Interesting news from the Commerce Commission today as it reports reaching a settlement with Southern Cross over excessive fees, requiring Southern Cross to refund just under $700,000.
Unlike days gone past, where the sky was generally the limit as long as they were properly disclosed, section 42 of the Credit Contracts & Consumer Finance Act 2003 allows a Court (in determining whether the fee was excessive) to look at whether the application fee was:
equal to or less than the creditor’s reasonable costs in connection with the application for credit, processing and considering that application, documenting the consumer credit contract, and advancing the credit.
(or was within coo-ee of the general average costs for such things). Sadly, this only applies to consumer credit. The downtrodden business borrowers of New Zealand continue to pay whatever is demanded if they want to access the lucre.
But as far as “consumers” went, Southern Cross had not quite managed to assimilate the provisions of the 2003 Act which was, admittedly, only passed three to six years prior to the offending conduct.
In line with their usual policy, they were charging 1 to 2% on loans where the actual cost to Southern Cross was estimated to be around $1,000. On a $300k loan, a 2% fee meant a $5,000 overcharge.
Said Graham Gill of the Ministry of Commerce:
“In the Commission’s view, establishment fees for consumer loans that are a percentage of the loan advanced are inherently unlikely to reflect the actual cost of establishing a loan and be reasonable.”
Interesting stuff, because making money on application fees is and remains a very lucrative activity for second and third tier lenders…not that there are many of the third tier left standing these days. While they mostly lent to developers and investors, there may well be some residential family property skeletons in the closet.
It would be a useful exercise for those readers that purchased property in their personal names (them and/or them and their partner) over the last eight years to just go back and have a look at the application fee. More than a thousand dollars? Perhaps there is something that can be done about it.