REGULATION LEGAL By Susan Edmunds
Bank fees under review New guidelines offer clarity on what’s expected from lenders, after outcome revealed in long-running court case.
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anks are likely to have to change some of the fees they charge their home loan customers as a result of the outcome of a long-running court case. Fees relating to low-equity deals have become less common because of Reserve Bank rules that limit low-deposit lending. But banks still charge a range of other loan fees, including application fees that can run to 1 per cent of the total loan borrowed. These are expected to come under the spotlight over the coming months. The Commerce Commission last month issued updated draft guidelines designed to help lenders set fees. It had been waiting for the final outcome of its case against Motor Trade Finance (MTF) and motorcycle retailer Sportzone. The Supreme Court finally rejected their appeal after a long-running battle over fees in their contracts that the Commerce Commission said were unreasonable. Sportzone, which went out of business after the Canterbury earthquakes, charged an establishment fee of $200, to which MTF added its establishment fee of $190. Sportzone charged an account maintenance fee of $5 in addition to MTF’s $3 a month, an administration fee of $50 was charged to borrowers who paid their loans back early and there was a fee charged for “PPSR Financing Statement Registration”. There were also fees charged when loans went into arrears. They were found to be in breach of the Credit Contracts and Consumer Finance Act. The CCCFA, which was amended in 2015 to
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include lender responsibility principles, sets rules restricting the fees lenders can charge over the life of a consumer credit contract including the type of fees, costs, and losses that can be recovered via fees and how the fees are disclosed and described. The central provision prohibits lenders from imposing “unreasonable” fees and the guidelines cover establishment fees, other credit fees, prepay fees, default fees, and thirdparty fees. The two companies had been under investigation since 2006. They had argued that the Act could be interpreted as permitting a lender to recover all of its costs from the fees it charged its customers, as long as the costs it was covering related to the lending business.
❝ Now the final judgment in the MTF/Sportzone case has been issued the commission is able to consult with the credit community on fees guidelines❞ - Anna Rawlings
But the Supreme Court backed the Commission in its view that fees should be designed to cover specific transactions, not the whole array of a business’ costs. The Commerce Commission said the ruling cleared the way for updated guidelines to be issued. “Now the final judgment in the MTF/ Sportzone case has been issued the commission is able to consult with the credit community on fees guidelines,” commissioner Anna Rawlings said. “These guidelines aim to clarify how lenders should approach the task of setting credit fees. They also provide guidance on the limitations that apply to the fees lenders may charge. We recognise it has been some time since our 2010 draft guidelines and that lenders are keen to understand their obligations and our approach to enforcement, so we are pleased to be able to issue the draft guidelines for consultation today. We look forward to hearing feedback on the draft.” A key part of the guidelines is that the lender’s costs and losses are the key factors in deciding whether a fee is reasonable. In some cases, a fee should could not reasonably charged at all, even if it was
