Finance company to refund customers $3.3 million

Finance company to refund customers $3.3 million

Broadlands Finance Limited will repay 807 customers approximately $3.3 million in overcharged interest and fees, as a result of a settlement between Broadlands and the Commerce Commission. The settlement follows an investigation by the Commission into alleged breaches of the Fair Trading Act by the company.

The investigation found that Broadlands charged interest and fees following the sale of repossessed property, which is prohibited by section 35 of the Credit (Repossession) Act 1997 (CRA). In the Commission’s opinion, Broadlands misled its customers by representing that it had a right to continue to charge interest and fees when doing so breached the CRA as well as sections 9 and 13(i) of the Fair Trading Act.

The $3.3 million will be repaid by a combination of cash payments and credits to customer accounts. In addition, Broadlands has given undertakings about its future conduct that the Commission can, if necessary, enforce in court. This is the first time the Commission has obtained court-enforceable undertakings, which were recently introduced as part of a package of consumer law reform.

Commission Chairman Dr Mark Berry said, “We are pleased that Broadlands has agreed to do the right thing and compensate the affected customers. Broadlands cooperated with the investigation and has undertaken a lot of work reviewing its customer loan files to ensure that refunds have been correctly calculated. That is precisely what we expect responsible New Zealand businesses to do.

“Unfortunately we continue to see real problems in the debt collection and repossession industry. We have brought several enforcement actions in recent times and have good reason to think that this industry needs to further tidy up its practices. The stakes are now a lot higher for those who do not comply, with recent increases in the penalties for breaching the Fair Trading Act. We will continue to be highly active in this area to ensure that businesses are complying with the rules and that consumers are protected,” he said.

Dr Berry also emphasised the usefulness of the enforceable undertakings, made possible as a result of changes to the Fair Trading Act in 2013. “We have no reason to believe that Broadlands will not act in accordance with the settlement agreement but we now have a tool to ensure that settling parties do what they agreed to do. From now on we expect enforceable undertakings to be a feature of Commission settlements involving breaches of the Fair Trading Act,” Dr Berry said.

Broadlands acknowledges the Commission’s position but does not admit breaching the Fair Trading Act.

The settlement agreement can be viewed on the Commission’s Enforcement Response Registerwww.comcom.govt.nz/commerce-act-enforcement-response-register/.

Background

The Commission began investigating Broadlands in 2012. Broadlands is an Auckland-based finance company that provides consumer and small business loans. The majority of its lending was in the mid-2000s, and loans were secured primarily over vehicles.

The Commission considers that Broadlands is likely to have contravened sections 9 and 13(i) of the Fair Trading Act 1986 by representing it had a right to add collection costs, some legal and court costs and interest, onto a debtor’s loan balance after secured assets had been repossessed and sold. In the Commission’s opinion, Broadlands had no legal right to do so because section 35 of the CRA prohibits a lender from recovering more than the net balance outstanding after goods have been repossessed and sold.

The Commission entered into settlements with Bancorp (NZ) Limited in December 2013 (www.comcom.govt.nz/enforcement-response-register/detail/803) and with Geneva Finance Limited in October 2007 (www.comcom.govt.nz/the-commission/media-centre/media-releases/2007/genevafinancerefundscustomersafter) and prosecuted Budget Loans Limited in 2010 (www.comcom.govt.nz/enforcement-response-register-commerce/detail/712) for similar breaches of the Fair Trading Act. The Commission also prosecuted MAC Warranties Limited earlier this year for its repossession and debt collection practices (www.comcom.govt.nz/enforcement-response-register/detail/836).

Enforceable undertakings were introduced as part of the law changes in the Fair Trading Amendment Act 2013 and allow the Commission to apply to the court to enforce an agreement if a trader is not abiding by the conditions of a settlement.

The changes also brought in much higher penalties for breaches of the Act.

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