Low-equity fees face legal questions
Last year the Commerce Commission won a case against Sportzone Motorcycles and MTF centred on lending fees.
The judgment confirmed the commission’s position that lending fees must be related to the activity that the fee is charged for. It also said the fee has to relate to the particular transaction it is being charged against, as opposed to being a cost charged against the general costs of doing business.
In the Sportzone case the Court found that the costs recovered were business costs, not transaction-specific costs.
“The issue with low-equity fees or risk fees is that they are not transaction-specific as there is no cost or loss relating to the specific transaction incurred at the time they are charged,” one legal expert says.
“They are, arguably, transaction-specific in that the specific loan falls within a pool of loans that has a particular characteristic which makes loans in the pool more vulnerable to credit loss.
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