"Outrageous" conduct leads to indefinite banning order for lender
6 December 2011
The Commerce Commission has welcomed a banning order, the first of its kind issued under the Credit Contracts and Consumer Finance Act, which indefinitely prevents bankrupt and convicted fraudster Trevor Allan Ludlow from setting up, operating or working in the consumer finance industry.
The banning order, as well as fines and reparation, were ordered in the North Shore District Court following a case taken by the Commission against Takarunga Management Limited, trading as Mortgage Rescue, and its director and sole decision maker Trevor Ludlow.
In supporting the Commission's application to ban Ludlow from working in the industry and agreeing that Ludlow was not a fit and proper person, Judge Hinton observed that in his view Ludlow "lacked the skills to be in the industry" and did not "display the integrity and fair dealing that is appropriate in this type of dealing." His Honour said that Ludlow's response to borrowers cancelling their contracts or disagreeing with him was "clearly unlawful and in the circumstances, outrageous".
"The type of credit contract Mortgage Rescue was offering was targeted at vulnerable people. Homeowners who have fallen on hard times and need to refinance or face mortgagee sale are particularly vulnerable and have the right to the full protection of the law," said Graham Gill, Competition Manager. "This is the type of behaviour that demonstrates why the Credit Contracts and Consumer Finance Act and the Fair Trading Act exist to protect consumers. Mr Ludlow's conduct was very poor and we are pleased that he has been removed from the industry as this was a key reason for the prosecution," said Mr Gill.
The Commission prosecuted Mortgage Rescue and Ludlow under both the Credit Contracts and Consumer Finance Act (CCCF Act) and the Fair Trading Act, in relation to consumer credit contracts entered into with two families. Mortgage Rescue offered homeowners in financial strife temporary finance to stave off mortgagee sales. The company encouraged homeowners to borrow more than was required to pay their arrears, so they could carry out renovations to their homes. Mortgage Rescue's intention was that in addition to acting as a financier, they would also be paid to carry out the renovations.
In the first of the two cases, the borrowers cancelled the contract the day after they entered into it, as they were legally entitled to do. Mortgage Rescue charged a $5,000 cancellation fee and charged a $1,500 legal fee when it had only paid $675 for legal services. Both the company and Ludlow were convicted of charging an unreasonable cancellation fee and the company was convicted of not passing on the legal fee at cost, as the CCCF Act requires.
In the second case, the loan and renovations went ahead, but Mortgage Rescue tried to recover more than the loan amount for the work it had carried out on the property. Mortgage Rescue issued a default notice and sold the property. The Judge found that Mortgage Rescue had misrepresented the amount that it could recover, as it had not disclosed any variation to the loan amount. Also Mortgage Rescue had no right to charge a services fee as it had not arranged a refinance, and it had served the default notice before it was legally entitled to make a demand for payment. Mortgage Rescue was convicted of all three charges and Ludlow on two of the three.
Judge Hinton imposed fines of $29,000 on Mortgage Rescue, and $1,000 on Ludlow. Ludlow's fine reflected the fact that he is currently serving a prison sentence so is unable to earn and income, and has substantial debts. Both Mortgage Rescue and Ludlow were ordered to pay reparation to the borrowers of nearly $24,000. Ludlow has been ordered to start making these payments two months after he is released from prison.
The judgment is available on the Commission's website at www.comcom.govt/consumercredit-enforcementoutcomes
Takarunga Management Limited was incorporated in May 2006 to assist in the receivership of another finance company. It then branched out into mortgage lending and operated under the trading name Mortgage Rescue, using that name on its loan documentation. The company only entered into four consumer credit contracts and no longer trades. Trevor Allan Ludlow was one of two directors and was the sole business generator and decision maker of the company. Earlier this year Ludlow was convicted of fraud charges and is currently serving a term of imprisonment for this offending.
The Credit Contracts and Consumer Finance Act 2003 regulates consumer lending, consumer leases and buy-back transactions, requiring the disclosure of certain information to consumers entering into consumer credit contracts and providing rules that relate to interest, payments and credit fees.
Under Section 30 if a contract is lawfully cancelled, the debtor is only liable to pay any reasonable expenses necessarily incurred by the creditor in connection with the contract and its cancellation. The debtor is not liable for any other fees.
Under Section 45 a fee charged to reimburse an amount paid by the creditor to another person must not exceed the actual amount paid by the creditor.
Section 108 empowers the District Court to prohibit or restrict a person's involvement in the credit industry in certain circumstances and where the Court is of the opinion the person is not a fit and proper person to enter consumer credit contracts as a creditor.
Under the Fair Trading Act 1986 it is an offence to make a false or misleading representation. This includes representations made about the right to enforce a contract or to charge particular fees.