Car finance provider to refund $12,000

An Auckland company that provides finance to car buyers, Falcon Advances Limited, will refund over $12,000 to 143 customers who bought vehicles from Auckland car yards between April 2005 and February 2006.

In a settlement with the Commerce Commission, the company admits it breached the Credit Contracts and Consumer Finance Act (CCCFA) by not giving key information to 951 borrowers, not calculating interest properly, and over-charging those who wished to repay their loans early.

Falcon Advances also admits breaching the Fair Trading Act by telling customers it could enforce the contracts, and taking collection action against 93 people, including repossessing 26 vehicles. In fact, the contracts were unenforceable, because they did not meet the requirements of the CCCFA.

In the settlement, Falcon Advances agrees to refund all default and collection fees to affected debtors. It has also agreed not to pursue debtors who still owed money after their cars were repossessed and sold. Normally, debtors would have to pay the difference between the amount of their loan, and what the repossessed car was sold for.

"The Credit Contracts and Consumer Finance Act and the Fair Trading Act require credit providers to meet high standards of behaviour, and the Commission will actively pursue any breaches of these standards," says Graham Gill, Commerce Commission Acting Director of Fair Trading.

"Credit providers need to know that if they don't give debtors the right information, their contracts can't be enforced."

"Where contracts don't meet the legal requirements, credit providers can't repossess property or call in debt collectors - so there are very strong incentives for credit providers to get it right."

The CCCF Act requires credit providers to disclose key information to all customers entering into consumer credit contracts. This includes telling customers how interest is calculated and charged, what the fees are, and advising customers of their right to cancel the contract. Falcon Advances' disclosure did not contain some of this key information.

Mr Gill said that an out-of-court settlement was appropriate in this case as Falcon Advances had moved to correct the breaches and make refunds to all affected customers. The company has undertaken to provide the correct disclosure to all customers in the future.

Background

The Credit Contracts and Consumer Finance Act

2003 took effect from 1 April 2005. The Commerce Commission is charged with enforcing the CCCF Act. CCCF Act, section 17, requires creditors to provide initial disclosure of key information under a consumer credit contract. (CCCF Act, Schedule 1 sets out the key information to be disclosed). CCCF Act, section 99, prohibits creditors from enforcing a consumer credit contract, or enforcing the security interest of a consumer credit contract unless initial disclosure is provided to debtors. Credit providers found in breach of the CCCF Act may be liable for statutory damages, criminal conviction to a fine of up to $30,000, and may be banned by the court from providing consumer credit.

Calculation method.

Falcon Advances had used "the rule of 78" to calculate the interest owing by debtors upon the full prepayment. This method of calculation, which is no longer allowed under the CCCF Act, unfairly disadvantages debtors and results in a greater repayment figure. Falcon Advances refunded some of the affected debtors earlier in the year however, under the settlement, has agreed to recalculate the refunds already made and to ensure all affected debtors receive a refund.

Falcon Advances Ltd provides consumer finance for motor vehicle purchases through a number of Auckland-region car yards.

Previous case.

Senate Finance Limited, which provides finance to the customers of car dealers, was fined $59,000 in November 2006 for giving customers terms and conditions they could not read, as the small print had been faxed and photocopied, rendering it illegible. Seventeen affected customers were also awarded a total of $13,700 in statutory damages. The company pleaded guilty to 17 breaches of the CCCF Act, for not adequately disclosing the terms and conditions of its loans.