Commission alleges UDC charged unreasonable default fees

6 September 2019

The Commerce Commission has filed High Court proceedings against UDC Finance Ltd, alleging that it charged unreasonable default fees.

In the period covered by the proceedings UDC offered consumer loans of $10,000 or more over terms of one to five years, typically secured against assets such as vehicles.

The Commission alleges that UDC’s dishonour fees and late payment fees were unreasonable, in that they exceeded UDC’s reasonable costs and estimate of losses.

UDC charged the dishonour fee if the borrower missed a scheduled payment and charged the late payment fee if the borrower had not made payment 7 days after it was due. The Commission alleges that each fee exceeded UDC’s costs and estimated losses associated with a missed payment or with a 7-day default respectively.

In the case of the late payment fee, UDC calculated its fee by including recovery costs that it did not actually incur until much later (if at all).

The dishonour fees alleged to be unreasonable were charged between 6 June 2015 and 4 September 2016. The late payment fees alleged to be unreasonable were first charged in 6 June 2015 and continue to be charged.

The Commission seeks a declaration that UDC breached the Credit Contracts and Consumer Finance Act 2003 (CCCFA) by charging unreasonable fees. It also seeks orders compensating borrowers for amounts paid in excess of a reasonable fee.

As this matter is now before the Court the Commission will make no further comment at this time.

Background
This case and several others follow the Supreme Court’s 2016 ruling in favour of the Commission in the Sportzone/MTF case.

The Supreme Court held that credit fees can cover only costs that are “closely related” to the loan transaction. It found that the CCCFA “indicates a transaction-specific approach to the setting of fees. It is not permissible to take all operating costs (or virtually all) and allocate them to one fee or the other. The consequence of this is that many costs incurred by a credit provider will not be referable to particular credit transactions and will therefore have to be recovered in the interest rate”.

Other unreasonable fees cases taken by the Commission are:
High Court proceedings filed against Real Finance Limited
Auto Finance Direct agreed to return approximately $460,000 in fees to borrowers
Acute Finance was fined $22,000 and returned $10,000 to borrowers
Cash to You Loans was banned from lending for offending which included charging unreasonable fees
Rapid Loans agreed to compensate borrowers $1.4 million

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