The Court of Appeal has recently confirmed the Commerce Commissions decision that loan and other fees charged by lenders based on a general assessment of overall costs is not a correct calculation for the purposes of the Credit Contracts and Consumer Finance Act (CCCFA).
The Court of Appeal has stated that fixed costs incurred by a lender as part of its business operation should generally not be recoverable.
The provisions of the CCCFA are clearly to restrict costs that can be recovered as fees. The fees must only be in respect to costs generated in connection with, or in relation to the particular lending activity.
The Court of Appeal held that while lenders are given wide scope to impose any type of fee (provided that was not unreasonable) there is no scope for finding as reasonable establishment fees that exceed the creditors average reasonable costs in relation to the costs the fee is intended to apply to.
Essentially the Court did not agree that the Act allowed the recovery by a lender of costs by charging fees that relate to a portion of all costs of the finance business. To do so would have essentially allowed recovery of costs through fees unrelated to the specific activity the fee is intended to apply to.
The Court of Appeal was not convinced by the lenders arguments that if it charged lower fees interest rates on loans would have increased. That is not the intention or purpose of the legislation.
This decision may have wide ranging effects for many lenders particularly in relation to upfront establishment fees that are charged by second tier lenders to borrowers.
If you require any advice or further information on the matters dealt with in this publication please contact the lawyer at Farry and Co. who normally advises you, or alternatively contact:
Paul Farry
pfarry@farry.co.nz
09 379 0055 or 03 477 8870
The information contained in this publication is intended as a guide only. It does not constitute legal advice and should not be relied upon as such. Professional advice should be sought before applying any of the information to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Farry and Co. does not accept liability for any errors it may contain.