a contingent liability is no longer required. Both the Quantum Judgment and MTF fee models provide for a mix of interest rates and fees, as allowed for in the CCCFA. Both models include an analysis of recoverable costs.
MTF only recovered the costs of running its finance business and did not make a profit from any of the fees charged. All costs recovered through fees were previously being recovered through the interest rate charged to borrowers. In MTF’s view the Court failed to acknowledge that, without the MTF fee model, borrowers would have paid higher interest rates to recover costs not recovered through fees and, as a result, had suffered no loss.
The judgments relate to loans written in a period where there was no meaningful guidance, from the regulator or Courts, on the interpretation of new and non-prescriptive consumer legislation. The nature and structure of MTF’s business has changed substantially since that time, as has its calculation of costs and fee setting process.
This case is significant and has implications for the lending industry, as the principles will be incorporated in the Responsible Lending Code. MTF is disappointed with the decision and is concerned that the Court failed to address some key aspects of the case. With the support from others in the industry, MTF has filed a notice of application for leave to appeal to the Supreme Court.
MTF will work with the Commission and industry participants, regardless of the outcome, to develop workable guidelines in relation to fees, in compliance with the law.