Warning to finance companies

Finance companies have been put on notice to expect "strong enforcement action" by the Commerce Commission if they run foul of the consumer protection laws.

The Credit Contracts and Consumer Finance Act came into force three years ago to better protect borrowers from shonky lenders.

"We consider that all industry participants have had more than enough time to understand their obligations and ensure they comply," commission chairwoman Paula Rebstock told a credit industry conference in Wellington yesterday.

"We are increasingly shifting resources from education into the enforcement area."

The commission has made several high profile prosecutions of credit providers under the new act which have resulted in fines totalling $159,000 and more than $1 million refunded to 4400 borrowers.

The biggest refund came from Club Finance which repaid $788,000 in credit- related insurance to customers who were required to buy redundancy insurance, even though they were not covered if they were unemployed at the time of taking out the policy.

Failure to comply with the disclosure requirements, particularly initial disclosure, remained a problem, Ms Rebstock said.

Unreasonable fees, especially loan establishment, default and early repayment fees were also an ongoing source of complaints.

Both those areas would be a priority for civil and criminal enforcement by the commission during the next year, she said.

Under the act, consumers must be given key information that was "easily readable by a reasonable person".

Senate Finance was the first finance company to be prosecuted under the new act because its documents had become illegible after being photocopied and faxed several times before being presented to the customer to sign.

One borrower was told by a car salesperson to "use a magnifying glass" to read the documents, Ms Rebstock said.

A particular focus would also go on "double dipping" of fees, where finance companies tried to recover a specific cost through several different fees, effectively recovering the cost several times over.

"You can expect that we will take legal action where we believe that credit providers are being unreasonable," Ms Rebstock said.

The commission has recently warned four credit providers operating "mobile shops" in the North Island for inadequate disclosure.

A further eight south Auckland finance companies had been warned for similar breaches of the act, and a ninth, also from south Auckland, was being prosecuted, Ms Rebstock said.

These companies were charging interest of more than 30 per cent on personal loans.

The commission would strengthen its ties with consumer groups to ensure that potential breaches of the Credit Contracts and Consumer Finance Act and the related Fair Trading Act were uncovered "especially those affecting more vulnerable consumers", Ms Rebstock said.

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