The Commerce Commission (Commission) has been very active in the consumer finance space. Consumer lenders should continue to be vigilant in their compliance with the Credit Contracts and Consumer Finance Act 2003 (CCCFA) regime.
The Commission announced last week that it has filed proceedings in the High Court against Eagle M.A.N. Group Limited (Eagle MAN) and is seeking pecuniary penalties.
Eagle MAN provides high-cost consumer credit contracts (HC CCC) through short to medium term loans between $300 and $3,000. The Commissions has filed proceedings for alleged breaches under the CCCFA of:
- obligations for lenders when providing HC CCCs (discussed further below); and
- disclosure obligations of key information.
This is the first time the Commission has chosen to seek an award of pecuniary penalties for breaches of the CCCFA. We expect that consumer lenders will be interested in the outcome of this case as pecuniary penalties can be a substantial sum – maximum of $200,000 for individuals and $600,000 in every other case. Importantly, pecuniary penalties cannot be indemnified or insured against.
Eagle MAN’s alleged breaches of its obligations as a high-cost lender
The Commission alleges that Eagle MAN breached its obligations as a high-cost lender between 2015 and 2022 by:
- charging interest and fees which exceeded 100% of initial loan amounts; and
- by making high-cost loans available to repeat borrowers.
Both of these are prohibited. These obligations are aimed at protecting borrowers from harm caused by:
- accumulating excessive levels of debt from defaulting on high-interest loans; and
- repeat borrowing under high-interest loans.
In the Commission’s view, Eagle MAN’s conduct had the potential to cause significant harm or financial detriment.
The Commission noted in its announcement that the nature of high-cost consumer credit loans “are often to satisfy a short-term, urgent need for finance. Many borrowers who sign up may therefore be in a vulnerable position when making decisions to take out the loan.” This has led to the Commission reviewing high-cost lenders in New Zealand from when the HC CCC regime was introduced in 2019.
Other action taken by the Commission in relation to HC CCCs
The Commission’s proceedings against Eagle MAN limited follows the Commission’s review of high-cost lenders and warning letters being issued to high-cost lenders in the market, including Hippo Holdings, Acorn Finance and Tiny Loans, for potential breaches of their obligations as high-cost lenders.
After the Eagle MAN announcement, the Commission announced that after conducting its review of high-cost lenders a number of high-cost lenders have either:
- reduced their interest rates to below 50%; or
- exited the New Zealand consumer credit market.
The Commission is encouraged by this reaction from high-cost lenders.
Kookmin Bank’s breaches of initial disclosure obligations under the CCCFA
The Commission has recently entered into a settlement agreement with Kookmin Bank (Kookmin) for Kookmin’s breaches of its initial disclosure obligations under the CCCFA. The Commission found that Kookmin failed to discharge its initial disclosure obligations by not providing all of the key information on 322 occasions, and that Kookmin had no record of providing any disclosure material for 161 loans.
The settlement agreement required Kookmin to repay $11,029,020.46 of costs of borrowing out of a potential $13,139,065.00.
Other warnings
The Commission has also recently given a variety of warnings to credit providers for less significant breaches of the CCCFA.
If you would like to discuss your organisation’s obligations under the CCCFA, reach out to one of our experts who would be happy to assist.
This article was co-authored by Travis Mackie (solicitor) and Tabetha Adams (law clerk) in our Banking and Financial Services team.
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