Loan fee guidelines issued
The Commerce Commission is making it clear that it expects all consumer credit fees to be reasonable and related to the actual cost to a lender of processing loans.
Thursday, September 8th 2016, 6:00AM
It has released updated draft credit fee guidelines, after the Supreme Court dismissed an appeal by Motor Trade Finance and Sportzone Motorcycles against rulings in a case brought by the commission over unreasonable fees in their credit contracts.
They were found to have breached the Credit Contracts and Consumer Finance Act.
“Now the final judgment in the MTF/Sportzone case has been issued the commission is able to consult with the credit community on fees guidelines,” commissioner Anna Rawlings said.
“These guidelines aim to clarify how lenders should approach the task of setting credit fees. They also provide guidance on the limitations that apply to the fees lenders may charge. We recognise it has been some time since our 2010 draft guidelines and that lenders are keen to understand their obligations and our approach to enforcement, so we are pleased to be able to issue the draft guidelines for consultation today. We look forward to hearing feedback on the draft.”
The CCCFA was amended last year to include lender responsibility principles, which covered restrictions on the fees that lenders can charge. The commission said its guidelines should help lenders understand how to meet those principles.
A key part of the guidelines is that the lender’s costs and losses are the key factors in deciding whether a fee is reasonable.
In some cases, a fee should could not reasonably charged at all, even if it was covering a cost, the commission said.
It cited the example of a lender who charged a “welcome letter fee” of $15.
“This fee was likely to be unreasonable, even if the cost of sending the letter was $15, because welcoming the borrower was not a step for which it was reasonable to charge.”
The guidelines also say fees that are aimed discouraging borrowers from certain conduct are likely to be unreasonable if they exceed the lender's costs.
It had been suggested that the commission might crack down on low-equity fees charged by banks, as a result of the Sportzone case. The commission is also asking the court for clarity about how the CCCFA applies to peer-to-peer lenders.
Submissions are open until October 24.
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