$588,000 bill for illegal charges hits Geneva Finance

Finance company Geneva Finance has frozen investor repayments, shut down its branches, fired staff, and has now had to reverse $588,114 in illegal charges after a Commerce Commission investigation.

Geneva admitted it had breached the Fair Trading Act by continuing to charge interest and fees to nearly 1000 customers who had defaulted on loans and had items repossessed and sold.

The company refunded $40,000 in cash and reversed the remainder of payments as soon as the commission made it aware of the investigation findings, which stemmed from a complaint in August last year.

The Credit Repossessions Act states interest and fees cannot be charged on an outstanding debt once security has been repossessed and sold to credit the loan.

Commission chairwoman Paula Rebstock said the company appeared to have educated employees about the law, but did not have systems in place to stop the overcharging. "We are concerned because it affected nearly 1000 customers and involved a great deal of money."

The commission had asked for proof the money had been repaid. "It is not acceptable for finance companies to make these kinds of mistakes. They are in a position of trust and must ensure their systems comply with the law," Ms Rebstock said.

The news comes at a rough time for Geneva, which has sought a moratorium on repaying its customers as it retrenches, closing branches and firing about 140 staff to cut costs.

Chief executive Shaun Riley said the repayment had not affected the company's liquidity and it was continuing to lend, but had asked investors to accept a delay in repayment for 612 months. Deposits from investors had been stopped from October 11.

Investors will vote on the proposal on Monday.

Geneva announced it was shutting branches and laying off staff last week after coming under pressure from investor fear stemming from a series of finance company collapses during the past two years.

Mr Riley said the move was consistent with the moratorium proposal, and the correlating need to build up cash reserves and reduce costs.

Rating agency Standard and Poor's has downgraded the company's credit rating twice, taking it from a B- rating to D after the branch closure announcement.

Corporate and government services director Gavin Gunning said the agency would evaluate Geneva's rating again after Monday's proposal.

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