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Supreme Court backs Commission in significant credit law case

12 May 2016

The Supreme Court has dismissed Motor Trade Finance Limited (MTF) and Sportzone Motorcycles Limited’s second and final appeal in the long-running credit fees case brought by the Commerce Commission, providing the definitive ruling on a key piece of credit law.

The Court’s ruling, made public today, upheld earlier High Court and Court of Appeal judgments that backed the Commission’s approach to assessing whether credit fees charged by lenders are reasonable as required by the Credit Contracts and Consume Finance Act 2003 (CCCFA).

In 2009 the Commission filed court proceedings alleging MTF and Sportzone charged unreasonable establishment and other credit fees on 39 finance contracts entered into between 2005 and 2008.

In September 2013 the High Court found the fees were unreasonable in breach of the CCCFA and released a further judgment the following year clarifying the extent of the unreasonableness and the practices for lawfully calculating fees.

MTF and Sportzone appealed both decisions to the Court of Appeal, which dismissed their appeal in March 2015. They then took their case to the Supreme Court in November last year.

In its ruling today, the five Supreme Court Justices were unanimously of the view that the CCCFA: “indicates a transaction-specific approach to the setting of fees. It is not permissible to take all operating costs (or virtually all) and allocate them to one fee or the other. The consequence of this is that any costs incurred by a credit provider will not be referable to particular credit transactions and will therefore have to be recovered in the interest rate”.

Commission General Counsel Mary-Anne Borrowdale said the Supreme Court had now definitively ruled on the approach lenders should take to the charging of fees.

"The Supreme Court has made clear that credit fees should only cover costs that are closely related to the particular loan transaction. It agreed with the Commission that the purpose of the CCCFA is to protect borrowers, ensuring transparency in the costs of borrowing. Fees should not be used to recover general business costs or to generate profits – that is what interest is for," Ms Borrowdale said.

"Consumer credit issues, such as lenders charging excessive fees and not meeting their disclosure requirements, are a real focus for the Commission. We are obviously pleased that the Court has backed our approach in this case and sent a clear message to all lenders, large and small, on what the law requires.”

A copy of the Supreme Court’s ruling can be found here.

The Court has instructed MTF and Sportzone to pay $25,000 plus reasonable disbursements toward the Commission’s costs.

Background

Sportzone was a Christchurch-based company that sold, serviced and repaired motorcycles. It offered financial services, through MTF, to customers that purchased motorcycles. Sportzone has since gone into liquidation. MTF is a co-operative company that provides financial services to the customers of its associated dealers. Sportzone was a shareholder in MTF.

The Commission began investigating MTF and Sportzone in 2006 after receiving a complaint about their lending practices. Both companies were subsequently charged with charging unreasonable establishment fees, account maintenance fees, and arrears fees on 39 specific loan transactions to borrowers of motor vehicle finance, in breach of section 41 of the CCCFA.

Timeline

  • 2006 – The Commission begins investigating MTF and Sportzone
  • 2009 – The Commission files a statement of claim in the Auckland High Court, alleging MTF and Sportzone charged unreasonable fees in breach of the CCCFA
  • September 2013 – The High Court releases its first judgment, ruling MTF and Sportzone charged unreasonable fees
  • October 2014 – The High Court releases its second judgment, further clarifying the rules lenders must follow when charging credit fees
  • November 2014 – MTF and Sportzone’s appeal is heard in the Court of Appeal
  • March 2015 – The Court of Appeal dismisses MTF and Sportzone’s appeal
  • November 2015 – MTF and Sportzone’s appeal is heard in the Supreme Court