ELOISE GIBSON
Borrowers who wrongly think they will be rejected by the major banks are needlessly turning to third-tier lenders, says the retirement commissioner, in the wake of another finance company prosecution.
Diana Crossan, whose role encompasses financial literacy as well as retirement savings, urged people to start at the top of the lending hierarchy and work down, after a finance company was fined $55,000 for adding up to 62 per cent extra in upfront fees to its loans.
Auckland-based eFeMCee Finance Limited (FMC) and its director Albert Loots were fined $55,000 after pleading guilty to 40 charges relating to charging unreasonable fees and misleading borrowers following a Commerce Commission investigation.
The offences under the Credit Contracts and Consumer Finance Act and the Fair Trading Act included charging unreasonable fees for a payment protection plan and for insurance; unreasonably requiring borrowers to take out insurance; and failing to give borrowers copies of any policy documents.
FMC charged borrowers up to 31.5 per cent of the cash advance for insurance, and the same amount again for a payment protection plan.
Both fees were charged at the beginning of the loan and therefore carried interest of 29 per cent from that time, said the Commerce Commission.
In one case Ms L borrowed $3,000 in June 2008. Fees of $2,265 were added at the start of the loan, and with interest, the total amount repayable over the loan term was over $8,000.
Ms L made 117 weekly payments of $55 over the next 2 years, a total of $6,435.
However in November 2010 Ms L still owed $2,980 - only $20 less than the cash sum she had borrowed.
''These were deplorable business practices which took advantage of vulnerable borrowers,'' said commission competition manager Graham Gill.
"When Mr Loots came to an interview at the commission and was asked about his knowledge of the Act which governs his business he said it was 'fairly nothing','' Gill said.
As well as the fine, FMC Finance has refunded borrowers $39,000 and written off some loan balances.
Kirk Hope, head of the Financial Services Federation, said the case was ''appalling'' and showed fringe lenders were still breaking the Credit Contracts and Consumer Finance Act and the Fair Trading Act eight years after it became law.
Despite moves to regulate third-tier lenders, a Consumer Ministry study recently found 35-40 per cent were not listed on the financial services provider register as required, meaning their clients do not have access to dispute resolution services.
A BusinessDay search of the register yesterday did not return results for either eFeMCee Finance or Albert Loots.
Crossan also welcomed the prosecution, saying borrowers that had to use more expensive third-tier lenders because of their credit histories should make sure they understood the full cost of the loan. Borrowers should work down the hierarchy, starting with bank loans they could repay using automatic payments, she said.
The Commerce Commission said FMC's payment protection plan was in effect a bond designed by Loots to ensure that borrowers met their repayments, which was both misleading and contrary to industry practice.?
Loots had said the insurance was to cover the loan repayments if a debtor died or fell sick, but there was no policy document setting out the cover provided and payment was at his discretion, said the Commission.
- BusinessDay.co.nz
Source: http://www.stuff.co.nz/auckland/local-news/5725767/Finance-companies-slammed-over-fees
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