Geneva Finance refunds customers after investigatn
Geneva Finance refunds customers after Commerce Commission investigation
Customers of Geneva Finance Limited have received more than $500,000 in refunds, following an out-of-court settlement with the Commerce Commission.
Under the settlement, Geneva Finance has refunded $510,966 to 3700 customers. The finance company admitted that it breached the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) by not providing a large number of debtors with rebates on payment protection insurance premiums when loans were repaid between April 2005 and December 2007.
When debtors repay loans before the end of their term, they are entitled to receive a rebate of any payment protection insurance policy premium which has been included in the initial loan balance. These policies are usually put in place to ensure that regular repayments required under the credit contracts will be met if debtors are unable to meet those loan repayments due to, for example, accident, sickness or redundancy.
A Commerce Commission investigation found that, in a large number of cases, when debtors repaid their loans early, Geneva Finance failed to provide in the final loan balance the rebates, or the correct amount of the rebates, for the payment protection insurance premiums. During the period approximately 24,000 loans were repaid early or terminated by Geneva Finance, of which approximately 3700 did not receive the correct rebate.
Chair of the Commission Paula Rebstock said, "Geneva Finance has been cooperative and started providing rebates to the affected customers as soon as the issue was identified."
The refund payments were completed by the end of April 2008 with approximately $408,000 being direct credited to the bank accounts of affected customers and a further $102,000 being refunded by cheque.
"Many consumer finance companies require customers to take out payment protection insurance. The commissions from those policies represent a source of revenue to the finance companies. When customers wish to repay their loans early they rely on creditors to calculate the correct settlement balance, including any rebates due to them. We expect others in the industry to ensure that they are not making the same mistakes Geneva Finance made," said Ms Rebstock.
Geneva Finance is a registered company operating in the non-bank consumer credit market. It lends largely to consumers whose credit profiles represent a higher credit risk than traditional trading bank customers.
As part of its lending criteria Geneva Finance used motor vehicles and household chattels as securities for consumer credit contracts.
This is the second out of court settlement Geneva Finance has entered into with the Commission. On 29 October 2007, Geneva Finance entered into a settlement with the Commission in relation to a breach of section 13(i) of the Fair Trading Act. It was alleged that by making representations that Geneva Finance had the right to interest and fees on loans where securities had been repossessed and sold, when that was prohibited under section 35 of the Credit Repossession Act, Geneva Finance had breached the Fair Trading Act. Under that settlement, a total refund of $589,114 was provided to over 900 debtors, being the total overcharged fees and interest.
The CCCF Act provides that, in the event of a consumer credit contract being fully prepaid, the creditor is required to credit the debtor with a proportional rebate of any premium paid under a consumer credit insurance contract financed under that consumer credit contract. So section 51 provides:
51 Amount required for full prepayment
(1) The amount required for the full prepayment of the consumer credit contract must be no more than the sum of the following less the amount referred to in section 52:
the unpaid balance at the time of the full prepayment;
(b) if expressly authorised by the contract, the administrative costs incurred by the creditor arising from the full prepayment or a charge equal to the creditor's average administrative costs arising from full prepayments of consumer credit contracts of the appropriate class; and
(c) if expressly authorised by the contract, a fee or charge that does not exceed a reasonable estimate of the creditor's loss arising from the full prepayment.
(2) In calculating the unpaid balance the creditor must only include interest charges and other fees and charges that would have accrued or would ordinarily be payable under the consumer credit contract up to the time of the full prepayment.'
Section 52 of the CCCF Act goes on to deal with the rebating of insurance as follows:
Rebate of insurance
(3) The amount to be deducted under section 51 is an amount equal to a proportionate rebate of the premium paid under any consumer credit insurance contract financed under the consumer credit contract.'
Section 52 then provides for the procedure to be used when calculating the insurance rebate and the circumstances where the Act defines such insurance to have been arranged by the creditor. Section 52(2) provides that the rebate must be calculated using the procedure prescribed for the purposes of this section by regulations if regulations have prescribed a procedure.