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Equality Finance admits charging unreasonable fees

Equality Finance admits charging unreasonable credit fees

In an out of court settlement with the Commerce Commission, Auckland based motor vehicle finance company Equality Finance Limited is to refund around 1,400 affected customers a total of approximately $720,000.

In the settlement, Equality Finance admitted breaching the Credit Contracts and Consumer Finance Act 2003 (CCCF Act) by charging
unreasonable fees.

Customers, who purchased a vehicle from Equality Cars Limited with finance through its related finance company, were required to have an electronic vehicle immobiliser device fitted to the vehicle.

The Commission investigation identified that Equality Finance had in some cases overcharged its customers for the cost of the installation and maintenance of the electronic vehicle immobiliser. In every case Equality Finance had added the full cost of the product over the loan term to the initial loan balance. This was despite Equality Finance being charged by the supplier on a monthly 'pay as you go' basis. Charging the fee before it was due meant that customers were being charged interest on the full amount and would not receive a credit if the loan was repaid early. Equality Finance admitted that by charging this unreasonable fee it breached section 41 of the CCCF Act.

Customers were also required to purchase a 12 month mechanical warranty which Equality Finance on-sold from an insurance company. Equality Finance added an unreasonable commission to the warranty premium, which in some cases was 280% of the wholesale premium. Equality Finance has admitted that the commission it charged was unreasonable and breached the CCCF Act.

Commerce Commission Chair Paula Rebstock said, "It is vital that creditors provide consumers with accurate information about the cost of credit- related insurance products in order to allow consumers to make informed choices about the value and benefit of such products. This transparency underpins the consumer protection nature of the CCCF Act and benefits both the consumers and competition within the industry."

"Where a creditor on-charges customers a third party fee this must be charged without any additional mark up. Where a creditor arranges credit related insurance any commission charged in relation to this product must be reasonable. The level of refunds agreed in this settlement should send a very strong signal to the credit industry that if a creditor breaches the CCCF Act by charging unreasonable credit fees the Commission will take enforcement action," said Ms Rebstock.

"Equality Finance has been cooperative with the Commission since the commencement of this investigation and has sought to refund those affected debtors at the earliest opportunity," Ms Rebstock confirmed.


Section 45 of the CCCF Act requires that the fee charged to debtors for the mechanical warranty does not exceed the actual amount payable by Equality Finance to the insurer. However section 45(5) provides a limited exception whereby a creditor can receive a reasonable commission in connection with any credit-related insurance.

Section 41 of the CCCF Act requires that an amount paid by the debtor should not exceed the actual amount paid to a third party. Equality Finance admitted that by charging this unreasonable fee it breached section 41 of the CCCF Act.

Equality Finance Limited is a registered company operating in the non-bank consumer credit market. It provides finance for vehicles sold by Equality Cars Limited ("Equality Cars") at its Onehunga, Auckland retail car yard

The motor vehicle immobiliser system involves a miniature computer fitted to motor vehicles for the duration of a loan. It requires customers to enter a 6-digit receipt code into the computer keypad at periodic intervals to keep the car operational. Receipt codes are issued when a scheduled payment has been received. If a receipt code is not entered within a certain time period, the vehicle is immobilised and cannot be used again until payment is received.

Examples of the unreasonable commission charged include the following: Customer A was charged $995 for a warranty product where Equality Finance was charged $260. Customer B was charged $695 for a warranty product where Equality Fiancne was charged $450. Customer C was charged $795 for a warranty product where Equality Finance was charged $523. Customer D was charged $635 for a warranty product where Equality Finance was charged $332 (all figures including GST).


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