Financial Options warned about buy-backs

Media Release

Issued 27 October 2005/045

Financial Options warned about buy-backs

The Commerce Commission has warned Financial Options Group and its director Anton Keane that they may be breaching the Credit Contracts and Consumer Finance Act with house buy-back schemes in Auckland.

The warning came after Financial Options entered into transactions that the Commission considers were buy-backs.

A buy-back transaction is where a homeowner transfers, or agrees to transfer, ownership in a property to another party (known as the buy-back operator). The homeowner will still occupy the property and has the right to repurchase the property from the buy-back operator at a later date.

The Commission has longstanding concerns about buy-backs, and the warning to Financial Options is part of its ongoing focus on buy-back operators.

Financial Options and Anton Keane were warned that their buy-back schemes risked breaching the Credit Contracts and Consumer Finance Act because in the Commission’s view:

- no written disclosure of relevant information had been made to occupiers;

- there were no certificates of independent legal advice for each step of the transaction, in fact some contracts signed by occupiers contained waivers of the right to receive independent legal advice; and

- Financial Options had mortgaged properties to third parties without first obtaining leave from the High Court, as they are required to when the two prior obligations have not been fulfilled.

The Commission also warned Financial Options that it may have breached the Fair Trading Act by misleading people about their rights to register caveats against the properties, the legal requirements for them to seek independent financial advice, and their rights under the Residential Tenancies Act.

Fair Trading Director Deborah Battell said the Commission believed warning Financial Options and Mr Keane would provide the most appropriate outcome for the parties involved in this instance, but the Commission will continue to monitor the actions of Financial Options and Mr Keane.

“We will not hesitate to take further action if we see the same activities again.”

Background

Under the terms of the warning letter, Financial Options must ensure all new arrangements comply with the Credit Contracts and Consumer Finance Act. It is the Commission’s view that in relation to transactions already entered into, Financial Options must not deal with the properties in any way without obtaining leave from the High Court, should advise existing occupiers as to their rights to caveat their properties and provide all occupiers with a written disclosure statement setting out the information contained in schedule 3 of the Act.

Section 75 of the Act provides that where a transferee has failed to provide full written disclosure of the matters set out in schedule 3, or has failed to ensure that independent legal advice has been received by the occupiers as required, then the transferee may not deal with the property (for example, by way of mortgage or transfer) without first obtaining leave from the High Court. A transferee who breaches that prohibition commits an offence punishable by a fine of up to $200,000 and/or a term of imprisonment of up to one year. Officers of transferee companies can be liable for the same penalties as parties to the offence of the company.

ENDS

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